Actuarial Fiscal Note

Date Requested:January 10, 2019
Time Requested:11:16 AM
Agency: Municipal Pensions Oversight Board
CBD Number: Version: Bill Number: Resolution Number:
1547 Introduced SB117
CBD Subject: Counties, Municipalities

Retirement Systems Impacted by Legislation:

53 individual municipal pension funds

FUND(S):

Other Fund

Sources of Revenue:

Bill does not specify a revenue source

Legislation creates:

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



Actuarial Note Summary


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


    Summarize in a clear and concise manner what impact this measure will have on the liabilities and contributions associated with the retirement system(s).
    
    The proposed legislation would require the State to provide a twenty-percent matching payment of the actuarial determined municipal amount payable to the municipality's policemen's and firemen's pension funds on an annual basis for a period of 10 years. Assuming all 31 municipalities consolidated with neighboring municipalities or counties, the State's twenty-percent matching contributions to the policemen's and municipal firemen's pension and relief funds for FY2019 would be 10.0 million as the total municipal contributions to the 53 municipal pension plans for the same period is 50.0 million.
    
    The additional state match for 10 years at an estimated $100.0 million would certainly assist municipalities with their underfunded pension plans, however the legislation does not provide for a funding source for these costs.
    
    The next section is impossible to complete as the note assumes one pension plan is assisted, and in this example all 53 plans would receive additional payments from the State.



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:


    Please explain increases and decreases in Normal Cost and Actuarial Accrued Liabilities, including assumptions and data sources. Please also include a long-range schedule of contributions if fiscal impact is expected to vary in future years.
    
    Based on the proposed legislation, it appears any municipality which successfully completes a municipal consolidation is then entitled to a twenty -percent match of its required contributions to its municipal policemen's and its municipal firemen's pension and relief systems on an annual basis for 10 years.
    
    This type of situation would not have an impact on the existing required contributions unless the intent is to reduce the municipality's required contribution by the same amount of the state's additional contribution. It appears the intent is to provide more funding on an annual basis to ultimately reduce the individual pension plan's unfunded accrued liability.

Analysis of Impact on Public Pension Policy:


    Please identify the direct and indirect expected impact on public pension policy for members covered under the retirement system(s). Also discuss any areas of vagueness, technical defects, and/or any special issues not captured elsewhere on this form.
    
    The legislation appears to assist any municipality which consolidates with another municipality or county by providing a twenty-percent matching revenue each year for 10 year. The result should reduce the unfunded accrued actuarial liability of the plan in some cases significantly over the ten year period.
    
    The bill does not provide a funding source for these additional state matching payments to consolidated municipalities.



Fiscal Note Summary


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


    Summarize in a clear and concise manner what impact this measure will have on costs and revenues of state government.
    
    The bill would increase the State's responsibility to pay a twenty-percent matching amount of a muncipality's required annual contribution for 10 years. For FY2019, Employer contributions for all 53 plans is estimated to be $50,125,296. The total additional cost from the State would be $10 million. The bill does not specify a specific source of funding for the additional state expense. Future years for employer costs likely would rise incrementally which would require increased state match too. Conservatively, the state contribution for 10 years would equal $100 million at $10 million per year.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2019
Increase/Decrease
(use"-")
2020
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 10,000,000 10,000,000 10,000,000
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 10,000,000 10,000,000 10,000,000
2. Estimated Total Revenues 0 0 0


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


    Please explain increases and decreases in personal services, current expenses, repairs and alterations, assets, other costs and revenues, including assumptions and data sources and delineation between start-up and ongoing costs. Please also include a long-range schedule of costs and revenues if fiscal impact is expected to vary in future years.
    
    The FY2019 municipal contributions to municipal policemen's and municipal firemen's pension and relief funds is 50,125,296 according to the latest actuarial consolidated report from GRS Consulting, which is the actuary on contract performing actuarial studies for each of the 53 plans in WV. Assuming each municipality consolidates with another municipality or county and thus becomes eligible for the twenty-percent State match, the State would become responsible for the match annually for the next 10 years. The FY2019 municipal contribution figure will likely increase in future years due to actuarial assumptions which are required to be reviewed at least every five years but may be reviewed more often.
    
    There is not a revenue source identified in the bill, thus the estimated total revenue is zero for all years.



Memorandum


    Please identify any areas of vagueness, technical defects, reasons a bill would not have a fiscal impact, and/or any special issues not captured elsewhere on this form.
    
    This bill does not identify the source of funds that would be available to pay municipalities which successfully merge with other municipalities or counties. The bill simply states the State would provide a matching payment from the State in the amount of twenty percent of the annual municipal actuarial contribution to the benefit fund created in ยง8-22-1 er seq for a period of 10 years following the consolidation.
    
    



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