2013 REGULAR SESSION
ACTUARIAL NOTE H B 33
Page 1 of 4
House Bill 33 HLS 13RS-492
Original
Author: Representative J Kevin
Pearson
Date: March 27, 2013
LLA Note H B 33.01
Organizations Affected:
Teachers’ Retirement System of
Louisiana
OR INCREASE FC GF & LF EX
This Note has been prepared by the Actuarial Services Department of the Office of
the Legislative Auditor. The attachment of this Note to H B 33 provides
compliance with the requirements of R.S. 24:52 .
Bill Header: RETIREMENT/TEACHERS: Provides for continued payment of the unfunded accrued liability portion of employer
contributions after participation ceases
Cost Summary:
The estimated actuarial and fiscal impact of the proposed legislative is summarized below. Actuarial costs pertain to changes in the
actuarial present value of future benefit payments. A cost is denoted by “Increase” or a positive number. Savings are denoted by
“Decrease” or a negative number.
Actuarial Cost/(Savings) to Retirement Systems and OGB $0
Total Five Year Fiscal Cost
Expenditures Increase
Revenues Increase
Estimated Actuarial Impact:
The chart below shows the estimated change in the actuarial present value of future benefit payments, if any, attributable to the
proposed legislation. A cost is denoted by “Increase” or a positive number. Savings are denoted by “Decrease” or a negative number.
Present value costs associated with administration or other fiscal concerns are not included in these values.
Change in the
Actuarial Cost to: Actuarial Present Value
All Louisiana Public Retirement Systems $0
Other Post Retirement Benefits $0
Total $0
Estimated Fiscal Impact:
The chart below shows the estimated fiscal impact of the proposed legislation. This represents the effect on cash flows for
government entities including the retirement systems and the Office of Group Benefits. Fiscal costs include estimated administrative
costs and costs associated with other fiscal concerns. A fiscal cost is denoted by “Increase” or a positive number. F iscal savings are
denoted by “Decrease” or a negative number.
EXPENDITURES 2013-14 2014-15 2015-16 2016-17 2017-2018 5 Year Total
State General Fund Increase Increase Increase Increase Increase Increase
Agy Self Generated 0 0 0 0 0 0
Stat Deds/Other 0 0 0 0 0 0
Federal Funds 0 0 0 0 0 0
Local Funds Increase Increase Increase Increase Increase Increase
Annual Total Increase Increase Increase Increase Increase Increase
REVENUES 2013-14 2014-15 2015-16 2016-17 2017-2018 5 Year Total
State General Fund $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Agy Self Generated Increase Increase Increase Increase Increase Increase
Stat Deds/Other 0 0 0 0 0 0
Federal Funds 0 0 0 0 0 0
Local Funds 0 0 0 0 0 0
Annual Total Increase Increase Increase Increase Increase Increase
2013 REGULAR SESSION
ACTUARIAL NOTE H B 33
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Bill Information:
Current Law
Under current law, an employer who terminate s participation in Teachers’ Retirement System of Louisiana (TRSL) is not
required to pay its proportionate share of the unfunded accrued liability.
Proposed Law
Proposed law will require any employer participating in TRSL that terminates its participation in the retirement system for some
or all of its employees to pay its proportionate share of the unfunded liability of the retirement system. Employers must pay their
proportionate share if:
1. The employer terminates participation in TRSL for all of its employees, or
2. The employer eliminates positions through privatization, or
3. The employer converts a school or entity under the employer’s jurisdiction to any other governance model or any other
entity.
The payment amount will be calculated by the system’s actuary as of the June 30 immediately prior to the employer’s termination
date. We have interpreted this to mean that the measurement will be based on assumptions and methods as of that date, but the
measurement will be made after recognizing any adjustments to assets and liabilities occurring as a result of the employer
withdrawal. Th e payment amount shall include any legacy costs attributable to the retirees of the employer. Should the employer
disagree with the amount determined by the system’s actuary, it may appeal to PRSAC. The Legislative Auditor will then make
an independent determination of the amount due. PRSAC will then render a final determination.
The terminating employer may pay the determined amount in a single lump sum payment or may pay over a ten year period or
less in equal monthly installments calculated using the valuation interest rate.
Implications of the Proposed Changes
An employer participating in TRSL that terminates its participation in the retirement system for some or all of its employees will
be required to pay its proportionate share of the unfunded accrued liability as of the June 30 valuation date immediately prior to
its separation. Given the cost that may be incurred, a TRSL participating employer will have to more carefully consider the full
financial implications of its actions.
Cost Analysis:
Analysis of Actuarial Costs
Retirement Systems
Under HB 33, an employer must pay its proportionate share of the unfunded accrued liability, if any, when it takes action to
terminate its participation in the retirement system for some or all of its employees. Currently, an employer that takes such
action shifts responsibility for its UAL to all remaining employers. By doing so, the separating employer avoids paying for
liabilities associated with its own workforce. H B 33 will correct this perceived inequity between employers.
The following occurs when a participating employer withdraws from TRSL. For this actuarial note, we have assumed that
none of these calculations will be affected by HB 33. These calculations will be necessary regardless of whether or not HB
33 is enacted.
1. The actuarial present value of future benefit payments (APV) will decrease because employees of the terminating
employer will not accrue any benefits after the withdrawal date.
2. The TRSL normal cost will be less because the employees of the terminating employer will not be accruing benefits.
3. The accrued liability for the terminating employer may increase or decrease. It will increase to the extent that
employees who are eligible to retire will, in all likelihood, do so. It will decrease because liability calculations for
some employees will be reduced once it is known that they will not accrue additional service and pay credits. The
TRSL accrued liability after the employer terminates may be larger or smaller than it was before.
