Louisiana 2014 2014 Regular Session

Louisiana House Bill HB1225 Comm Sub / Analysis

                    DIGEST
The digest printed below was prepared by House Legislative Services.  It constitutes no part of
the legislative instrument.  The keyword, one-liner, abstract, and digest do not constitute part of
the law or proof or indicia of legislative intent.  [R.S. 1:13(B) and 24:177(E)]
Robideaux	HB No. 1225
Abstract: Requires the four state retirement systems (La. State Employees' Retirement System
(LASERS); Teachers' Retirement System of La. (TRSL); La. School Employees'
Retirement System (LSERS); and State Police Retirement System (STPOL)) to apply
certain amounts of excess investment returns to their outstanding debt and limits creation
of additional liabilities through the granting of benefit increases.
Proposed law generally requires increased payments to outstanding debts of state retirement
systems and restricts the creation of additional system liabilities by limiting the amount and
frequency of benefit increases.
Debt Payments from Excess Returns
Proposed law, as more fully explained below, generally requires each system to apply to its
oldest debt a portion of each year's excess investment returns.  The amount paid will increase
each year in proportion to the growth in the system's actuarial value of assets.
Present law (R.S. 11:102) establishes the calculation of employer contribution rates for state
retirement systems.  A portion of the rate is calculated based on the that year's required
amortization payment on outstanding system debt.  	Proposed law retains present law.
Teachers and State Employees
Both LASER and TRSL have remaining unfunded accrued liability that existed as of June 30,
1988 (IUAL).  For each system, the IUAL debt has been consolidated into an amortization base
called the Original Amortization Base (OAB), and the debts of the system incurred between 1988
and 2009 have been consolidated into an amortization base called the Experience Account
Amortization Base (EAAB).
Present law for LASERS (R.S. 11:102.1) requires the first $50 million of the system's excess
returns to be applied to the OAB.  Further requires the next $50 million of excess returns to be
applied to the EAAB.  Present law for TRSL (R.S. 11:102.2) requires the first $100 million of
the system's excess returns be applied to the OAB.  Further requires the next $100 million of
excess returns to be applied to the EAAB.
Proposed law indexes these required payments to the percentage increase in the system's actuarial value of assets for the preceding year.  Each year the maximum amount to be applied by the
system to its OAB and EAAB shall equal the prior year's maximum payment increased by the
percentage increase in the actuarial value of assets, if any.
Proposed law further requires that upon complete liquidation of either the OAB or the EAAB, the
system shall continue to apply to the remaining debt the same indexed payments it would have
made to the fully liquidated debt.  Upon complete liquidation of both the OAB and the EAAB,
the system shall continue to pay the full amount of indexed payments to its oldest outstanding
debt.  Excludes particularized liabilities and employer contribution variance liabilities from the
oldest outstanding debt.
School Employees and State Police
Both LSERS and STPOL have completely paid their IUAL.  	Proposed law requires that in any
year that LSERS or STPOL has excess investment returns above its actuarially assumed rate of
return, the system must apply a certain portion of such returns to its oldest outstanding debt. 
Requires LSERS to pay the first $15 million of such excess returns to its oldest debt. Requires
STPOL to pay the first $5 million of such excess returns to its oldest debt.  Further requires that
the amount paid each year be increased by the percentage increase in the system's actuarial value
of assets for the preceding year.  Each year the maximum amount to be applied by the system to
its oldest debt shall equal the prior year's maximum payment increased by the percentage increase
in the actuarial value of assets, if any.  Once the oldest debt has been completely liquidated,
requires the system to apply remaining sums and subsequent payments to the next oldest debt,
until all system debts are completely liquidated. Excludes employer contribution variance
liabilities from the oldest outstanding debt.
Reamortization of Debt
Present law provides for reamortization of remaining debt after application of excess funds to the
OAB or the EAAB of a system.  	Proposed law provides that beginning with the June 30, 2014,
valuation, such debts shall not be reamortized after application of payments pursuant to 	present
and proposed law.
All Four State Systems
Present law establishes an experience account in each state system.  For LSERS and STPOL, the
accounts are credited with one half of the system's excess returns above its assumed actuarial rate
of return.  For LASERS and TRSL, the accounts are credited with one half of the excess returns
above the system's assumed actuarial rate of return after payments are made to the OAB and the
EAAB.
