2013 REGULAR SESSION
ACTUARIAL NOTE SB 14
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Senate Bill 14 SLS 13RS-170
Re-Reengrossed with Legislative
Bureau Amendments #1169 and #1181
Author: Senator Daniel R. Martiny
Date: April 25, 2013
LLA Note S B 14.04
Organizations Affected:
All Louisiana Public Retirement
Systems
RR INCREASE APV
This Note has been prepared by the Actuarial Services Department of the Office of
the Legislative Auditor. The attachment of this Note to SB 14 provides compliance
with the requirements of R.S. 24:52 1.
Bill Header: RETIREMENT CREDIT. Provides relative to transfers of service credit between systems. (2/3 - CA10s29(F) (6/30/13)
Cost Summary:
The estimated actuarial and fiscal impact of the proposed legislation 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 Increase
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 Increase
Other Post Retirement Benefits Increase
Total Increase
This bill complies with the Louisiana Constitution which requires unfunded liabilities created by an improvement in benefits to be
amortized over a period not to exceed ten years.
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 $ 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 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 SB 14
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Bill Information:
Current Law
Under current law, a person who is first employed in a position covered under Plan A and then subsequently becomes employed
in a position covered under Plan B may, under certain conditions, transfer service credits from Plan A to Plan B or from Plan B to
Plan A. The former transfer is commonly referred to as a Forward Transfer. The latter transfer is commonly referred to as a
Reverse Transfer. Rules pertaining to Forward Transfers and Reverse Transfers are summarized below.
1. Abbreviations
a. AC – Actuarial cost to Plan B for the service transferred.
b. EE – Employee contributions accumulated in Plan A without interest.
c. TCI – Employer and employee contributions accumulated in Plan A with interest.
2. Forward Transfer Rules
a. A person may request a Forward Transfer at any time in his career and, depending on the number of job changes in
his public service career with the state of Louisiana, may have several such Forward Transfers.
b. When a person requests a Forward Transfer, Plan A must transfer the following amount of assets to Plan B.
1) AC will be transferred if TCI > AC > EE.
2) EE will be transferred if TCI > EE > AC.
3) TCI will be transferred if AC > TCI > EE.
c. Accrual rates applicable to the service credits transferred from Plan A to Plan B will be the rate s that the person
earned under Plan A.
d. If the amount transferred from Plan A is less than the Actuarial Cost to Plan B, the person requesting the transfer
must pay the difference between the Actuarial Cost and the assets transferred in order to receive full credit in Plan B
for his service earned under Plan A (using the Plan A accrual rates).
e. If the amount transferred from Plan A is less than the Actuarial Cost to Plan B, the person requesting the transfer
may elect to have the service that will be credited by Plan B reduced to the number of service credits (using Plan A
accrual rate) that the transferred assets will purchase in Plan B.
f. Upon completion of the transfer, the person requesting the transfer to Plan B forfeits all rights to benefits in Plan A.
3. Reverse Transfer Rules
a. A Reverse Transfer may occur if the person who is a member of Plan B never transferred his service credits from
Plan A.
b. A Reverse Transfer may only occur at the time of retirement and may occur only if after the transfer of service
credits from Plan B back to Plan A, the person is eligible to and actually retires immediately from Plan A.
c. The amount transferred from Plan B to Plan A is calculated in the same manner as for a Forward Transfer.
d. Upon completion of the transfer, the person requesting the transfer forfeits all rights to benefit in Plan B.
Proposed Law
Proposed law provides for the following:
1. An In-Service Reserve Transfer right to any person who is not a state employee and who makes such a request on or
before December 31, 2013.
2. Rights to a benefit accrual upgrade on transferred service.
3. Special rights to upgrade service credits for certain employees of the St. George Fire Department.
These special benefit provisions are summarized below.
In-Service Reverse Transfer
1. A person requesting the In-Service Reverse Transfer does not need to retire immediately.
2. The request for the In-Service Reverse Transfer must be made by a person who is not a state employee and must occur
on or before December 31, 2013.
