Louisiana 2014 Regular Session

Louisiana House Bill HB82 Latest Draft

Bill / Chaptered Version

                            2014 REGULAR SESSION 
ACTUARIAL NOTE HB 82
 
 
Page 1 of 3 
House Bill 82 HLS 14RS-728
 
Original 
 
Author: Representative Bob Hensgens
 
 
Date: March 12, 2014
 
 
LLA Note HB 82.01
 
 
Organizations Affected: 
Teachers’ Retirement System of 
Louisiana 
 
OR +$250,000 FC LF EX 
The Note was prepared by the Actuarial Services Department of the Office of the 
Legislative Auditor.  The attachment of the Note to HB 82 provides compliance 
with the requirements of R.S. 24:521. 
 
 
Bill Header:  RETIREMENT/TEACHERS:  Authorizes a retired member of the Teachers’ Retirement System of Louisiana who does 
not have a valid teaching certificate to return to work as a substitute instructor and continue to receive retirement benefits. 
 
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  	$ 3.2 million 
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. 
 
 	Increase (Decrease) in 
Actuarial Cost (Savings) to: 	The Actuarial Present Value 
All Louisiana Public Retirement Systems   $ 3.2 million 
Other Post Retirement Benefits 	See Actuarial Cost Analysis 
Total 	See Actuarial Cost Analysis 
 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  $                       0  $                       0  $                       0  $                       0  $                       0 
  Agy Self Generated              250,000               250,000               250,000               250,000               250,000            1,250,000 
  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 $            250,000  Increase Increase Increase Increase Increase 
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  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 $                       0  Increase Increase Increase Increase Increase 
 
 
  2014 REGULAR SESSION 
ACTUARIAL NOTE HB 82
 
 
Page 2 of 3 
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 
 
 
Bill Information: 
 Current Law 
 
Current law prohibits a retired member of the Teachers’ Retirement System of Louisiana (TRSL) from receiving his retirement 
benefit while he is reemployed in a position covered by TRSL.  Under R.S. 11:710(A), there are exceptions to such prohibition. 
 
Under current law, a classroom teacher is defined as any employee whose position of employment requires a valid Louisiana 
teaching certificate and who is assigned the professional activities of instructing pupils in courses in classroom situations for 
which daily pupil attendance figures for the school system are kept. 
 
Current law allows a retired certified 	classroom teacher to return to work as a substitute classroom teacher and continue to receive 
full retirement benefits while reemployed provided that his earnings not exceed 25% of his retirement benefit.  
   
Proposed Law 
 
The proposed legislation authorizes a retired non	-certified member of TRSL to return to work as a substitute classroom non-
certified instructor. Such a retiree may continue to receive 	full retirement benefits while reemployed provided that his earnings 
not exceed 25% of his retirement benefit.  
 
Implications of the Proposed Changes 
 
HB 82 provides that a retired member of TRSL who does not possess a valid teaching certificate 	may return to work as a 
substitute classroom instructor and continue to receive a retirement benefit.   
 
 
Cost Analysis:  
 
Analysis of Actuarial Costs 
 
Retirement Systems 
 
Legislation that allows a member of TRSL to collect a pension and continue to work in a position requiring active 
membership in the retirement system will have an actuarial cost if such legislation induces such a member to retire earlier 
than he would have otherwise.  By retiring early, TRSL will be required to pay a pension to such a member for a longer 
period of time and contributions made to the system on the member’s behalf will be reduced.  This will be offset to a minor 
extent because the member will forego additional benefit accruals that he would otherwise have earned. 
 
There is a cost to HB 82.  Under the proposed law, some members will base their decision to retire in whole or in part on the 
fact that they can return to work and supplement their income.  They can be partially working and fully retired.  Without HB 
82, some of these same members would have remained fully employed without collecting a pension benefit. 
 
Prior to the enactment of HB 519 which became Act 921 of 2010, a member of TRSL was allowed to retire, return to work, 
and collect both a pension and a paycheck 12 months after his retirement date.  Benefits payable to a reemployed retiree were 
suspended by TRSL only if the retiree was working during the 12 month period immediately following his date of retirement. 
 
This rule, which became known as the “Two Check Rule”, had been in place for about 10 years.  Prior to the enactment of the 
Two Check Rule, there were only about 3,000 retirees in a re-	employment status each year.  In 2008-09 there were about 
7,500 re-employed retirees.  Clearly, retirement patterns changed as a result of the Two Check Rule.  Many workers elected 
to retire, returned to work, and then after one year earned a full salary and at the same time collected a full pension. 
 
