2013 REGULAR SESSION
ACTUARIAL NOTE SB 7
Page 1 of 5
Senate Bill 7 SLS 13RS-196
Original
Author: Senator Barrow Peacock
Date: March 20, 2013
LLA Note S B 7.01
Organizations Affected:
All State Retirement Systems
Most Statewide Retirement
Systems
OR -$107,000,000 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 SB 7 provides compliance
with the requirements of R.S. 24:52
Bill Header: RETIREMENT BENEFITS. Provides a sixty-month final average compensation period for members of state and
statewide retirement systems. (7/1/13)
Cost Summary:
The estimated actuarial and fiscal impact of the proposed legislative is summarized below. Actuarial costs pertain to changes in the
unfunded actuarial accrued liability. 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 $ (571,300,000)
Total Five Year Fiscal Cost
Expenditures $ (428,000,000)
Revenues $ (428,000,000)
Estimated Actuarial Impact:
The chart below shows the estimated change in the unfunded actuarial accrued liability, 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 Unfunded
Actuarial Cost/(Savings) to: Accrued Liability
All Louisiana Public Retirement Systems $ (571,300,000)
Other Post Retirement Benefits 0
Total $ (571,300,000)
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 $ (26,700,000) $ (26,700,000) $ (26,700,000) $ (26,700,000) $ (106,800,000)
Agy Self Generated Decrease Decrease Decrease Decrease Decrease Decrease
Stat Deds/Other 0 0 0 0 0 0
Federal Funds 0 0 0 0 0 0
Local Funds 0 (80,300,000) (80,300,000) (80,300,000) (80,300,000) (321,200,000)
Annual Total $ 0 $ (107,000,000) $ (107,000,000) $ (107,000,000) $ (107,000,000) $ (428,000,000)
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 (107,000,000) (107,000,000) (107,000,000) (107,000,000) (428,000,000)
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 $ (107,000,000) $ (107,000,000) $ (107,000,000) $ (107,000,000) $ (428,000,000)
2013 REGULAR SESSION
ACTUARIAL NOTE SB 7
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Bill Information:
Current Law
Current law provides for a 3 year final average compensation period for certain members of state and statewide retirement
systems. Current law also contains anti-spiking provisions that vary from system to system.
Proposed Law
SB 7 changes the final average compensation computation period and anti -spiking provisions for the following systems .
Louisiana State Employees’ Retirement System LASERS
Teachers’ Retirement System of Louisiana TRSL
Louisiana School Employees’ Retirement System LSERS
Louisiana State Police Retirement System STPOL
Louisiana Assessors’ Retirement System ASSR
Firefighters Retirement System FRS
Municipal Police Employees’ Retirement System MPERS
Parochial Employees’ Retirement System PERS
Registrars of Voters Employees’ Retirement System RVRS
Sheriffs’ Pension and Relief Fund SPRF
These changes are summarized below.
Retirement System Current Provisions Provisions under SB 7
LASERS
• Rank and File members including law clerks first employed on or
before 6/30/2006.
• Judges and Court Officers first employed on or before 12/31/2010.
• Legislators first employed on or before 6/30/2013.
• Correction Primary first employed on or before 12/31/2010.
• Correction Secondary first employed on or before 12/31/2010.
• Peace Officers first employed on or before 12/31/2010.
• ATC Officers first employed on or before 12/31/2010.
• Bridge Police first employed on or be fore 6/30/2006.
• Wildlife Agents first employed on or before 12/31/2010.
3 Year FAC
25% Anti-Spiking
5 Year FAC
15% Anti-Spiking
TRSL
• All members first employed on or before 12/31/ 2010.
3 Year FAC
10% Anti-Spiking
5 Year FAC
10% Anti-Spiking
LSERS
• All members first employed on or before 6/30/ 2006.
3 Year FAC
10% Anti-Spiking
5 Year FAC
10% Anti-Spiking
STPOL
• All members first employed on or before 12/31/ 2010
3 Year FAC
25% Anti-Spiking
5 Year FAC
15% Anti-Spiking
ASSR
• All members first employed on or before 9/30/ 2006
3 Year FAC
No Anti-Spiking
5 Year FAC
15% Anti-Spiking
FRS
• All members.
3 Year FAC
15% Anti-Spiking
5 Year FAC
15% Anti-Spiking
MPERS
• All members first employed on or before 12/31/2012.
3 Year FAC
15% Anti-Spiking
5 Year FAC
15% Anti-Spiking
PERS Plans A and B
• All members first employed on or before 6/30/ 2006.
3 Year FAC
15% Anti-Spiking
5 Year FAC
15% Anti-Spiking
RVRS
• All members.
5 Year FAC
No Anti-Spiking
5 Year FAC
15% Anti-Spiking
SPRF
• All members first employed on or before 6/30/ 2006.
3 Year FAC
No Anti-Spiking
5 Year FAC
15% Anti-Spiking
Retirement benefits for all current members of state and statewide retirement systems other than those identified above are based
on a 5 year final average compensation period. All members other than those identified above have a 15% anti -spiking provision
except for the following members which are subject to a 10% anti-spiking provision.
• Members of LSERS first employed on or after 7/1/2006 and on or before 12/31/10.
2013 REGULAR SESSION
ACTUARIAL NOTE SB 7
Page 3 of 5
The provisions of SB 7 will be implemented in the following manner.
1. These provisions will not apply to any member who retires on or before December 31, 2013.
2. For members who retire on or after January 1, 2014, the final average compensation period shall be 36 months plus one
month for each whole month that retirement occurs after January 1, 2014.
3. The benefit of any member who retires on or after January 1, 2016, will be based on a 60 month, or 5 year, final average
compensation period.
