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 WV Statutes under 2005 Pension Reform Legislation. Section 18-7A-28e ( c ) prohibits increases to active members. See the Pension Committee chairman for details. The bill provides that for members who elect to pay make up contributions through a loan from TRS may provided a completed loan application by June 30, 2009. The actual payment of the make up contribution amounts will be delayed until the loan is fully processed by CPRB, resulting in a payment delay of up to 2 months, till August 31, 2009. Although the maximum exposure for possible delay in processing would result in an interest loss of up to $1 million, it is doubtful that payments would be delayed to that extent. Based on possible delays and processing during the 60 day delay period, the expected interest loss is between $200,000 and $400,000. For projecting the additional UAAL under the bill, the average of $300,000 is projected. Pension Reform amortization will require annual contributions of $42,000 will be required for FY2011 - FY2020.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2009 Increase/Decrease (use"-")	2010 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	0	0	42,000
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 bill provides that members may submit loan applications for payments of make up contributions by June 30, 2009 and be treated as timely applied under June 30, 2009 deadline. The actual payment date under the bill is delayed until the loan is fully processed by the agency. To the extent that payment is delayed past June 30, additional interest accrues from June 30 to the crediting date under the full loan processing. Interest is charged at the actuarial valuation rate of 7.5%. Maximum delays to August 31, 2009 provide an exposure of over $1 million in interest charges. It is assumed loans will be processed through the period and that not all members will pay through loans. The estimated interest loss is $300,000 projected to June 30, 2010. Contributions of $42,000 will be required to amortize the additional interest loss for FY2011 through FY2020.

Memorandum

This Bill as drafted violates WV Statutes under 2005 Pension Reform Legislation. Section 18-7A-28e ( c ) prohibits increases to active members. To be allowable, the bill must be amended to remove the restrictions of 2005 Pension Reform. Adverse consequences to the State’s credit rating could result. As an alternative, the Bill could be amended to provide that loan applications received by June 30, 2009 will be treated as disbursed on June 30, 2009 regardless of the delay in processing through August 31, 2009. Such provisions would include an interest delay in the loan payment schedule and reduce the actuarial cost to $0.

Person submitting Fiscal Note: Harry W. Mandel, Board Actuary, MAAA, MSPA, EA
Email Address: harry.w.mandel@wv.gov