2013 REGULAR SESSION
ACTUARIAL NOTE SB 14
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3. The In- Service Reverse Transfer will only be permitted if the person who is a member of Plan B had previously been a
member of Plan A and had the right to remain a member of Plan A when he became employed in a position covered
under Plan B.
4. The amount of assets to be transferred from Plan B to Plan A and the service credits that may be granted or purchased by
the member requesting the transfer are calculated in a manner similar to that described for a Reverse Transfer under
current law.
5. After the transfer is complete, the person requesting the transfer forfeits all benefit rights in Plan B and begins to accrue
benefits under Plan A.
Benefit Accrual Upgrade on Transferred Service
1. If a member transfers service to a retirement system with a larger benefit accrual rate, such member may upgrade the
accrual rate on his transferred service to the accrual rate of the receiving system by paying the Actuarial Cost associated
with such upgrade.
2. This right pertains to a Forward Transfer, a Reverse Transfer, and In-Service Reverse Transfer.
St. George Fire Department Transfers
1. This provision of SB 14 applies only to members of the Firefighters’ Retirement System (FRS) who are employees of the
St. George Fire Department and who also transferred service credit from the New Orleans Firefighters’ Pension and
Relief Fund (NOFF) into FRS between August 26, 1999 and December 31, 2007.
2. This provision only applies to service credit transferred from NOFF to FRS during that time.
3. The benefit accrual rate for the transferred service is currently 2.5 %, the rate associated with NOFF. SB 14 will allow
the accrual rate for this service to become 3 1/3%, the rate applicable to FRS.
4. The transferred service will be credited with the higher rate upon payment to FRS of the Actuarial Cost associated with
the increased accrual rate.
5. The St. George Fire Department is authorized to pay the Actuarial Cost as long as it does not use funds derived from
assessments against insurers.
6. St. George Fire Department may pay the Actuarial Cost over time by amortizing the Actuarial Cost with level payments
over a 30 year period using an interest rate of 7.5%.
Implications of the Proposed Changes
SB 14 provides special service transfer rights to individuals who satisfy specific employment criteria.
Cost Analysis:
Analysis of Actuarial Costs
Retirement Systems
In-Service Reverse Transfer
The In- Service Reverse Transfer will have the following impact on actuarial costs relative to state and statewide retirement
systems in the aggregate.
1. The actuarial present value of future benefits (APV) for all state and statewide systems in the aggregate will increase for
eligible members who elect an In-Service Reverse Transfer.
2. The actuarial accrued liability in the aggregate will also increase.
3. The unfunded accrued liability will not increase because any increase in the accrued liability must be paid by the
member at the time the In-Service Reverse Transfer occurs.
4. Future normal costs will increase because the only individuals apt to request an In-Service Reverse Transfer are those
who will earn a higher accrual rate after such transfer than they would have earned without such a transfer.
Our analysis can be explained by the following example.
Example Criteria
1. A person was employed in a position that was covered by Plan A which has a 3.0% accrual rate.
2. He subsequently becomes employed in a position that is covered under Plan B which has a 2.5% accrual rate.
2013 REGULAR SESSION
ACTUARIAL NOTE SB 14
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3. When the person became employed in the new position, he had the right to remain a member of Plan A
continuing to earn service credits under Plan A even though he was employed in a position covered by Plan B.
4. The person failed to make this election in a timely manner and became a member of Plan B. However, he still
retains benefit service rights in Plan A because he has not asked for a transfer of service from Plan A to Plan B.
Conclusions
1. Under current law, the person could request a transfer from Plan A to Plan B. At retirement his pension benefit
would be paid from Plan B. This benefit would be calculated as 3.0% x service credits granted as a result of the
transfer + 2.5% x service earned under Plan B, with the entire benefit based on his FAC at retirement.
2. Under proposed law, the person could request an In -Service Reverse Transfer, have his Plan B service
transferred to Plan A, and be treated as a Plan A member thereafter even though he is employed in a position
that would otherwise be covered under Plan B. At retirement, the person’s benefit would be paid from Plan A.