Proposed law, as explained in more detail below, modifies the amount of excess returns that may
be credited to a system's experience account.  Further requires that any amounts not credited to
the experience account because of limits in proposed law be applied to the oldest debt of the
system.  For LASERS and TRSL, requires these amounts to first be applied to the OAB until it is fully liquidated, then to the EAAB until it is fully liquidated, and then to the oldest debt of the
system.
Further provides that after application of any such payment pursuant to 	proposed law, the
remaining debt shall not be reamortized.
Experience Accounts
Experience accounts are accounts established pursuant to present law to fund permanent benefit
increases for retirees of state systems.
Proposed law requires debts created by funds being moved into an experience account to be
amortized over a 10-year period.
Present law authorizes credits to a system's experience account in an amount up to that necessary
to grant two permanent benefit increases.  Proposed law retains present law for a system that is
85% funded or better.  If a system is less than 85% funded, 	proposed law authorizes credits up to
the amount necessary to grant one permanent benefit increase pursuant to proposed law.
Present law provides that, to the extent permitted by the two benefit increase cap, the experience
account is credited with interest attributable to the amount in the account during the prior year. 
Proposed law provides that interest may only be credited up to the applicable one or two benefit
increase cap.  Further provides that if a system dips below 85% funded, no interest may be
credited to the account while the reserves in the account exceed the one benefit increase cap.
Present law provides that the account be debited for the portion of the system's net investment
loss attributable to the balance in the account during the prior year.  	Proposed law retains present
law.
Present law provides that a benefit increase funded by the account is limited to the lesser of 3%
or the consumer price index (U.S. city average for all urban consumers (CPI-U)) for the
preceding calendar year.
Proposed law provides that a benefit increase funded by the account is limited to the lesser of the
following:
(1)The CPI-U for the twelve month period ending on the system's valuation date.
(2)(a)If the system is 85% funded or greater, 3%.
(b)If the system is at least 75% funded but less than 85% funded and the legislature
has not granted a benefit increase in the preceding year, 2.5%.
(c)If the system is at least 65% funded but less than 75% funded and the legislature
has not granted a benefit increase in the preceding year, 2%. (d)If the system is at least 55% funded but less than 65% funded and the legislature
has not granted a benefit increase in the preceding year, 1.5%.
(e)If the system is less than 55% funded, no benefit increase shall be granted.
Present law for LASERS and TRSL provides that if the system does not attain an actuarial rate of
return of at least 8.25%, a benefit increase pursuant to present law is limited to the lesser of 2%
or the CPI-U.  Proposed law retains present law.
Present law for LSERS provides that if the system does not attain its actuarial rate of return, a
benefit increase pursuant to present law is limited to the lesser of 2% or the CPI-U. 	Proposed law
changes the hurdle from the system's actuarial rate of return to an actuarial rate of return of
7.25%.
Present law for STPOL provides that if the system does not attain its actuarial rate of return, a
benefit increase pursuant to present law is limited to the lesser of 2% or the CPI-U. 	Proposed law
changes the hurdle from the system's actuarial rate of return to an actuarial rate of return of 7%.
Present law for LASERS and TRSL further provides that  no benefit increase shall be granted in
a year in which the system is less than 80% funded and the system fails to meet its actuarially
assumed rate of return.  Proposed law retains present law.
Proposed law authorizes each system to grant a partial benefit increase, regardless of funded ratio
or achieved rate of return, if all of the following criteria are met:
(1)No benefit increase was granted in the preceding fiscal year.
(2)The experience account balance in the preceding fiscal year had reached its maximum
reserve for that valuation year.
(3)The experience account balance in the current fiscal year is no longer enough to fund the
maximum increase due to either or both of the following:
(a)Growth in the cost of the increase based on changes in the pool of eligible
recipients, growth in the benefit amount due to the indexing of the CPI-U, or both.
(b)Credits to the account in the current fiscal year, if any, are insufficient to cover the
growth in the cost of the increase.
