§ 9-3-453 — Public employee retirement plans; funding; legislative findings; required determinations for benefit increases

Wyoming § 9-3-453

• Jurisdiction: Wyoming
• Title 09: Administration of the Government
• Ch. 3: COMPENSATION AND BENEFITS
• Art. 4: RETIREMENT

Text

(a) The legislature finds:
(i) Wyoming public employee retirement plans'
actuarial funding levels are higher than many public employee
retirement plans in other states, but as constructed by statute,
the Wyoming plans were not intended to and cannot support cost
of living or other benefit increases. Numerous indicators
support this conclusion;
(ii) The ratio of the actuarial value of assets to
the actuarial accrued liability, or the "funded ratio" is a
standard measure of a plan's funded status at a given point in
time. Funded ratios of the various retirement plans were as
follows:
(A) The public employee retirement plan
administered by the Wyoming retirement board under W.S. 9-3-401
through 9-3-430 had a funded ratio of eighty-four and six-tenths
percent (84.6%) as of January 1, 2011, down from eighty-seven
and five-tenths percent (87.5%) on January 1, 2010. On a market
value of assets basis, the plan's funded ratio was eighty and
one-tenth percent (80.1%) as of January 1, 2011, an improvement
from seventy-five and seven-tenths percent (75.7%) as of January
1, 2010;
(B) The Wyoming state highway patrol, game and
fish warden and criminal investigator retirement plan
administered by the Wyoming retirement board under W.S. 9-3-601
through 9-3-620, had a funded ratio of eighty-four and one-tenth
percent (84.1%) as of January 1, 2011, down from eighty-seven
and four-tenths percent (87.4%) on January 1, 2010. On a market
value of assets basis, the funded ratio was seventy-nine and
four-tenths percent (79.4%) as of January 1, 2011, an
improvement from seventy-five and three-tenths percent (75.3%)
as of January 1, 2010;
(C) The law enforcement plan administered by the
Wyoming retirement board under W.S. 9-3-401 through 9-3-432, had
a funded ratio of ninety-nine and nine-tenths percent (99.9%) as
of January 1, 2011, down from one hundred two and two-tenths
percent (102.2%) as of January 1, 2010. On a market value of
assets basis, the plan's funded ratio was ninety-five and three-
tenths percent (95.3%) as of January 1, 2011, an improvement
from eighty-nine percent (89.0%) as of January 1, 2010;
(D) The judicial retirement plan administered by
the Wyoming retirement board under W.S. 9-3-701 through 9-3-713,
had a funded ratio of one hundred eight and five-tenths percent
(108.5%) as of January 1, 2011, slightly up from one hundred
eight and two-tenths percent (108.2%) on January 1, 2010. On a
market value of assets basis, the plan's funded ratio was one
hundred four and four-tenths percent (104.4%) as of January 1,
2011 an improvement from ninety-five and one-tenth percent
(95.1%) as of January 1, 2010;
(E) The paid firemen plan B, administered by the
Wyoming retirement board under W.S. 15-5-401 through 15-5-422,
had a funded ratio of one hundred fifteen and seven-tenths
percent (115.7%) as of January 1, 2011, down from one hundred
sixteen and two-tenths percent (116.2%) as of January 1, 2010.
On a market value of assets basis, the plan's funded ratio was
one hundred eleven and three-tenths percent (111.3%) as of
January 1, 2011, an improvement from one hundred two percent
(102.0%) as of January 1, 2010;
(F) The air national guard firefighters plan
administered by the Wyoming retirement board under W.S. 9-3-401
through 9-3-431 had a funded ratio of seventy-seven and four-
tenths percent (77.4%) as of January 1, 2011. On a market value
of assets basis, the plan's funded ratio was eighty and one-
tenth percent (80.1%) as of January 1, 2011. 2011 was the first
year this plan was isolated for review from the public employees
plan under W.S. 9-3-401 through 9-3-430;
(G) The paid firemen plan A administered by the
Wyoming retirement board under W.S. 15-5-201 through 15-5-209,
had a funded ratio of eighty-five and six-tenths percent (85.6%)
as of January 1, 2011 down from ninety-one and two-tenths
percent (91.2%) as of January 1, 2010. On a market value of
assets basis, the plan's funded ratio was seventy-eight and
nine-tenths percent (78.9%) as of January 1, 2011, an
improvement from seventy-six and seven-tenths percent (76.7%) as
of January 1, 2010;
(H) The volunteer firefighters plan administered
by the volunteer fireman's pension board under W.S. 35-9-601
through 35-9-615, had a funded ratio of one hundred four and
six-tenths percent (104.6%) as of January 1, 2011, down from one
hundred eight and nine-tenths percent (108.9%) as of January 1,
2010. On a market value of assets basis, the plan's funded ratio
was ninety-eight and six-tenths percent (98.6%) as of January 1,
2011, an improvement from ninety-three and five-tenths percent
(93.5%) as of January 1, 2010;
(J) The volunteer emergency medical technician's
plan, administered by the volunteer emergency medical
technician's pension board under W.S. 35-29-101 through
35-29-112, had a funded ratio of one hundred seventeen and
eight-tenths percent (117.8%) as of January 1, 2011, up from
eighty-three and six-tenths percent (83.6%) as of January 1,
2010. On a market value of assets basis, the plan's funded ratio
was one hundred twenty-nine and five-tenths percent (129.5%) as
of January 1, 2011, an improvement from ninety and seven-tenths
percent (90.7%) as of January 1, 2010. While the funded ratio
has increased, reliance on the improvement as an indication of
this plan's financial health would be misplaced as the
legislation establishing the plan provided a general fund
appropriation of nine hundred seventy-eight thousand two hundred
dollars ($978,200.00) to fund the difference between the
actuarially determined premium for participation in the plan and
the contributions required by law. The contributions required
by law are insufficient to support the stated benefits under the
plan and no long term external funding source was provided when