Act 921 of the 2010 session eliminated the Two Check Rule and essentially made it difficult for a member of TRSL to collect 
a salary and a pension at the same time.  Although the Two Check Rule was preserved under very limited circumstances, it 
was anticipated that Act 921 would result in members delaying retirement until they were truly ready to leave the school or 
classroom.  The actuarial note for Act 921 estimated annual savings five years after the enactment to be about $108 million.  
The estimate was based on the additional contributions that would be made to TRSL and the reduction in benefit payments 
that would be made from the retirement system due to workers postponing retirement. 
 
HB 82 will eliminate some of the savings estimated for Act 921.  If HB 82 	is enacted, we assume some workers will elect to 
retire earlier than they would have otherwise.  Without HB 82, a TRSL member may not be able to afford to retire.  But with 
the ability to supplement his or her income from returning to work, retirement may appear to be affordable.  The fundamental 
question is, “How many members will be induced to retire earlier than they would have otherwise and what is the cost 
associated with the inducement?” 	The earnings limitation of HB 82 	is quite restrictive.  However, it is likely that some 
members will be induced to retire earlier than they would have otherwise because they can enhance their retirement income 
by 25% through reemployment. 
  2014 REGULAR SESSION 
ACTUARIAL NOTE HB 82
 
 
Page 3 of 3 
If HB 82 is enacted, the maximum that a career member of TRSL may work after retirement is 45 days, assuming a 180-day 
school year, a retiree with 40 years of service and benefit equal to 100% of his final average compensation.  Although the 
earnings limitation of HB 82 	is quite restrictive, it still gives a member of TRSL the opportunity to plan his retirement around 
his ability to work post retirement and supplement his retirement income.  Therefore, in preparing this actuarial note, we have 
assumed the following: 
 
1. No member will continue to work beyond the date that his benefit would otherwise be suspended. 
 
2. Some members will plan their retirement with the idea that they can return to work and supplement their retirement 
income. 
 
The number of members who will be induced to retire earlier than they would have otherwise as a result of HB 82 	cannot be 
predicted with any degree of certainty.  However, if 10 members retiring in a given year retire one year earlier than they 
would have otherwise, the annual retiree payroll for TRSL will increase $250,000.  This is based on the following 
information: 
 
1. On average, 3,500 members of TRSL retire each year. 
2. Ten of these retirees are induced to retire one year earlier than they would have otherwise. 
3. The average annual pension for those induced to retire early is $25,000. 
 
Therefore, the estimated annual cost is $250,000 (10 x $25,000). 
 
The actuarial present value of future benefit payments will increase approximately $3.2 million.  This is based on the 
assumption that 10 additional retirees will be collecting benefits each year in the future under HB 82 	that would not have 
been collected otherwise. 
 
Other Post Retirement Benefits  
 
The liability for post-	retirement medical insurance protection provided to retirees by the Office of Group Benefits or other 
insurers remains the same regardless of the employment status of a retiree.  The liability is based on the present value of 
estimated claims and estimated claims will not change just because the member’s status has changed from employee to 
retiree.  However, depending on OGB rules or rules of other insurers providing health insurance coverage to TRSL members, 
the allocation of premiums between the employee and the employer may change as an employee moves from an active status 
to a retired status.  Therefore: 
 
1. OGB revenues may increase or decrease as a result of HB 82	. 
 
2. Employer premium expenditures may increase 	or decrease as a result of HB 82. 
 
Analysis of Fiscal Costs 
 
 
HB 82 will have the following effect on fiscal costs over the next 5 years. 
 
Expenditures: 
 
1. Expenditures from TRSL (Agy Self-Generated) will increase $250,000 a year in order to pay benefits that would have 
otherwise not have been paid.  Administrative expenses in FYE 2015 have been estimated to be negligible. 
 
2. Expenditures from Local Funds will increase to the extent that K	-12 members of TRSL are induced to retire earlier than 
they would have otherwise.  Unanticipated TRSL expenditures will lead to higher employer contribution requirements. 
 
Revenues: 
 
• TRSL revenues (Agy Self-Generated) will increase to the extent that employer contribution must be larger to 
accommodate the estimated increase in annual benefit 	costs. 
 
The sum of cost increases identified under Expenditure Item 2 is equal to the increase in TRSL revenue.  
 
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 prepared by the office of the Legislative Auditor which will be presented to PRSAC on March 18, 2014.   
 
Actuarial Caveat 
 
There is nothing in HB 82 	that 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 to render the actuarial opinion contained herein.