In the event all of the criteria in proposed law are met, the systems are authorized to provide an
increase equal to the amount the balance in the experience account will fully fund rounded down
to the lower 0.1%.
Present law for each system establishes a portion of each retiree's benefit upon which a benefit
increase is calculated.  The portions are as follows: (1)For LASERS and TRSL, the amount is the first $70,000 of a retiree's benefit, indexed to
the CPI-U for the prior calendar year.
(2)For LSERS and STPOL, the amount is the first $85,000 of a retiree's benefit, indexed to
the CPI-U for the prior calendar year.
Proposed law retains present law for all benefit increases granted prior to July 1, 2015.
Proposed law provides that for any benefit increase granted on or after July 1, 2015, the increase
shall be calculated on the first $60,000 of a retiree's benefit, indexed to the CPI-U for the twelve
month period ending on the system's valuation date.
Present law for STPOL authorizes a supplemental benefit increase of 2% for retirees and
beneficiaries who are age 65 and older.  Proposed law retains present law.
Present law provides that the amount of such supplemental benefit shall be based on the first
$85,000 of a retiree's annual benefit, indexed to the CPI-U for the prior calendar year.  	Proposed
law retains present law for any such benefit granted prior to July 1, 2015.
Proposed law further provides that for any supplemental increase granted on or after July 1, 2015,
the increase shall be calculated on the first $60,000 of the retiree's benefit, indexed to the CPI-U
for the twelve month period ending on the system's valuation date.
Authorization of Benefit Increases
Present constitution (La. Const. Art. X, Sec. 29) requires alteration or enactment of benefit
provisions for members of a public retirement system, plan, or fund subject to legislative
authority by an Act of the legislature.
Present law in each system's experience account provides that the board of trustees grant the
benefit increase authorized by 	present law. Further provides that the legislature approve the
increase.  Proposed law retains present law.
Present constitution provides that a benefit provision with an actuarial cost must receive a two-
thirds vote of the elected members of each house of the legislature in order to become effective.
Present law relative to each system's experience account provides that a benefit increase be
enacted by adoption of a resolution by majority vote of the elected members of each house of the
legislature.  Proposed law repeals present law.
Uniform Implementation
Proposed law requires the four state retirement systems to submit a joint report to the House and
Senate Committees on Retirement detailing the system procedures that will be used to implement
the Act.  Requires the policy to be submitted no later than Sept. 2, 2014.  Requires the committees on retirement to meet jointly to review the policy prior to Dec. 31, 2014.
Effective if and when SB Nos. 16, 18, 19, and 21 of the 2014 RS become effective.
(Amends R.S. 11:102(B)(3)(d)(v)-(viii), 102.1(B)(3)(b), (4) and (5), and (C)(4) and (5),
102.2(B)(3)(b) and (4) and (C)(4) and (5), 542(A)(2) and (3), (C)(1)-(3), and (F)(1), 883.1(A)(2)
and (3), (C)(1)-(3), (F), and (G)(1), 1145.1(A), (C)(1)-(3), and (D), and 1332(A), (C)(1)-(3), (D),
and (F); Adds R.S. 11:102.1(B)(6) and (C)(6), 102.2(B)(5) and (C)(6), 542(G), 883.1(H),
1145.1(F), and 1332(G))
Summary of Amendments Adopted by House
Committee Amendments Proposed by 	House Committee on Retirement to the original bill.
1. Adds provisions to each system requiring a 10-year amortization for debt established
by removing money from the general pool of assets and crediting it to the experience
account.
2. Adds provision authorizing each system to grant a partial benefit increase under
certain circumstances.
3. Excludes particularized liabilities (for LASERS and TRSL) and employer
contribution variance debts (for all four systems) from required payments on "oldest"
debt of the system.
4. Removes provision requiring joint report by systems to the Public Retirement
Systems' Actuarial Committee.
5. Adds provision requiring joint report by systems to the House and Senate Committees
on Retirement.
6. Removes proposed law changes with respect to the role of system boards in granting
benefit increases.
7. For LSERS and STPOL, adds provisions establishing each system's current assumed
rate of return as a threshold for granting a benefit increase above 2%.
8. Removes provisions restricting granting of benefit increases to every other year when
the system is above 85% funded.