FISCAL NOTE
FUND(S):
PERS 2510
Sources of Revenue:
General Fund
Legislation creates:
Neither Program nor Fund
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
This Bill as drafted violates the requirements of 2005 Pension Reform Legislation.
The benefits provided to active members violates section 5-10-22h( c ) which prohibits benefit improvements to active members unless the PERS funded percentage equals or exceeds 85.0%. At the latest Actuarial Valuation for PERS as of July 1, 2008, the funded percentage of PERS was 84.2%.
The retiree increase is estimated to be within the limitations of Section 5-10-22h(a) which limits increases to retired members to 1% of Actuarial Accrued Liabilities.
The bill provides that the minimum disability benefit for PERS members of 20% of pay following age 65 be increased to 50% of pay for all current and future disability retirees. The increase therefore impacts both active and retired PERS members.
Prior actuarial results from the 2007 study showed that for active members, the Normal Cost would increase by 0.04% of payroll, or $463,000 for FY2008. The Unfunded Actuarial Accrued Liabilities for active members would increase by $2,842,000. This increase in the UAAL must be amortized over 10 years at $399,000 per year for FY2008-FY2017.
Prior actuarial results from the 2007 study showed that for current retirees, the UAAL would increase by $30,901,000. This increase in UAAL must be amortized over 6 years at $6,350,000 per year for FY2008-FY2013.
Based on the 2007 actuarial results, the FY2008 total contribution increase of $7,212,000 represents a 0.62% of payroll contribution increase. The current employer contribution rate of 11.0% is insufficient to provide funding for the increased PERS funding requirement. The PERS employer contribution rate would need to be increased to 11.75% to maintain proper funding of the Plan.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2009
Increase/Decrease
(use"-") |
2010
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
7,212,000 |
7,228,000 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
The increases in normal cost and actuarial accrued liabilities reflect the increased minimum disability benefits for both current and expected future disability retirees under PERS. Amounts are based on July 1, 2006 Actuarial Valuation data and liabilities run by Buck Consultants. An effective date for funding of July 1, 2007 has been assumed. It is assumed that no prior benefit payments will be effected, and that the new minimum applies to benefit payments following the effective date only.
Due to the difference in funding duration for active and retiree improvements, the contributions will be high for the next 6 years, reduce for the following 4 years and then level out at 0.04% of payroll for years 11 and after. The estimated contributions over the next 11 years are:
FY2008 - $7,212,000
FY2009 - $7,228,000
FY2010 - $7,245,000
FY2011 - $7,262,000
FY2012 - $7,280,000
FY2013 - $7,299,000
FY2014 - $968,000
FY2015 - $988,000
FY2016 - $1,009,000
FY2017 - $1,030,000
FY2018 - $653,000
It should be noted that these results are representative for the current year. These results were not updated from 2007 since the Bill violated 2005 Pension Reform.
Memorandum
The bill provides level disability retirement benefits for life by removing the reduction in the minimum benefit at age 65. It is assumed that only benefit payments following the effective date of the bill will be increased.
The Bill violates 2005 Pension Reform restrictions for active members. The bill would required an amendment to 2005 Pension Reform statutes in order to be allowable. Such change would be contrary to current public pension policy set by the West Virginia Legislature when 2005 Pension Reform was passed.
Person submitting Fiscal Note: Harry W. Mandel, Board Actuary, MAAA, MSPA, EA
Email Address: harry.w.mandel@wv.gov