4. In no event will the final average compensation be less than the amount that would have been calculated as of January 1,
2014.
Implications of the Proposed Changes
The final average compensation period for all state and statewide retirement system will be standardized at 5 years. Anti-spiking
provisions will be standardized at 15% except for members of TRSL and LSERS first employed on or before December 31, 2010,
who will be limited to 10% increases in the final average compensation period.
Cost Analysis:
Analysis of Actuarial Costs
Retirement Systems
SB 7 will have the following effect on actuarial costs associated with the state and statewide retirement systems.
The total reduction in the unfunded accrued liability for state retirement systems is about $491.5 million. The total reduction
in annual employer contribution requirements is about $74.0 million.
Reductions in Costs Associated with the State Retirement Systems
Cost Component LASERS TRSL LSERS STPOL
Normal Cost $ 9,700,000 $ 20,300,000 $ 1,600,000 $ 600,000
Unfunded Accrued Liability 182,000,000 273,000,000 25,600,000 10,900,000
Amortization Costs 15,500,000 23,300,000 2,100,000 900,000
Total Employer Contribution Requirement
25,200,000 43,600,000 3,700,000 1,500,000
Employer Contribution Rate 1.02% 1.01% 1.27% 2.42%
Savings from SB 7 for the following statewide retirement systems are reflected in changes in the normal cost. The total
reduction in annual contribution requirements for these systems is estimated to be $22.3 million. Note that there are no
actuarial savings associated with RVRS because the only change was the addition of an anti-spiking provision. Actuarial
projections do not anticipate pay increases in the last five years of employment to exceed 15%. Therefore there are no
measurable savings.
Reductions in Costs Associated with Statewide Retirement Systems
Cost Component ASSR PERS Plan A PERS Plan B RVRS SPRF
Present Value of
Future Benefits
$ 8,700,000 $ 84,600,000 $ 6,800,000 $ 0 $ 96,000,000
Net Employer Contribution
Requirements
1,000,000 10,300,000 800,000 0 10,200,000
Net Employer Contribution
Rate
2.52% 1.80% 0.96% 0.00% 1.62%
2013 REGULAR SESSION
ACTUARIAL NOTE SB 7
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Savings from SB 7 for the following statewide systems are reflected in changes in the accrued liability, the normal cost and in
amortization costs. The total reduction in the unfunded accrued liability for these systems is about $79.8 million. The total
reduction in annual employer contribution requirements is about $10.7 million.
Reductions in Costs Associated with Stat ewide Retirement Systems
Cost Component FRS MPERS
Normal Cost $ 1,900,000 $ 1,500,000
Unfunded Accrued Liability 36,300,000 43,500,000
Amortization Costs 3,800,000 3,500,000
Total Employer Contribution Requirement
5,700,000 5,000,000
Employer Contribution Rate 2.76% 1.83%
In summary, annual employer contribution requirements to the state and statewide retirement systems affected by SB 7 will
be reduced about $107 million. The total unfunded accrued liability for the state and statewide systems using a funding
method that produces such a value will be reduce about $571.3 million,
Realization of these savings may be delayed or may never occur. It is possible that the constitutionality of SB 7 will be
challenged in state or federal courts. According to a memorandum issued by Strasburger, Attorneys at Law to the Office of
the Louisiana Legislative Auditor on March 26, 2012, entitled Legal Analysis of 2012 Pension Bills (see
www.lla.la.gov/reports_data/actuaryreports) challenges would likely allege violations under:
1. Article X, §29 of the Louisiana Constitution which protects public pension benefits,
2. The Contract Clause within both the Louisiana and U.S. Constitutions claiming contract impairment due to
diminished benefits,
3. The Takings Clause of both the Louisiana and U.S. Constitutions for divesting public employee benefits without just
compensation,
4. The Due Process Clauses of both the Louisiana and U.S. Constitution and the Fifth Amendment to the U.S.
Constitution for depriving employees of property rights without due process, and
5. 42 U.S.C. §1983 against public officials for enforcing unconstitutional laws.
Other Post Retirement Benefits
There are no actuarial costs associated with SB 7 for post-employment benefits other than pensions.
Analysis of Fiscal Costs
SB 7 will have the following effect on fiscal costs.
Expenditures:
1. Annual expenditures from the General Fund will decrease $26,700,000 because employer contribution requirements for
LASERS and STPOL will be reduced. Expenditures from the General Fund should also be reduced to the extent that
employer contributions relative to higher education members of TRSL are reduced. Nevertheless, because higher
education is a relatively small part of TRSL, reductions of expenditures pertaining to higher education have been
included under Local Funds.
2. Annual expenditures from state and statewide retirement systems (Agy Self Generated) will decrease because
calculations of final average compensation will be smaller beginning January 1, 2014, than they would have been
without SB 7. These reductions in benefit payments will initially be small but will increase gradually as the size of the
retiree population who retire subsequent to January 1, 2014, increases. A precise measurement of the dollar savings in
retiree payrolls has not been made because the dollar savings in benefit payments during the five year fiscal
measurement will be insignificant relative to the reduction in employer contributions.
3. Annual expenditures from Local Funds will decrease $80,300,000 because employer contribution requirements for
TRSL, LSERS, and applicable statewide systems will be reduced.
Revenues:
• Annual revenues to state and statewide retirements systems (Agy Self Generated) affected by SB 7 will be reduced to the
extent that employer contribution requirements are reduced.
2013 REGULAR SESSION
ACTUARIAL NOTE SB 7
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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
13.5.1 ≥ $100,000 Annual Fiscal Cost 6.8(F)(1) ≥ $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