the plan was established, nor thereafter.
(iii) All of the funded ratios specified in paragraph
(ii) of this subsection, except for the paid firemen's plan A,
were calculated with the assumptions of no benefit increases or
additional cost-of-living adjustment increases;
(iv) Actuarial funded ratios at any single point in
time disclose only a portion of the soundness of the retirement
plans. Underlying the ratios is an assumed eight percent (8%)
investment return (composed of a three and one-half percent
(3.5%) inflation rate and a four and one-half percent (4.5%) net
real rate of return) on each of the various funds. The average
market value returns for the largest plan under the board's
administration has been three and sixty-three hundredths percent
(3.63%) for the last five (5) years and four and twenty-three
hundredths percent (4.23%) for the last ten (10) years, both
well below the assumed eight percent (8%). The retirement
system's actuary has stated: "Even seemingly minor changes in
the assumptions can materially change the liabilities,
calculated contribution rates and funding periods." Investment
returns of less than one-half (1/2) of the assumed rate is a
major deviation from assumptions;
(v) Where the current actuarial value of assets is
higher than the market value of assets, continued recovery in
the investment markets will be needed over the next few years,
annual returns in excess of the assumed investment return of
eight percent (8.0%), to keep the plans' funded ratios and
unfunded actuarial accrued liability relatively stable in the
short term;
(vi) While investments in markets have been
authorized by constitutional amendment for retirement funds and
supported by legislative authorization, if annual realized
returns are lower than assumed or higher than assumed, the
funded ratios are respectively overstated or understated;
(vii) The public employee plan administered under
W.S. 9-3-401 through 9-3-430 has by far the largest membership
as it contains eighty-eight and six-tenths percent (88.6%) of
the membership of all public employee retirement plans
administered by the Wyoming retirement board. The actuarial
funded ratio for this plan has dropped from one hundred thirteen
and seventy-seven hundredths percent (113.77%) in 2001 to
eighty-four and fifty-nine hundredths percent (84.59%) in 2011,
even though the actuarial accrued liability in 2001 was
calculated using the maximum cost-of-living adjustment
authorized by statute and the 2011 liability was calculated
using no cost-of-living liability. In light of the lower funded
ratio, the Wyoming retirement board recommended and the
Legislature enacted in 2010 a combined employer and employee
contribution increase from eleven and twenty-five hundredths
percent (11.25%) to fourteen and twelve hundredths percent
(14.12%) effective September 1, 2010;
(viii) Actuarial funded ratios have fallen over the
past decade for all other plans identified in this section,
other than the judicial retirement plan. The funded ratio of
the volunteer firefighter's plan and the firefighter's plan B
have dropped by over fifty (50) percentage points. These
decreases were incurred in spite of a change in assumptions from
a maximum cost-of-living increase allowed by statute to no cost-
of-living increase, except for the paid firemen plan A;
(ix) From 1991 through 2008, cost-of-living increases
ranging from one percent (1%) to three percent (3%) were
provided for eighteen (18) consecutive years in the largest
public employee retirement plan, resulting in cumulative
increases in an employee's benefit amount ranging from one and
three-hundredths (1.03%) for employees first eligible for a
cost-of-living adjustment in 2008 to thirty-four percent (34%)
for those eligible for a cost-of-living adjustment in 1991;
(x) Other benefit increases have been provided by
legislation, including a 2001 enactment of an increased benefit
multiplier for each year of service in the largest plan, which
resulted in an increased cost of over five hundred twenty-one
million dollars ($521,000,000.00) through July 1, 2011. An ad
hoc increase of three dollars ($3.00) per month per year of
service made in the same legislation resulted in over two
hundred seventeen million dollars ($217,000,000.00) in increased
costs to the plan over the same period;
(xi) As of January 1, 2011, it is estimated that over
forty (40) years will be required until the largest public
employee plan currently administered by the Wyoming retirement
board meets a one hundred percent (100%) actuarial funded ratio.
Other plans administered by the Wyoming retirement board,
volunteer firefighters pension board and volunteer emergency
medical technician's pension board have higher or lower funded
ratios;
(xii) Stability in providing stated benefits is a
critical feature of a retirement plan. With large portions of
public employee retirement plans invested in markets and with
market fluctuations having a significant effect on funded
ratios, actuarial funded ratios in excess of one hundred percent
(100%) are necessary to maximize stability in providing stated
benefits;
(xiii) It is the intent of the legislature that all
public employee retirement plans be managed to maintain an
actuarial funded ratio of not less than one hundred percent
(100%) and that the retirement board determine from time to time
an appropriate level of funding sufficient to withstand market
fluctuations without experiencing reductions below the desired
one hundred percent (100%) funding ratio;
(xiv) It is the intent of the legislature that cost-
of-living increases and changes to multipliers be allowed only
in the event that the actuarial funded level for the affected
plan remains above one hundred percent (100%), plus the
additional percentage the retirement board determines is
reasonably necessary to withstand market fluctuations. This
determination is to be made for the entire amortization period
affected by the change using then current actuarial assumptions.