Oversight Board: 12 municipal pension plans still use unsound funding method; optional and optional 2 gaining ground

Blair Taylor, executive director of the Municipal Pension Oversight Board, told the Senate Pensions Committee that the state oversees 53 municipal police and fire pension plans and that several funding-methodology changes in the past 15 years have improved funding for many plans but left a small group of cities on the alternative method.

Taylor said the oversight board provides actuarial studies, training for trustees and an independent medical exam process for disability claims, and that the board's work aims to bring municipal plans to actuarially sound funding. "We run a very tight ship," Taylor told the committee, describing the oversight office's small staff and administrative-cost controls.

Taylor explained funding-source mechanics: municipal plans may receive a portion of a 1% premium tax surcharge collected by the state Insurance Commission; the oversight board receives 65 basis points, 25 basis points go to volunteer fire companies, and 10 basis points currently go to the teachers' retirement system. He reviewed the history of funding methodologies: in 1991 an "alternative" methodology (essentially a base-year calculation with a 107% annual increase) left plans underfunded; the oversight board was created in February 2009 and the "optional" methodology (a 40-year amortization schedule) was made available in 2009–2010. Optional 2, created in 2023, gives some plans a new 40-year schedule with fewer years remaining to amortize (funding by 2063 if opted into in 2025).

Taylor said municipalities that moved from alternative or conservation to optional or optional 2 typically increased local contributions and saw material improvements in funded ratios. He gave examples: Charleston contributed roughly $18 million each to its police and fire plans when switching to optional, which raised funded ratios to the mid-30s; Martinsburg moved to optional 2 in 2023 and improved fundedness on both police and fire plans after making additional contributions. Taylor identified six municipalities that still use the alternative methodology for one or both plans: Beckley, Bluefield, Nitro, St. Albans, South Charleston and Princeton (12 plans total). He said Fairmont currently has two conservation plans but a recent study could prompt a move to optional 2.

Taylor also reviewed investment choices and fees. Municipal trustees may invest with private managers or with the state's Investment Management Board (IMB); several cities — including Charleston, Wheeling, Martinsburg and Williamson — have chosen the IMB. Taylor noted private managers sometimes charge more than 1% in annual fees while IMB rates for some municipal plans average roughly 0.25–0.28% (basis points shown in presentation materials), and he said the board posts multi-year fee data on its website.

Taylor said the oversight board enforces accurate pension calculations and provides third-physician tie-breakers for disputed disability claims. He told members the oversight board had no substantive bills to propose this session beyond a rules bill and that the board will continue to provide actuarial support to municipalities and trustees.