2014 REGULAR SESSION
ACTUARIAL NOTE SB 19
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Senate Bill 19 SLS 14RS-77
Enrolled
Author: Senator Guillory, et. al.
Date: May 16, 2014
LLA Note S B 19.04
Organizations Affected:
Louisiana School Employees’
Retirement System
EN +$15,862,663 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 19 provides compliance
with the requirements of R.S. 24:521.
Bill Header: SCHOOL EMPLOYEES RET . 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 $15,862,663
Total Five Year Fiscal Cost
Expenditures See Below
Revenues $0
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 $15,862,663
Other Post Retirement Benefits $0
Total $15,862,663
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 administrati ve
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 See Below See Below See Below See Below See Below See Below
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 See Below See Below See Below See Below See Below See Below
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 0 0 0 0 0
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 $ 0 $ 0 $ 0 $ 0 $ 0
2014 REGULAR SESSION
ACTUARIAL NOTE SB 19
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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 Counsel 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 criteria, which is generally age 60 with one year of retirement, and the basis for the
amount of 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 School Employees’ Retirement System (LSERS) will be eligible for
a PBI.
1. Each retiree who satisfies all of the following criteria on June 30, 2014:
• Has received a benefit for at least one year, and
• 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:
• The deceased member or beneficiary or both combined have received benefits for at least one year, and
• 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
retirees/beneficiary’s benefit that is less than $94,313.
Proposed Law
SB 19 provides that template law will apply effective June 30, 2014 .
If any of the instruments which originated as SB 16, SB 18, SB 21, and HB 1225 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 19, amounts in the LSERS Experience Account will be used to provide permanent benefit increases for certain
retirees and beneficiaries. The maximum benefit increase will be the lesser of 1.5% x the current annual benefit and $1,414.70.
Cost Analysis:
Analysis of Actuarial Costs
Retirement Systems
The actuarial present value of future benefits of LSERS will increase $ 15,862,662 if SB 19 is enacted. Additional
information is shown below:
Eligible Members Number Increase in Accrued Liability
Retirees Age 60 and Older and Retired One Year 9,438 $ 13,391,311
Beneficiaries and Survivors 2,186 2,177,966
Disability Retirees 306 293,385
Total 11,930 $ 15,862,662
LSERS achieved significant investment gains for FYE 2013. As a result, a new charge base equal to $31,668,697 was
established on June 30, 2013, and the same amount was then transferred from the Regular Benefit Account to the Experience 2014 REGULAR SESSION
ACTUARIAL NOTE SB 19
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Account on July 1, 2013. Employer amortization costs for the next 30 years will be $2,526,473 larger than they would have
been otherwise.
The PBI to be granted on July 1, 2014, under SB 19 has a present value cost equal to $15,862,662. However, the balance in
the Experience Account is significantly greater than the $15.9 million cost for the PBI and it is considered by the System that
the PBI is fully funded. However :
1. Employers still have 29 years of amortization payments left in order to restore the Regular Benefit Account to its
original position. The Experience Account is funded only because plan sponsors borrowed from the Regular Benefit
Account to fund the Experience Account.
2. The average duration of the 1.5% PBI to be granted on July 1, 2014, is about 10 years. However, employers will be
paying for the grant for the next 29 years.
The method described above has been used by the state retirement systems since 1992 when the Experience Account and
PBIs were originally enacted for LASERS and TRSL. The method was appropriate in 1992 based on prevailing Louisiana
law, actuarial standards of practice, and other factors long lost to history. But in our opinion, the method should be
reexamined in order to accommodate current law, current actuarial standards of practice and current needs of the state.
There is no consensus about whether a change in method can be made without legislation. For this reason, the actuarial note
for this bill has been revised to reflect current System practices.
Therefore:
1. The actuarial present value of future benefit payments will increase $15,862,662 as a result of SB 19.
2. The Experience Account has sufficient funds to offset the cost of the PBI under SB 19.
3. Because a charge base has already been established to amortize the cost over 30 years a new base is not needed.
4. SB 19 will have no effect on the General Fund or Local Funds during the five year measurement period.
Other Post Retirement Benefits
There are no actuarial costs associated with SB 19 for post-employment benefits other than pensions.
Analysis of Fiscal Costs
Expenditures:
1. Expenditures from the General Fund will not change.
2. Expenditures from LSERS (Agy Self-Generated) will increase beginning FYE 2015 as larger pension benefits are
distributed. There will be an outflow of funds from the System for the PBI payments to eligible retirees and
beneficiaries in the following amounts by year.
Fiscal Year
Increase in
LSERS Expenditures
2014-15 $ 1,747,142
2015-16 1,691,648
2016-17 1,634,525
2017-18 1,575,911
2018-19 1,515,954
Total $ 8,165,180
3. Expenditures from Local Funds will not change.
Revenues:
• LSERS revenues (Agy Self-Generated) will not change. Assets in the Experience Account will be transferred to the
Regular Benefit Account to cover the additional liability associated with the enactment of SB 19.
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.
Actuarial Caveat
There is nothing in SB 19 that will compromise the signing actuary’s ability to present an unbiased statement of actuarial opinion. 2014 REGULAR SESSION
ACTUARIAL NOTE SB 19
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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
x 13.5.1: Annual Fiscal Cost ≥ $100,000 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