It would be calculated as 3.0% x Plan A service earned before the employment change + 2.5% x service credits
granted as a result of the transfer + 3.0% x service earned under Plan A subsequent to the In-Service Reverse
Transfer with the entire benefit based on his FAC at retirement.
3. The transfer of service credits earned prior to the In-Service Reverse Transfer is cost neutral to state and
statewide systems in the aggregate because the member picks up any additional cost incurred. However, state
and statewide systems in the aggregate will pay more in the future because the person will accrue benefits at a
3.0% rate rather than at a 2.5% rate.
Benefit Accrual Upgrade on Transferred Service
The right of a member to upgrade the benefit accrual service to the rate applicable to the receiving system will have the
following impact on actuarial costs.
1. This provision of SB 14 grants a benefit to members and has an actuarial cost.
2. Any member who requests an upgrade in his benefit accrual rate will receive a larger benefit at retirement than he
would have otherwise.
3. The actuarial present value of future benefits will increase.
4. The actuarial accrued liability will increase, but the unfunded accrued liability will not increase because the member
must pay an amount to the system equal to the increase in the actuarial accrued liability.
St. George Fire Department Transfers
The special rights to upgrade service credits for certain members of the St. George Fire Department will have the following
impact on actuarial costs for FRS.
1. SB 14 will provide 19 members of the St. George Fire Department with special rights to upgrade service credits .
2. The actuarial present value of future benefits (APV) for FRS will increase by about $950,000.
3. The actuarial accrued liability in the aggregate will also increase by $950,000.
4. The unfunded accrued liability will increase by $950,000 unless the Fire Department make s an immediate one-time
payment to pay for the additional benefits .
5. Employer contribution requirements for the St. George Fire Department will increase about $75,000 for the next 30
years if the debt created by SB 14 is amortized with level payments over 30 year period using a 7.5% interest rate.
6. Employer contribution requirements for the other fire departments participating in FRS will not change unless the
St. George Fire Department becomes unable for some reason to make the annual payments of $75,000.
7. Future normal costs will not increase.
These cost estimates are based on a study conducted by the G. S. Curran & Company, LTD.
Other Post Retirement Benefits
There are no actuarial costs associated with SB 14 relative to post-employment benefits other than pensions.
Analysis of Fiscal Costs
SB 14 will have the following effect on fiscal costs.
2013 REGULAR SESSION
ACTUARIAL NOTE SB 14
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Expenditures:
1. Expenditures from the General Fund will not change. Provisions of SB 14 pertaining to In- Service Reverse Transfers
will only affect government employers who are not state employers or state agencies.
2. Expenditures from state retirement systems (Agy Self -Generated) will increase to the extent that a member who conducts
an In-Service Reverse Transfer or elects to upgrade the accrual rate on his transferred service begins to receive a pension
benefit during the five year fiscal measurement period that is greater than it would have been without SB 14.
3. Expenditures from FRS will increase to the extent that any of the 19 members of the St. George Fire Department retire
during the five year fiscal measurement period.
4. Expenditures from Local Funds will increase to the exte nt that employer contributions to the Louisiana School
Employees’ Retirement System (LSERS) and to statewide retirement systems increase as members transacting In -
Service Reverse Transfers migrate to LSERS and statewide retirement systems. Note: These systems generally have
larger benefit accrual rates and are funded through Local Funds.
5. Expenditures from Local Funds will increase to the extent that the St. George Fire Department will be required to
contribute $75,000 per year more to FRS than it would have been required to contribute without regard to the enactment
of SB 14.
Revenues:
1. Revenues to state and statewide retirement systems (Agy Self-Generated) will increase for the following reasons:
a. Employees will be paying additional funds to pay for the Actuarial Cost associated with In-Service Reverse
Transfers and with an upgrade to transferred service.
b. Employers participating in state and statewide retirement systems will be contributing more to pay for larger future
benefit accrual rates for those who transact In-Service Reverse Transfers.
c. The St. George Fire District will be contributing $75,000 a year more to FRS than it currently contributes. This
additional contribution requirement will remain in force for the next 30 years.
We estimate the total expenditure amount from the enactment of SB 14 ranges from $100,000 to $500,000 annually during the
fiscal measurement period.
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