2014 REGULAR SESSION
ACTUARIAL NOTE SB 16
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Senate Bill 16 SLS 14RS-70
Engrossed with Senate Retirement
Committee Amendment #1289
Author: Senator Guillory, et. al.
Date: March 27, 2014
LLA Note S B 16.02
Organizations Affected:
State Police Retirement System
EG +$9,474,040 APV
The Note was prepared by the Actuarial Services Department of the Office of the
Legislative Auditor. The attachment of the Note to S B 16 provides compliance
with the requirements of R.S. 24:521.
Bill Header: STATE POLICE RET FUND. Grants a permanent benefit i ncrease to eligible retirees in acco rdance with statutory
procedure (2/3 - CA10s29 (F)) (6/30/14)
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 $9,474,040
Total Five Year Fiscal Cost
Expenditures $9,206,608
Revenues $5,216,084
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 $9,474,040
Other Post Retirement Benefits $0
Total $9,474,040
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 $ 1,304,021 $ 1,304,021 $ 1,304,021 $ 1,304,021 $ 5,216,084
Agy Self Generated 867,979 835,154 799,180 761,996 726,215 3,990,524
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 $ 867,979 $ 2,139,175 $ 2,103,201 $ 2,066,017 $ 2,030,236 $ 9,206,608
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 1,304,021 1,304,021 1,304,021 1,304,021 5,216,084
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 $ 1,304,021 $ 1,304,021 $ 1,304,021 $ 1,304,021 $ 5,216,084
2014 REGULAR SESSION
ACTUARIAL NOTE SB 16
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Bill Information:
Current Law
Article 10(29)(F), enacted by the legislature and the voters in 2010, 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.
Current law provides a legal template that the legislature may choose to adopt in the enactment of permanent benefit increases
(PBI). This template specifies eligibility criterion which is generally age 60 with one year of retirement and the basis for a PBI
grant which is the CPI-U. There is no requirement that PBI legislation follow the template. Nor is there any guarantee, that PBIs
in the future will even be based on the balance in the Experience Account.
The PBI template provides the following:
Eligibility:
The following retirees and beneficiaries of the Louisiana State Police Retirement System (STPOL) will be eligible for a PBI.
1. Each retiree who satisfies all of the following criteria on June 30, 2014:
a. Has received a benefit for at least one year, and
b. Has attained at least age 60.
2. Each non-retiree beneficiary (including each survivor of a deceased active member) receiving a benefit on June 30,
2014, who satisfies all of the following criteria:
a. The deceased member or beneficiary or both combined have received benefits for at least one year, and
b. The deceased member would have been at least age 60 had he lived.
3. Each disability retiree and each beneficiary who is receiving benefits based on the death of a disability retiree, who
also on June 30, 2014, has been receiving benefits for at least one year.
Permanent Benefit Increase
• Based on the template law, each eligible retiree and beneficiary will be eligible for a 1.5% PBI on the portion of a
retiree/beneficiary’s benefit that is less than $94,313.
In addition to the PBI granted above, template law also provides for a 2. 0% supplemental PBI for retirees age 65 and older. The
supplemental PBI will be paid on the portion of a retiree/beneficiary’s benefit that is less than $94,313.
Proposed Law
SB 16 provides that template law will apply effective June 30, 2014.
If any of the instruments which originated as SB 18, SB 19, and SB 21 of the 2014 Regular Session of the Legislature does not
become effective, this Act shall be null and void and of no effect.
Implications of the Proposed Changes
As a result of SB 16, amounts in the STPOL Experience Account will be used to provide permanent benefit increases for certain
retirees and beneficiaries.
Cost Analysis:
Analysis of Actuarial Costs
Retirement Systems
The actuarial present value of future benefits of STPOL will increase $ 9,474,040 million if SB 16 is enacted. Additional
information is shown below.
2014 REGULAR SESSION
ACTUARIAL NOTE SB 16
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Regular PBI Supplemental PBI Total Liability
Increase Eligible Members Number Liability Number Liability
Retirees Age 65 and Retired One Year 676 $ 3,301,000 440 $ 3,926,034 $ 7,227,035
Beneficiaries and Survivors 339 1,007,254 253 905,297 1,912,551
Disability Retirees 54 219,842 27 114,612 334,454
Total 1,069 $ 4,528,096 720 $ 4,945,943 $ 9,474,040
The balance in the Experience Account as of June 30, 2013, was $18,169,123. Therefore, the unfunded accrued liability of
the Experience Account was a negative $18,169,123. A surplus of assets exists over the accrued liability of the Experience
Account (see Table 1 below).
