Actuarial Fiscal Note

Date Requested:January 24, 2018
Time Requested:11:41 AM
Agency: Municipal Pensions Oversight Board
CBD Number: Version: Bill Number: Resolution Number:
2112 Introduced HB4289
CBD Subject: Municipalities, Retirement

Retirement Systems Impacted by Legislation:

Municipal Policemen's and Firemen's Pension and Relief Funds

FUND(S):

53 Municipal Policemen's and Firemen's Pension and Relief Funds

Sources of Revenue:

Other Fund Local Govt Pension Funds

Legislation creates:

Neither Program nor Fund



Actuarial Note Summary


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


    This bill would raise the amount a firefighter or police officer receiving a non-duty related disability pension from a municipal policemen's pension and relief fund or firemen's pension and relief fund could earn from self employment or employment by another before having his or her disability pension offset due to the subsequent employment. Currently, the law caps other employment earnings at $7,500 per year to maintain 100% of the non-duty related disability pension. This cap was put in place in 1991 and was the then amount a person working at minimum wage as a full time employee could earn. The bill proposes to raise the limit to $18,200 and further would automatically increase the $18,200 limit by the same percentage of any increase in the minimum wage.
    
    For cost purposes, a current non-duty related disability retiree earning $7,500 of outside income does not have his or her disability payment reduced. However a current non-duty related disability retiree earning $18,200 (current minimum wage) of outside employment would have his disability retirement reduced by $3,567 dollars.
    
    Under the proposed law, the non-duty related disability pension retiree would not have an offset to his or her disability pension if he or she did not earn more than $18,200 in employment on an annual basis. If the bill becomes law, each plan would have increased costs of $3,567 per year for every year the member worked and earned more than $7,500 but no more than $18,200 annually. For members earning more than $18,200 annually, for every three dollars of income one dollar of the pension is withheld, i.e. there would be a 33.33% offset of non-duty related pension for every three dollars earned in other earned income.



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 N/A


Explanation of above estimates:


    There are 53 separate municipal policemen's and municipal firemen's pension plans in WV. Below represents the data (as of June 30, 2017) the Municipal Pensions Oversight Board has on the total number of retirees in all of the plans, the number of disability retirees in all of the plans and then specific data on the number of disability retirees per plan.
    
    Total duty related and non-duty related disability retirees = 276
    
    17 municipal plans have zero disability retirees
    
    19 municipal plans have between one and five disability retirees
    
    11 municipal plans have between six and ten disability retirees
    
     4 municipal plans have between eleven and twenty disability retirees
    
     2 municipal plans have more than twenty disability retirees
    
    The MPOB's actuary, GRS Consulting uses an actuarial assumption of 60% duty related and 40% non duty related disabilities. Using this assumption which is predicated on actual reviews of the 53 pension plans, no more than 110 of these disability retirees are non-duty related. Further, not all disability retirees have the capability to perform work of any kind.
    
    According to the actuarial assumptions used in the valuations as of June 30, 2016, the probability of non-duty related disability for a 30 year old was 0.088%, for a 40 year old was 0.200% and for a 50 year old was 0.316%. Given the low incidence of non-duty disability, the increase in present value of benefits for representative future non-duty disabled members who are gainfully employed after disability ranges from approximately 1%-4% of pay before disability for a current 30 year old member and decreases by age to approximately 0.25% of pay for a 50 year old member.
    
    
    
    
    
    

Analysis of Impact on Public Pension Policy:


    If the bill becomes law, the benefits for non-duty related disability members will increase when a member takes on new employment and makes more than the existing $7,500 annually, but less than or equal to $18,200. Earnings above $18,200 will cause the 33.33% offset to occur, i.e. for every three dollars earned over the $18,200 rate, one dollar of the disability pension is offset from the pension. For example.
    
    Disability member A - Pension of $24,000
     Total earned income = 18,200 - no offset.
     Total earned income = 35,200 - offset to pension is $5,666.67
    
     35,200-18,200=17,000
     17,000/3=5,666.67
    
     original pension of $24,000 is reduced the following year by 5,666.67 and will become $18,333.33.
    
    Disability member B - Pension of $24,000
     Total earned income = 90,200 - offset to pension is $24,000.00
    
     90,200-18,200=72,000
     72,000/3=24,000
    
     Original pension of $24,000 is reduced the following year by 24,000 and will become $0.00.
    
    When earned income ceases, the non-duty related disability pensions return to amount awarded to the member.
    
    For those non-duty related disability pension members who would have earned income in excess of $18,200 annually, the offset to their pension would actually decreases the pension plans annual expenditures until the member stopped having earned income above $18,200.
    
    



Fiscal Note Summary


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


    The costs and revenues of state government will not be affected by the passage of this bill.



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 0 0
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):


    The costs and revenues of state government will not be affected be the passage of this bill.



Memorandum


    The municipal policemen's pension and relief funds and the firemen's pension and relief funds are municipal government plans and only cover men and women employed by their respective police departments and fire departments.



    Person submitting Fiscal Note: Blair M. Taylor
    Email Address: blair.m.taylor@wv.gov