|Date Requested:February 21, 2011
Time Requested:01:49 PM
| FUND(S) |
Sources of Revenue
Legislation creates:Neither Program nor Fund
Effect this measure will have on costs and revenues of state government.
| The purpose of this Bill is to reduce the WV Other Post Employment Benefit (OPEB) Plan’s annual payment to fund current and future retirees’ healthcare benefit costs by capping the funding level, transfer all qualified County Board of Education (BOE) personnel’s annual OPEB expense to the State of WV’s Financial Statements, increase the tax on cigarettes from .55 to 1.55 per pack and dedicate $50 million of this revenue to fund the WV OPEB Plan, develop a new billing type for the WV Retiree Health Benefit Trust known as “Contractually Required Contribution”, and permit PEIA access to members’ WV records for income determination for rate setting purposes.
The current WV OPEB Plan is currently exposed to the increasing costs of health care. This increase has historically been passed to the participating employers and employees of PEIA. This bill will cap the amount of costs that the participating employers and employees may assume for the retirees. This is commonly referred to as “Pay As You Go”, or “Paygo”. By capping the annual payment to retirees benefit costs at $160 million, the plan will eliminate the impact of increasing healthcare costs of retirees. In doing so, the WV OPEB Plan’s Actuarial Accrued Liability (AAL) will reduce ($4.8) billion, resulting in an AAL of $3.9 billion vs. the current $8.7 billion.
Currently, all County BOE’s are assessed their annual OPEB expense accrual based on all of their PEIA healthcare participating employees. The transfer of qualified BOE personnel, in conjunction with the capping of the annual Paygo funding will result in the State seeing a reduction of ($36) million in annual OPEB expense accrual. However, failure to pass this bill with the capping of Paygo, will result in the State’s annual OPEB expense increasing $271 million.
The estimated impact of the annual funding of $50 million a year into the RHBT for ten years, at a rate of 3% per year will result in a reduction of the unfunded AAL of approximately $590 million. Additional savings would also occur from this funding due to the OPEB Plan’s ability to use this funding to increase the allowable discount rate during OPEB Plan valuations. The higher the discount rate is permitted in the plan valuation, the lower the unfunded OPEB AAL.
It is currently estimated with the changes provided for in this Bill, the WV OPEB Plan will be fully funded by the year 2031.
The Contractually Required Contribution (CRC) can serve multiple purposes. Depending on how the PEIA Finance Board sets it, it can create pre-funding of the WV OPEB Plan’s future obligations. For purposes of this Fiscal Note, it was assumed the CRC would be either one-half of the difference between the Annual Required Contribution (ARC) and the Paygo amount, one-quarter of the difference between the ARC and the Paygo amount or equal to the Paygo. If the CRC were set at one half the difference, pre-funding of $72 million could occur, one quarter difference would result in $36 million in pre-funding, and no pre-funding if set equal to the Paygo.
The other purpose this serves is to reduce the amount of OPEB expense accrued annually by all participating employers. By allowing the CRC to be something other than the ARC, the Finance Board may now set it at an amount lower than the ARC, thus lowering OPEB expense.
Providing access to WV Tax records of PEIA members provides for a more equitable means of determining ability to pay. Currently, this is based solely on the employee’s income and not the household income. This will assure a more reliable basis to determine ability to pay.
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3. Explanation of above estimates (including long-range effect):