Date Requested: February 20, 2015
Time Requested: 03:01 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
2830 Introduced SB529
CBD Subject: Retirement


FUND(S):

2510, 2601, 2162

Sources of Revenue:

Other Fund State and Local Govts

Legislation creates:

Neither Program nor Fund



Fiscal Note Summary


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


    The bill reduces benefits to create a less expensive Tier 2 benefit structure for members of PERS, TRS and State Police Plan B. Tier 2 members are those first hired on or after July 1, 2015. Those hired before that date will remain in Tier 1 of the plan they are participating in.
    
    Tier 2 benefits vary significantly between plans. Cost reductions are measured as the reduction in the employer Normal Cost (current benefit cost) From tier 1 benefits to tier 2 benefits. Ultimate cost savings are not fully realized until all Tier 1 benefits have terminated or retired, leaving only lower cost Tier 2 benefits in each plan. The Plans are reported seperately in this Actuarial Note due to the significant variance in the benefits under each.
    
    Public Employees Retirement System (PERS): The Employer Normal Cost for the average particiipant in PERS is reduced from the Tier 1 Normal Cost of 5.60% of payroll to the Tier 2 Normal Cost of 2.38% of payroll. This is a cost reduction of (3.22)% of payroll. In current dollars, the ultimate reduction is projected to be $(44,800,000) per year, phasing in over the next 30 years.
    
    Teachers Retirement System (TRS): The Employer Normal Cost for the average particiipant in TRS is reduced from the Tier 1 Normal Cost of 4.30% of payroll to the Tier 2 Normal Cost of 3.79% of payroll. This is a cost reduction of (0.51)% of payroll. In current dollars, the ultimate reduction is projected to be $(8,400,000) per year, phasing in over the next 30 years.
    
    State Police Retirement System (Plan B): The Employer Normal Cost for the average particiipant in Plan B is reduced from the Tier 1 Normal Cost of 10.38% of payroll to the Tier 2 Normal Cost of 9.44% of payroll. This is a cost reduction of (0.49)% of payroll. In current dollars, the ultimate reduction is projected to be $(282,000) per year, phasing in over the next 30 years.
    NOTE: AMOUNTS SHOWN IN THE SUMMARY SECTION ARE FOR PERS ONLY
    The initial group of Tier 2 members is projected to be young and short service. Taken along with the reduced benefits, the prior funding occuring from the effective date should cover the value of the benefits.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2015
Increase/Decrease
(use"-")
2016
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 -100,000 -44,800,000
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):


    Separate cost analysis was prepared for each Plan. Since Tier 2 benefits are reduced from the level of Tier 1 benefits, the changes result in a reduction in current benefits costs for each Plan. Savings will start relatively slowly and increase over time as new Tier 2 members replace prior Tier 1 members due to member turnover and retirement.
    
    Cost were taken from the 2011/2012 Tier 2 benfits study completed by the CPRB with actuarial calculations completed by Buck Consultants for demographic benefits. Amounts were projected and updated to 2015 based on July 1, 2014 actuarial valuation results for each Plan.
    
    It has been assumed that the demographic information is similar between Tier 1 members and expected future Plan tier 2 members. Variances in hiring practices could impact the financial results.



Memorandum


    The bill provides a significant cutback in benefits from current Tier 1 levels to Tier 2 levesl. PERS member contribtuions are increased in Tier 2 from 4.50% to 6.0% of pay. This effectively transfers 1.5% of pay from the Employer Normal Cost Payment to the Member Contributions Normal Cost payment. (Under Tier 2, the employer contributes 2.38% of pay and the Member contributes 6.00% for current benefits.
    
    It should be noted that cost reductions as presented are based on the original bill draft as presented to the Board Actuary. Costs for each benefit type is impacted by changes in other benefits and the order in which they are calculated. If significant changes to the benefit provisions occur prior to passage, the Board Actuary should be provided information upon which to base a revision to this Actuarial Note.



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