4. Similarly, the TRSL unfunded accrued liability may be larger or smaller once the terminating employer withdraws.
5. The payroll associated with active TRSL members will be smaller once the terminating employer withdraws.
For this actuarial note, we assume HB 33 will pertain , if after the above calculations are made, it is determined that TRSL
still holds an accrued liability for employees of the terminating employer and that assets accumulated from contributions
made by the terminating employer and its employees are not sufficient to offset that liability. The following will occur if HB
33 is enacted.
1. The terminating employer must pay to TRSL an amount equal to its portion of the unfunded accrued liability
determined in the manner described above. 2013 REGULAR SESSION
ACTUARIAL NOTE H B 33
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2. Alternatively, the employer may borrow from TRSL an amount equal to its share of the TRSL UAL and agree to
pay back the loan over ten years with level installments based on the discount rate used by the system actuary for its
most recent actuarial valuation.
3. If the terminating employer agrees to the loan, the state effectively becomes a co-signer to the loan. Should the
terminating employer be unable to make the installment payments, the provisions of HB 33 require the state to make
them instead.
HB 33 will have the following effect on the various actuarial cost components of TRSL.
1. The withdrawal of a participating employer from TRSL affects the present value of future benefit payments (APV).
HB 33, however, has no effect on the APV.
2. The withdrawal of a participating employer from TRSL affects the total employer normal cost. HB 33, however,
has no effect on normal costs.
3. The withdrawal of a participating employer from TRSL affects the TRSL accrued liability. HB 33, however, has no
effect on the accrued liability.
4. The withdrawal of a participating employer from TRSL affects the unfunded accrued liability. HB 33 affects the
TRSL unfunded accrued liability once the UAL has been measured after the withdrawal of the terminating employer
has occurred. The new UAL amount is reduced by the terminating employer’s proportionate share of that UAL as
determined in accordance with HB 33.
5. Therefore, HB 33 will reduce the size of the amortization payment that must be made by non-terminating employers.
Other Post Retirement Benefits
There are no actuarial costs associated with HB 33 for post-employment benefits other than pensions.
Analysis of Fiscal Costs
Enactment of H B 33 will have the following effect on fiscal costs over the five-year fiscal measurement period.
Expenditures:
1. Expenditures from the General Fund associated with higher education employers will decrease because employer
amortization payments will be reduced.
2. Expenditures from the General Fund will increase to the extent that the terminating employer is a higher education
employer. Such an employer will be required to make a lump sum payment equal to its proportionate share of the
unfunded accrued liability.
3. Expenditures from the General Fund will increase to the extent that the terminating employer is unable to pay its
installment payments.
4. Expenditures from Local Funds will decrease for all non-terminating employers because employer amortization
payments will be reduced.
5. Expenditures from Local Funds will increase to the extent that a terminating employer is a K -12 employer. Such an
employer will be required to make a lump sum payment equal to its proportionate share of the unfunded accrued liability.
Revenues:
1. TRSL revenues (Agy Self -Generated) will decrease because employer amortization payment will be reduced.
2. TRSL revenues (Agy/Self Generated) will increase in years when an employer elects to withdraw from the retirement
system. TRSL will receive that employer’s proportionate share of the UAL as a lump sum payment or as a promissory
note backed by state assets.
The timing of an employer’s departure from participation in TRSL cannot be predicted. Howe ver, it is likely that such an event
will occur within the first three years of the fiscal measurement period and it is likely that the increase in expenditures will exceed
$100,000.
The fiscal cost table on page 1 shows an increase in expenditures for General Funds and Local Funds and an increase in revenues
for TRSL (Agy Self-Generated). Increases in expenditures for years in which a participating employer withdraws from TRSL
will be larger than decreases in expenditures for years when no employer withdraws. Even though a withdrawal may not occur
every year during the measurement period, an increase in expenditures was reported every year merely to reflect the relative
magnitude of the increase in expenditures that results when a withdrawal does occur.
TRSL reports that additional costs associated with HB 33 are insignificant and can be absorbed within its current budget.
2013 REGULAR SESSION
ACTUARIAL NOTE H B 33
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The Legislative Auditor reports that its administrative costs will depend on the size of the organization that terminates its
participation in TRSL. It will implement the provisions of HB 33 in the following manner in order to minimize administrative
costs.
Step 1 – Review the procedures developed by the system’s actuary to determine the cost.
Step 2 – If the procedures developed by the system’s actuary are reasonable and appropriate in the opinion of the actuary for
the Legislative Auditor (LLA actuary), he will audit the calculations made by the system’s actuary and notify PRSAC of his
approval of the calculations so made.
Step 3 – If the procedures developed by the system’s actuary are not reasonable or are not appropriate in the opinion of the
actuary for the Legislative Auditor, the LLA actuary will identify and summarize the differences of opinion in a report to
PRSAC. PRSAC will then meet to review the alternative positions and render their decision. The LLA actuary will then
audit the calculations made by the system’s actuary and notify PRSAC of his approval of the calculations so made.
Actuarial Credentials:
Paul T. Richmond is the Manager of Actuarial Services for the Louisiana Legislative Auditor. He is an Enrolled Actuary, a
member of the American Academy of Actuaries, a member of the Society of Actuaries and has met the Qualification Standards of
the American Academy of Actuaries necessary to render the actuarial opinion contained herein.
Dual Referral:
Senate House
x 13.5.1 ≥ $100,000 Annual Fiscal Cost 6.8(F) ≥ $500,000 Annual Fiscal Cost
13.5.2 ≥ $500,000 Annual Tax or Fee Change 6.8(G) ≥ $500,000 Annual Tax or Fee Change