The following transactions will occur within STPOL if SB 16 is enacted:
Table 1
Accounting for the PBI Grant under SB 16
(millions of dollars)
Regular Benefit Account Experience Account Total
AL Assets UAL AL Assets UAL AL Assets UAL
6/30/14
Balance $ 797.8 $ 474.2 $ 323.6 $ 0.0 $ 18.2 $ (18.2) $ 797.8 $ 492.4 $ 305.4
PBI Grant 9.5 9.5 0.0 0.0 (9.5) 9.5 9.5 0.0 9.5
Balance after
PBI Grant $ 807.3 $ 483.7 $ 323.6 $ 0.0 $ 8.7 $ (8.7) $ 807.3 $ 492.4 $ 314.9
1. The accrued liability (AL) of the STPOL Regular Benefit Account will increase $9.5 million as benefit payments to
eligible participants are increased 1.5% for the regular PBI and 2.0% for the supplemental PBI.
2. Assets in the Regular Benefit Account of STPOL will increase when $9.5 million is transferred from the Experience
Account to the Regular Benefit Account.
3. The unfunded accrued liability relative to the Regular Benefit Account does not change because STPOL is receiving
assets from the Experience Account that are sufficient to cover the additional liability incurred for larger benefit payments to eligible participants.
4. However, the unfunded accrued liability that STPOL has relative to the Experience Account will increase. Before SB 1 6
is enacted, the STPOL unfunded accrued liability relative to the Experience Account was a negative $18.2 million. After
SB 16 is enacted, the unfunded accrued liability falls to a negative $8.7 million.
5. The total accrued liability for STPOL has increased due to the PBI grant. Total assets have remained the same.
Therefore, the total UAL for the system will increase $9.5.
6. The increase in total UAL must be amortized with level payments of $1.3 million per year over ten years in order to
comply with Article (10)(29)(F) of the Louisiana constitution.
Other Post Retirement Benefits
There are no actuarial costs associated with SB 16 for post-employment benefits other than pensions.
Analysis of Fiscal Costs
SB 16 will have the following effects on fiscal costs during the five year measurement period.
Expenditures:
1. Expenditures from the General Fund will increase $ 1,304,021 a year beginning FYE 2016 to amortize the additional
UAL created by SB 16.
2. Expenditures from STPOL (Agy Self- Generated) over the next five years will increase $3,990,523, an average of
$798,105 a year as larger benefits are distributed.
Revenues:
• STPOL revenues (Agy Self-Generated) will increase $ 1,304,021 a year beginning FYE 2016.
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. These assumptions and methods are in compliance with actuarial standards of practice. This data,
methods and assumptions are being used to provide consistency with the actuary for the retirement system who may also be
providing testimony to the Senate and House retirement committees.
2014 REGULAR SESSION
ACTUARIAL NOTE SB 16
Page 4 of 4
Exceptions: We have adjusted the results of our projected June 30, 2014 valuation, which is the benchmark for this actuarial note,
to reflect our conclusions stated below:
1. No UAL should have been created when assets were transferred to the Experience Account on June 30, 2013. This
transfer merely shifted assets from one fund to another within the body of the STPOL trust.
2. The PBI grant under SB 16 will create a new UAL for STPOL equal to $9.5 million. The accrued liability of the STPOL
Regular Benefit Account does not change. However, the surplus of assets in the Experience Account decreases from
$18.2 million to $8.7 million. Therefore, the total UAL for the system increases by $9.5 million.
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
x 13.5.1: Annual Fiscal Cost ≥ $100,000 x 6.8(F)(1): Annual State Fiscal Cost ≥ $100,000
13.5.2: Annual Tax or Fee Change ≥ $500,000 6.8(F)(2): Annual State Revenue Reduction ≥ $500,000
6.8(G): Annual Tax or Fee Change ≥ $500,000