2014 REGULAR SESSION
ACTUARIAL NOTE HB 43
Page 1 of 3
House Bill 43 HLS 14RS-386
Original
Author: Representative J. Kevin
Pearson
Date: March 19, 2014
LLA Note HB 43 .01
Organizations Affected:
Teachers’ Retirement System of
Louisiana
OR DECREASE APV
This Note has been prepared by the Actuarial Services Department of the Office of
the Legislative Auditor. The attachment of this Note to HB 43 provides
compliance with the requirements of R.S. 24:52 1.
Bill Header: RETIREMENT/TEACHERS : Provides for application of remaining funds in the Teachers ’ Retirement System of LA.’s
experience account, after payment of a permanent benefit increase to eligible retirees and beneficiaries, to specified debt of the system.
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 Decrease
Total Five Year Fiscal Cost
Expenditures Decrease
Revenues Decrease
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/(Savings) to: Actuarial Present Value
All Louisiana Public Retirement Systems Decrease
Other Post Retirement Benefits $0
Total Decrease
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 2014-15 2015-16 2016-17 2017-2018 2018-2019 5 Year Total
State General Fund $ 0 Decrease Decrease Decrease Decrease Decrease
Agy Self Generated 0 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 Decrease Decrease Decrease Decrease Decrease
Annual Total $ 0 Decrease Decrease Decrease Decrease Decrease
REVENUES 2014-15 2015-16 2016-17 2017-2018 2018-2019 5 Year Total
State General Fund $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Agy Self Generated 0 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 0 0 0 0 0
Annual Total $ 0 Decrease Decrease Decrease Decrease Decrease
2014 REGULAR SESSION
ACTUARIAL NOTE HB 43
Page 2 of 3
Bill Information:
Current Law
Current law requires a specified portion of investment gains to be transferred from the Regular Benefit Account to the Experience
Account. However, current law does not permit a permanent benefit increase (PBI) to be granted without the completion of a
significant legislative approval process that includes the introduction of a bill, passage by the House and Senate by a 2/3 vote, and
a signature by the governor (see Actuarial Data, Methods, and Assumptions below). If a PBI is granted, an amount equal to the
actuarial present value of the PBI is transferred from the Experience Account back to the Regular Benefit Account to offset the
additional liability incurred by the system. Any amount in the Experience Account after this transaction remains in the
Experience Account for potential later use.
Proposed Law
HB 43 provides that if a PBI is granted in accordance with the PBI formula and eligibility requirements already specified in
current law, then any amount in the Experience Account remaining after such PBI grant shall be transferred back to the Regular
Benefit Account and used to reduce the Original Amortization Base (OAB). However, the schedule of amortization payments
currently associated with the OAB will not be changed.
Implications of the Proposed Changes
Assets remaining in the Experience Account after a PBI is granted will be used to reduce the unf unded account liability of the
retirement system
Cost Analysis:
Analysis of Actuarial Costs
Retirement Systems
The PBI formula provides for a 1.5% permanent benefit increase. If the legislature approves the PBI, then the balance in the
Experience Account after the PBI is granted is estimated to be about $32.5 million.
Balance in the Experience Account on July, 1, 2013 $ 219,736,907
Present Value Cost of a 1.5% Permanent Benefit Increase 187,254,192
Remaining Balance in the Experience Account 32,482,715
HB 43 requires the $32.5 million amount to be transferred back to the Regular Benefit Account and used to reduce the
outstanding balance of the OAB on June 30, 2014. HB 43 also specifies that the OAB amortization payment schedule remain
the same as it was before the balance was reduced. As a result, interest payments on the OAB debt will be reduced by $99.2
million.
To more completely understand the consequences of the transaction required by HB 43 , it is important to know that HB 43
reverses an earlier transaction. A New UAL charge base, or debt, was established for the Regular Benefit Account when the
$32.5 million amount was originally transferred to the Experience Account. The New UAL debt was amortized over 30
years with level payments equal to $ 2.8 million a year. HB 43 returns the $32.5 million to the Regular Benefit Account but
instead of reducing the New UAL that had been created, it is used to reduce the Initial Unfunded Accrued Liability (the
IUAL). A summary of these transactions is given below.
