FISCAL NOTE



FUND(S):

PERS 2510 / JRS 2140

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 ACTUARIAL NOTE APPLIES TO HB2924 COMMITTEE SUBSTITE: ADOPTED BY HOUSE FINANCE MARCH 26, 2009. The bill modifies the military service provisions for PERS and JRS. Non vested current and future members are eligible for a maximum of 2 years of military service based on any federal service. Vested current members continue to be eligible for existing military service credits or may opt to have their credits calculated under the new benefit provisions. In PERS, the new benefit provisions result in additional military service for current members who are eligible for less than 2 years of military service. This results in an initial increase in the UAAL of $3,020,000 with a FY2010 thru FY2019 contribution of $424,000 to amortize the UAAL over 10 years. The Normal Cost for the increase is 0.02% of pay, or $302,000 for FY2010. The resulting contribution increase for PERS in FY2010 totals $726,000. For all PERS current non-vested members and future hires, the Normal Cost rate decreases from 0.52% of pay to 0.24% of pay. The 0.24% of pay represents a Normal Cost of $3,024,000, down from $6,553,000, shown in FY2010 dollars. In actuality, the savings due to the reduction in Normal Cost from 0.52% to 0.24% occurs over time as new hires replace retirees and terminations. The initial cost increase in FY2010 begins being offset in FY2011, increasing each year as vested members retire or terminate. This reduction in Normal Cost under PERS occurs over the next 30 to 40 years. By FY2012, the net contribution under the bill is a net cost reduction. The actuarial present value of the change in contributions over the first 10 years is a net savings of $(4,180,000). The savings increases to an actuarial present value of $(26,600,000) as of July 1, 2009 based on contribution savings for FY2010 through FY2035, (the expiration of the UAAL amortization period.) Additional savings are expected beyond FY2035 but are projected far enough into the future to not be significant for this analysis. For JRS, the change in military service credits only impacts Judges who retiree under “Any Age and 24 Year” retirement and apply the military credits in excess of two years to meet the 24 years eligibility. Based on the current JRS membership, the likelihood of this change impacting a Judge in JRS is very unlikely. This change is no cost on an actuarial valuation assumption basis for JRS.



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 0 726,000 -3,500,000
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):


Cost estimates were based on the July 1, 2007 and 2008 Actuarial Valuations for PERS and the military service experience reflected in the last PERS experience study report. Various cost studies were performed for benefit alternatives and the costs for this bill are based on a composite of those studies reflecting the bill’s final provisions. The transition from current military service provisions to the new 2 year military service credit will take place over the next 30 to 40 years. Initial costs are higher in the aggregate than the previous benefits since current member improvements are included for vested PERS members. Future military service costs are reduced as new members replace retiring current vested members in PERS. For PERS, new 2 year military service credits are provided to a subset of current members, generating the initial UAAL of over $3 million for those members. As new members are phased in, the current benefit costs are reduced in the lower NC amounts. During the first 10 years, the change in contributions has an actuarial present value savings of $(4) million while the sixteen years after that generates additional actuarial present value savings of $(22) million for a total savings of $(26) million over the next 26 years.. For JRS, the likelihood that the change will impact a retiring Judge is actuarially insignificant and no cost change is projected. Judges retiring at age 65 or over are not impacted by the military service change. Only the 24 Year Retirement eligibility might be impacted by the military service change. Since JRS provides a fixed benefit formula, military service impacts retirement eligibility only and not the benefit amount.



Memorandum


The bill provides for the transition from current armed conflict military service provisions to two years of any federal military service. The actual transition will require 30 to 40 years to complete as current vested members retire with credits under the prior provisions, or new provisions if greater. Non vested and new members are only entitled to the new provisions. To avoid federally prohibited benefit cut backs and to meet West Virginia requirements under each plan, members who are vested on the effective date retain rights to elect either their current military service provisions or the new provisions. Non vested members and those first hired on or after the effective date are only eligible for military service under the new 2 year any federal military service provisions.



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