2013 REGULAR SESSION
ACTUARIAL NOTE S B 4
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Senate Bill 4 SLS 13RS-14
Original
Author: Senator Elbert L. Guillory
Date: March 18, 2013
LLA Note SB 4.01
Organizations Affected:
Louisiana State Employees’
Retirement System
Teachers’ Retirement System of
Louisiana
OR NO IMPACT APV
The Note was prepared by the Actuarial Services Department of the Office of the
Legislative Auditor. The attachment of this Note to SB 4 provides compliance
with the requirements of R.S. 24:521.
Bill Header: RETIREMENT SYSTEMS . Provides for use of entry age normal valuation method by Louisiana State Employees’
Retirement System and Teachers’ Retirement System of Louisiana. (6/30/13).
Cost Summary:
Actuarial Cost/(Savings) to Retirement Systems and OGB $0
Total Five Year Fiscal Cost
Expenditures $ 89,000,000
Revenues $ 89,000,000
Estimated Actuarial Impact:
The chart below shows the estimated increase/(decrease) in the actuarial value of benefits, if any, attributable to the proposed
legislation. Note: it includes the present value cost of fiscal costs associated with benefit changes. It does not include present value
costs associated with administration or other fiscal concerns.
Increase (Decrease) in
Actuarial Cost (Savings) to: The 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.
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 0 (14,000,000) (13,000,000) (11,000,000) (9,000,000) (47,000,000)
Stat Deds/Other 0 0 0 0 0 0
Federal Funds 0 0 0 0 0 0
Local Funds 0 38,000,000 36,000,000 33,000,000 29,000,000 136,000,000
Annual Total $ 0 $ 24,000,000 $ 23,000,000 $ 22,000,000 $ 20,000,000 $ 89,000,000
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 0 24,000,000 23,000,000 22,000,000 20,000,000 89,000,000
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 $ 0 $ 24,000,000 $ 23,000,000 $ 22,000,000 $ 20,000,000 $ 89,000,000
Bill Information:
Current Law
Both the Louisiana State Employees’ Retirement System (LASERS) and the Teachers’ Retirement System of Louisiana (TRSL)
use the Projected Unit Credit (PUC) funding method as a way to budget for a member’s benefit over the course of his career. The 2013 REGULAR SESSION
ACTUARIAL NOTE S B 4
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cost assigned under this method to each year of service is roughly equivalent to the present value of the benefit earned that year.
This cost generally increases throughout a member’s career, both as a dollar amount and as a percentage of pay.
Proposed Law
Under SB 4, LASERS and TRSL will use the Entry Age Normal (EAN) funding method to budget for a member’s benefit. The
cost assigned to employers each year under the EAN method is designed to maintain costs as a level percentage of pay throughout
a member’s career. This change will become effective for the calculation of employer contribution requirements for the fiscal
year ending June 30, 2015.
Implications of the Proposed Changes
Most of the sub plans of LASERS are frozen to new employees of the state. The only sub plan currently accepting new members
is the Hazardous Duty Sub Plan. T he Cash Balance Sub Plan will begin accepting new members on July 1, 2013. Employer
normal cost rates under the PUC method increase as members become older. Therefore, the normal cost for the frozen sub plans
will become increasingly larger as the years go by. Normal cost rates under the EAN method do not change materially from one
year to the next. Therefore, the change proposed by SB 4 will help stabilize employer contribution requirements.
The TRSL sub plan for Higher Education employees is also frozen to new entrants. SB 4 will have a similar stabilizing effect on
contribution requirements for this sub plan.
Cost Analysis:
Analysis of Actuarial Costs
Retirement Systems
SB 4 has no effect on benefits or on the total actuarial present value of future benefits (APV). Nor does the bill have any
effect on the total amount of contributions that must be made in the future. SB 4 merely re-allocates the APV between the
portion that is assigned to the past and the portion assigned to the future. For both LASERS and TRSL, the change in
funding method will increase the liability that has been assigned to the past and decrease the liability that is assigned to the
future.
According to our analysis, the employer contribution rate will be smaller for FYE 2015 under the EAN method for LASERS
than it would have been under PUC. For TRSL, the employer contribution rate will be larger .
