Actuarial Fiscal Note

Date Requested:February 06, 2018
Time Requested:02:06 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
2435 Introduced HB4439
CBD Subject: State Personnel

Retirement Systems Impacted by Legislation:

PERS 2501

FUND(S):

General Fund

Sources of Revenue:

local governments

Legislation creates:

PERS



Actuarial Note Summary


Impact this measure will have on the liabilities and contributions associated with the retirement system(s).


    As introduced, this bill provides that Tier 2 PERS members (those hired on or after July 1, 2015) who are hourly employees shall accrue one month of contributory service credit for each 150 hours of work paid by the employer on or after July 1, 2019. (Currently, members receive one month of contributory service for each 120 hours worked.) Thus, a member who works more than 1440 hours but less than 1800 hours in a calendar year would no longer accrue a full year of contributory service for that year. Any member who works less than 1440 hours in a calendar year would accrue less service than under the previous provisions.
    
    As of July 1, 2017, around 17% of the PERS active membership consisted of Tier 2 members, with the large majority of those reported by their employers as “hourly”. Because all members are limited to accruing a maximum of twelve months of contributory service in any calendar year, the provisions of this bill would only affect the service accumulation for those members who work less than 1800 hours in a calendar year. For most employees, this change would only affect the service accrued during the first and last year of employment, or in any year in which there is a break in service. Because of the small number of members expected to be affected by the change, and the limited circumstances of applicability, there would be no change to the actuarial assumptions on which contributions are based, and so there would be no expected change to the contributions required to the plan.
    



Fiscal Detail of Actuarial Impact

Impact on current benefit costs, prior service benefit costs and ongoing contribution requirements following full implementation.


Impact On Following Full Implementation
Increase in Unfunded Actuarial Accrued Liability Initial Impact on Annual Contribution Requirement of System(s) Contribution Increase as a Percentage of Annual Payroll
Total Annual Costs $0.00 $0.00 0.00 %
Normal Cost of System N/A $0.00 0.00 %
Past Service Liabilities $0.00 $0.00 0.00 %
Fiscal Year Past Service
Amortization Period Ends
N/A 2035 N/A


Explanation of above estimates:


    Any decreased cost due to reduced months of service being credited to an affected employee would be minimal, and so there would be no expected change on any actuarial assumption for future service accrual. Thus, there would be no change to the Actuarial Accrued Liability nor to the Normal Cost of the plan.

Analysis of Impact on Public Pension Policy:


    This bill is requested by the CPRB to standardize service accrual for Tier 2 hourly members of PERS. When Tier 2 was established as of July 1, 2015, service credits for salaried employees were limited so that a Tier 2 member would no longer receive 12 months of contributory service in a fiscal year during which the member worked 10 months. However, hourly members were still able to accumulate 12 months of contributory service in less than one calendar year if they worked at least 1440 hours, which could sometimes occur as early as September (or even earlier if a member worked more than 40 hours per week). This legislation proposes to reduce the amount of “free” service that an hourly Tier 2 member would receive, making their service accrual rate more comparable to Tier 2 salaried members.



Fiscal Note Summary


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


    As introduced, this bill provides that Tier 2 PERS members (those hired on or after July 1, 2015) who are hourly employees shall accrue one month of contributory service credit for each 150 hours of work paid by the employer on or after July 1, 2019. (Currently, members receive one month of contributory service for each 120 hours worked.) Thus, a member who works more than 1440 hours but less than 1800 hours in a calendar year would no longer accrue a full year of contributory service for that year. Any member who works less than 1440 hours in a calendar year would accrue less service than under the previous provisions.
    
    As of July 1, 2017, around 17% of the PERS active membership consisted of Tier 2 members, with the large majority of those reported by their employers as “hourly”. Because all members are limited to accruing a maximum of twelve months of contributory service in any calendar year, the provisions of this bill would only affect the service accumulation for those members who work less than 1800 hours in a calendar year. For most employees, this change would only affect the service accrued during the first and last year of employment, or in any year in which there is a break in service. Because of the small number of members expected to be affected by the change, and the limited circumstances of applicability, there would be no change to the actuarial assumptions on which contributions are based, and so there would be no expected change to the contributions required to the plan.
    
    There would be an approximate cost of $6,000 associated with necessary updates to the COMPASS Pension Administration Software used by the CPRB. The legislation as introduced does not provide a source of funding for this additional cost.
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2018
Increase/Decrease
(use"-")
2019
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 6,000 0
Personal Services 0 0 0
Current Expenses 0 6,000 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):


    Any decreased cost due to reduced months of service being credited to an affected employee would be minimal, and so there would be no expected change on any actuarial assumption for future service accrual. Thus, there would be no change to the Actuarial Accrued Liability nor to the Normal Cost of the plan.
    
    There would be an approximate cost of $6,000 associated with necessary updates to the COMPASS Pension Administration Software used by the CPRB. The legislation as introduced does not provide a source of funding for this additional cost.
    



Memorandum


    This bill is requested by the CPRB to standardize service accrual for Tier 2 hourly members of PERS. When Tier 2 was established as of July 1, 2015, service credits for salaried employees were limited so that a Tier 2 member would no longer receive 12 months of contributory service in a fiscal year during which the member worked 10 months. However, hourly members were still able to accumulate 12 months of contributory service in less than one calendar year if they worked at least 1440 hours, which could sometimes occur as early as September (or even earlier if a member worked more than 40 hours per week). This legislation proposes to reduce the amount of “free” service that an hourly Tier 2 member would receive, making their service accrual rate more comparable to Tier 2 salaried members.
    
    There would be an approximate cost of $6,000 associated with necessary updates to the COMPASS Pension Administration Software used by the CPRB. The legislation as introduced does not provide a source of funding for this additional cost.
    



    Person submitting Fiscal Note: Melody Bailey, Actuarial Analyst, WV CPRB
    Email Address: melody.j.bailey@wv.gov