Kentucky Retirememt Systems
KENTUCKY RETIREMENT SYSTEMS
Actuarial Analysis
HB 52/GA
(98 RS BR 153)
February 17, 1998
Mr. Gilmore Dutton
Legislative Research Commission
Capitol Annex
Frankfort, KY 40601
RE:HB 52/GA
Dear Gilmore:
House Bill 52/GA copy incorporates technical amendments to HB 52/HCS.
Attached is a copy of the actuarial analysis of HB 52/HCS, dated January 21, 1998. The actuarial impact was estimated as insignificant due to the fact that employer and employee contributions will be paid on the salary supplement. Thus, any increase in benefits as a result of the salary supplement will be funded through increased employer and employee contributions.
The amendments incorporated in HB 52/GA do not change requirement that employer and employee contributions be made on the salary supplement. Accordingly, the amendments do not impact the actuarial cost previously provided.
You may use the 96 BR 153 analysis dated January 21, 1998, for determining the impact of HB 52/GA on the Kentucky Retirement Systems.
Sincerely,
Pamala S. Johnson
General Manager
HB 52/GA
KENTUCKY RETIREMENT SYSTEMS
98 RS BR 153 ACTUARIAL COST ANALYSIS
I. PROPOSED REVISION
KRS 15.420(2) ... definition of “police officer” ... shall be amended to include a sheriff, or full time deputy sheriff appointed pursuant to KRS 70.030 and 64.345 or pursuant to KRS 70.030 and 64.530, a special deputy sheriff appointed pursuant to KRS 70.045, or a state or public university police officer. In addition, KRS 15.460 shall be amended to increase the annual supplement for qualified police officers from $2,500 to $2,750, and further increased to $3,000 beginning July 1, 1999, and to add language regarding the eligibility for that annual supplement for qualified sheriffs.
II. COMMENTS RELATIVE TO PROPOSED REVISION
To the extent that any individuals affected by this legislation are not currently included in CERS, or are covered by the CERS nonhazardous service plan but would now become eligible for the CERS hazardous service plan, both the liabilities and funding relative to CERS will be affected. As long as the proper employer and member contributions are made, then there should be no noticeable impact on the system for either (i) including individuals who were not previously in CERS, or (ii) classifying certain job positions as hazardous coverage which were formerly covered as nonhazardous service. However, to the extent that this change in classification advances the payment of post retirement medical premium benefits, then there could be some added cost to the system. In this case, total service is unaffected, but the split between hazardous and nonhazardous service could be affected. Given the more generous medical premium benefit under the hazardous coverage, a switch of service credit from nonhazardous to hazardous could increase overall medical premium liability. This potential for increase in the overall medical premium liability is not normally anticipated in the computation of the service purchase cost. We have not considered the validity of considering certain job positions as hazardous coverage positions which may have formerly been considered nonhazardous coverage positions.
With regard to the annual supplement being raised from $2,500 to $2,750 and then to $3,000 beginning July 1, 1999, this will be treated as any normal salary increase in how it is reflected in CERS. As such, it will increase the member’s ultimate benefit by increasing average salary, but will also increase member and employer contribution amounts. To that extent, the impact of any increase in this annual supplement will be recognized in actuarial gains/losses for the year as would any other salary increase. We are not qualified to comment on the appropriateness of increasing this annual supplement, but are only commenting on the impact if the supplement is increased.
III. ESTIMATED IMPACT ON FUNDING COSTS
Insignificant cost impact expected, both relative to the retirement and insurance funds.
IV. ACTUARIAL CERTIFICATION
Calculations of the estimated cost impact as summarized in Section III have been based on the same actuarial assumptions and methods as used in the June 30, 1997 actuarial valuation, unless otherwise stated. This statement is intended to provide an estimate of the cost impact of proposed revisions noted in Section I, and does not necessarily address the appropriateness of making such revision.
Stephen A. Gagel, F.S.A.Date
William M. Mercer, Incorporated
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