LASERS
PUC at 8.00% EAN at 8.00% Increase/(Decrease)
Accrued Liability $ 16,700,000,000 $ 17,700,000,000 $ 1,000,000,000
Total Normal Cost 346,000,000 256,000,000 (95,000,000)
Employer Normal Cost $ 151,000,000 $ 56,000,000 $ (95,000,000)
Amortization of Accrued Liability 634,000,000 715,000,000 81,000,000
Employer Contribution Requirements 785,000,000 771,000,000 (14,000,000)
Payroll for Normal Costs $ 2,478,000,000 $ 2,478,000,000 $ 0
Payroll for Amortization Costs 2,478,000,000 2,478,000,000 0
Employer Normal Cost Rate 6.0954% 2.2613% - 3.8341%
Employer Amortization Rate 25.5623% 28.8441% 3.2818%
Total Employer Rate 31.6577% 31.1054% - 0.5523%
TRSL
PUC At 8.00% EAN at 8.00% Increase/(Decrease)
Accrued Liability $ 26,500,000,000 $ 28,200,000,000 $ 1,700,000,000
Total Normal Cost 551,000,000 445,000,000 (106,000,000)
Employer Normal Cost $ 231,000,000 $ 125,000,000 $ (106,000,000)
Amortization of Accrued Liability 980,000,000 1,124,000,000 144,000,000
Employer Contribution Requirements 1,211,000,000 1,249,000,000 38,000,000
Payroll for Normal Costs $ 4,018,000,000 $ 4,018,000,000 $ 0
Payroll for Amortization Costs 4,594,000,000 4,594,000,000 0
Employer Normal Cost Rate 5.7420% 3.1021% - 2.6399%
Employer Amortization Rate 21.3390% 24.4672% 3.1280%
Total Employer Rate 27.0810% 27.5693% 0.4883%
2013 REGULAR SESSION
ACTUARIAL NOTE S B 4
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The total amount of change in key cost components, based on our analysis is summarized below:
1. The accrued liability in total will increase $2.7 billion.
2. Employer normal costs will decrease $201 million.
3. Amortization costs will increase $225 million.
4. Employer contribution requirements will increase $24 million.
The total amount of contributions that must be made in the future will be the same regardless of which funding method –
PUC or EAN – is used. The only change is the allocation of contribution requirements to normal costs and amortization
costs. Initially, for LASERS, the reallocation associated with the change in methods will cause contribution requirements to
be slightly smaller. Eventually, however, employer contribution rates under EAN will be larger than what they would have
been had the change not been made. The opposite is true for TRSL. The change to EAN will result is slightly larger
contribution requirements, but eventually, they will be smaller.
Currently, the difference is employer contributions are small and offset one another. H owever, as years go by, a change in
methods may be more disruptive to consistent and orderly funding of the retirement systems.
Estimates of the changes in contribution requirements for during the 5 year fiscal measurement period are given below.
Fiscal Year LASERS TRSL Total
2013-14 $ 0 $ 0 $ 0
2014-15 (14,000,000) 38,000,000 24,000,000
2015-16 (13,000,000) 36,000,000 23,000,000
2016-17 (11,000,000) 33,000,000 22,000,000
2017-18 (9,000,000) 29,000,000 20,000,000
The estimate of fiscal cost for FYE 2015 is quite reliable. E stimates for later years are increasingly less reliable.
Other Post Retirement Benefits
There are no actuarial costs associated with SB 4 for post-employment benefits other than pensions.
Analysis of Fiscal Costs
SB 4 will have the following effect on fiscal costs.
Expenditures:
1. Expenditures from the General Fund will decrease because contribution requirements for employers participating in
LASERS will decrease.
2. Expenditures from the General Fund will increase to the extent that contribution requirements for employers in higher
education will increase. However, t his amount is included in expenditures from Local Funds.
3. Expenditures from Local Funds will in crease to the extent that contribution requirements for employers for pre K-12 will
be larger under the EAN method than under the PUC method.
Revenues:
1. Revenues to LASERS and TRSL (Agy Self-Generated) will increase because contribution requirements for employers
participating in LASERS and TRSL will increase.
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 to render the actuarial opinion contained herein.
Dual Referral:
Senate House
x 13.5.1 ≥ $100,000 Annual Fiscal Cost x 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