FISCAL NOTE
Date Requested: March 13, 2017
Time Requested: 10:23 AM |
| Agency: |
Consolidated Public Retirement Board |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3040 |
Introduced |
HB2817 |
|
|---|
| CBD Subject: |
Retirement |
|---|
|
FUND(S):
TRS 2600
Sources of Revenue:
General Fund,Other Fund Local school boards
Legislation creates:
Neither Program nor Fund
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
This bill would “restart” a new 30-year amortization period to pay the Unfunded Actuarial Accrued Liability (UAAL) in TRS, extending the date on which the plan will be fully amortized from June 30, 2034, to June 30, 2046. The FY2018 payment is set in the bill to $330,768,000, with payments for subsequent fiscal years to be determined annually by the actuary. In addition, the bill provides that beginning in FY2021, an additional $20 million will be transferred annually from the State Debt Reduction Fund to TRS, and that amount will not be considered by the actuary in determining the annual payment required to amortize the unfunded liability, but rather be used to accelerate the final amortization payment date.
As the bill is written, payments required to fund the Unfunded Actuarial Accrued Liability result in a total long-term additional cost of $1.502 billion. The FY2018 amortization payment to TRS would be reduced from $366,871,000 to $330,768,000, for a FY2018 savings of $36,103,000. Assuming the FY2018 payment is made as prescribed in the bill, the amortization payments for FY2019 and FY2020 would be reduced from their current calculated amount of $366,871,000 to $292,901,000 for a savings of $73,970,000 per year. In subsequent years, the expected amortization payment (including transfers from the State Debt Reduction Fund) would be $312,901,000 for the remainder of the amortization period, which is expected to be June 30, 2042
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2017
Increase/Decrease
(use"-") |
2018
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
-36,103 |
-53,970 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
-36,103 |
-53,970 |
| 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 provisions of the bill do not affect any benefits payable to any current or future TRS members, and so do not affect the plan’s annual Normal Cost of approximately $76.9 million (payment of which is required in addition to any payment toward the reduction of the UAAL). The $3.668 billion UAAL as of 7/1/2016 remains unaffected, but the incidence of payments required to fund that liability is changed. The FY2018 amortization payment to TRS would be reduced from $366,871,000 to $330,768,000, for a FY2018 savings of $36,103,000. Assuming the FY2018 payment is made as prescribed in the bill, the amortization payments for FY2019 and FY2020 would be reduced from their current calculated amount of $366,871,000 to $292,901,000 for a savings of $73,970,000 per year. In subsequent years, the expected amortization payment (including transfers from the State Debt Reduction Fund) would be $312,901,000 for the remainder of the amortization period, which is expected to be June 30, 2042. Due to the extension of the amortization of the UAAL for an additional 8 years beyond the current amortization period, there is a total increased cost of $1.502 billion over the long term. These short-term savings and long-term costs are based on the July 1, 2016 Actuarial Valuation for Funding for TRS, including asset smoothing as adopted by the CPRB on March 8, 2017, and assume that all actuarial assumptions will be met in all future years.
Memorandum
The bill as introduced sets the FY2018 amortization payment at $330,768,000, which is assumed to have been established as the appropriate payment prior to the CPRB’s approval of the asset smoothing methodology in TRS. When asset smoothing is considered in conjunction with the bill provisions of the new 30-year amortization period and the $20 million transfers from the State Debt Reduction Fund, the appropriate amortization payment for FY2018 would be established as $295,913,000, which is also the anticipated required contribution for FY2019 and FY2020. For the remaining years, the anticipated annual contribution (including the $20 million transfers from the State Debt Reduction Fund as provided for in the bill) would be $315,913,000. These amortization payments result in total additional amortization payments of $1.550 billion compared to the payments anticipated under the current amortization policy. Compared to current amortization payment requirements, the FY2018, FY2019, and FY2020 payment savings would be $70,958,000 per year. Anticipated payments in subsequent years would increase by the $20 million that must be transferred annually from the State Debt Reduction Fund.
This Actuarial/Fiscal Note is being submitted by the Consolidated Public Retirement Board. It has been reviewed by a qualified actuary, and a letter of certification is available from the CPRB upon request.
Person submitting Fiscal Note: Melody Bailey, Actuarial Analyst, WVCPRB
Email Address: melody.j.bailey@wv.gov