Sources of Revenue:

Special Fund

Legislation creates:

Neither Program nor Fund

Fiscal Note Summary

Effect this measure will have on costs and revenues of state government.

Actuarial Note Regarding Pension Legislation This Actuarial Note ONLY APPLIES to provisions of the Bill impacting the benefits and funding of the Public Employees Retirement System (PERS). PERS benefits are impacted by: 1. Withdrawal of Workers Compensation from PERS. Active members included in the withdrawal from PERS may not have fully funded benefits which would require remaining PERS employers to make up for those benefits. Only members of PERS who retire from workers compensation or change employment to the newly created Mutual are included in the member group. The actuarial analysis indicates that on a termination of employment basis, the benefit provided under PERS for service through December 31, 2005 are approximately 100% funded. No additional liability will be created for benefits earned prior to December 31, 2005. 2. PERS members who are employed by Workers Compensation on December 31, 2005 and either retiree on that date or move to the newly created Mutual, shall receive an additional benefit credit for their prior PERS service while with Workers Compensation or their affiliated previous entities. The additional service credit shall equal 6 months of service for each year of eligible service to a maximum of 5 years of additional service credits. The actuarial value of the additional service shall be payable as an additional contribution to PERS. For members expected to be eligible for the benefit, the additional actuarial past service liability totals $10,662,000. Workers Compensation employees who transfer to other PERS covered employment on or before December 31, 2005 will effectively transfer their full actuarial liabilities to their new employer. This is consistent with normal voluntary changes in employment. These costs do not include any actuarial liabilities for employees who transfer to the Mutual, receive the additional service credits, and then terminate employment and return to PERS covered employment.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2005 Increase/Decrease (use"-")	2006 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	0	10,682,000	0
Personal Services	0	20,000	0
Current Expenses	0	0	0
Repairs and Alterations	0	0	0
Assets	0	0	0
Other	0	10,662,000	0
2. Estimated Total Revenues	0	0	0

Explanation of above estimates (including long-range effect):

Workers Compensation provided detailed employment information on 554 PERS members expected to either retire on December 31, 2005 from Workers Compensation employment or transfer their employment to the Mutual. All actuarial cost estimates were based on these members and the impact of the Bill on their benefits. It was assumed that employees not reported by Workers Compensation would transfer to other PERS covered employment on or before December 31, 2005 and therefore would not be impacted by the Bill. The 554 PERS members where first analyzed based on their withdrawal from PERS without additional service benefits. The funded level of PERS active members as of the July 1, 2004 Actuarial Valuation provided an asset allocation of 66.3% of those members Actuarial Accrued Liabilities. The benefits those members will be entitled to, prior to the additional service credits, was analyzed on an employment termination basis on December 31, 2005. The actuarial liability for the termination benefits is expected to be approximately 100% funded on that date and no additional funding from Workers Compensation is required for those benefits. For the 554 members either retiring or becoming employed with the Mutual, their retirement benefits are increased under the Bill due to a 50% additional service credit, up to a maximum of 5 years. The cost of this provision is the difference between their termination benefit before and after the additional service credits. That difference totaled $10,662,000. Under the provisions of the Bill, the Mutual transition funds are to be applied to make a contribution to PERS in the amount of that liability in a lump sum payment. Therefore, the entire value of the benefit has been attributed to a FY 2006 cost. Services cost are estimated as the cost to determine and implement the benefit changes.

Memorandum

PERS provides for benefits determined based upon the final average compensation of each member at actual retirement. The costs above are based on termination benefits determined on current average pay and assume members will not return to PERS covered employment prior to actual retirement. If they do return to PERS covered employment, all past years of service will be impacted by their final average salary from their new employer. If all members were to take advantage of this opportunity and return to PERS employment in positions providing similar salary levels to their Workers Compensation jobs, the actuarial liabilities for the additional service credits would increase by $3,748,000. This additional Actuarial Accrued Liability would be assumed by their new PERS employer. Additionally, the Unfunded Actuarial Accrued Liability for active employment for service through December 31, 2005 would also be reinstate at $13,713,000. These amounts assume 100% of the impacted members were to return to PERS employment prior to retirement and is a worst case amount.

Person submitting Fiscal Note: Harry W. Mandel, MAAA, EA, Board Actuary
Email Address: HMandel@wvadmin.gov