1. The state originally borrowed $219.7 million from the Regular Benefit Account and placed it in the Experience
Account. The state, through employer contributions, must pay back the Regular Benefit Account with equal
payments over 30 year s.
2. HB 43 provides that the residue after funding the 1.5% permanent benefit increase, $32.5 million, will be transferred
back to the Regular Benefit Account.
3. However, the $ 32.5 million will be applied not to the original debt (the New UAL), but rather to the Original
Amortization Base (OAB, or the IUAL) which must be paid off by 2029.
4. The end result is that $ 32.5 million of the OAB debt, which originally was scheduled to be paid off over the next 15
years (by 2029) in accordance with a constitutional mandate, will now be paid off over a longer period of time.
5. $32.5 million has been removed from the OAB which must be paid off by 2029 and has become a new UAL which
is amortized over 30 years.
There is no guarantee that future PBI legislation will follow the eligibility criteria or formulas contained in current law that
until now has been subject to a substantively automatic approval process. Nor is there any guarantee, that PBIs in the future
will even be based on the balance in the Experience Account. However, as long as the Experience Account is in law, it is
likely that the balance in the Experience Account will have some influence on the size of any PBI given. It is also likely that
enactment of HB 43 will delay and perhaps limit the size of the next PBI grant given by the legislature.
Therefore, we conclude that the actuarial present value of future benefits will be reduced as a result of HB 43.
2014 REGULAR SESSION
ACTUARIAL NOTE HB 43
Page 3 of 3
Other Post Retirement Benefits
There are no actuarial costs associated with HB 43 for post-employment benefits other than pensions.
Analysis of Fiscal Costs
HB 43 will have the following effects on fiscal costs during the five year measurement period.
Expenditures:
1. Expenditures from the General Fund will decrease because the balance in the Experience Account has been reduced.
2. Expenditures from TRSL (Agy Self-Generated) will decrease because the balance in the Experience Account has been
reduced.
3. Expenditures from the Local Funds will decrease because the balance in the Experience Account has been reduced.
Revenues:
• TRSL revenues (Agy Self-Generated) will decrease because the balance in the Experience Account has been reduced.
Actuarial Data, Methods, and Assumptions
This actuarial note was prepared using actuarial data, methods, and assumptions as disclosed in the most recent actuarial valuation
report approved by PRSAC. The actuary signing this note may or may not agree with or endorse these assumptions. He is using
this data, methods and assumptions to provide consistency with the actuary for the retirement systems who may also be providing
testimony to the Senate and House retirement committees.
Article (10)(29)(F) of the Louisiana Constitution was amended by the legislature and the voters in 2010. This provision states
“Benefit provisions for members of any public retirement system, plan, or fund that is subject to legislative authority shall be
altered only by legislative enactment. No such benefit provisions having an actuarial cost shall be enacted unless approved by
two-thirds of the elected members of each house of the legislature.” Based on our reading of the amendment, our discussions
with General Council for the LLA, and our discussions with legislative staff, we have concluded for the purposes of this actuarial
note, that future transfers of investment gains to the Experience Account will occur until the balance in the Experience Account is
equal to the cost of a 6% benefit increase for eligible retirees. However, because future COLA grants will require the introduction
of a bill, approval by two-thirds of the House and Senate, and the signature of the governor, we assume that COLA grants are ad
hoc, and are not automatic
Actuarial Caveat
There is nothing in this bill that has or will compromise the signing actuary’s ability to present an unbiased statement of actuarial
opinion.
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: Annual Fiscal Cost ≥ $100,000 6.8(F)(1): Annual Fiscal Cost ≥ $100,000
13.5.2: Annual Tax or Fee Change ≥ $500,000 6.8(F)(2): Annual State Revenue Reduction ≥ $100,000
6.8(G): Annual Tax or Fee Change ≥ $500,000