2014 REGULAR SESSION
ACTUARIAL NOTE S B 2
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Senate Bill 2 SLS 14RS-57
Enrolled
Author: Senator Page Cortez
Date: June 6, 2014
LLA Note SB 2 .04
Organizations Affected:
Louisiana State Employees’
Retirement System and Parochial
Employees’ Retirement System
EN DECREASE APV
The Note was prepared by the Actuarial Services Department of the Office of the
Legislative Auditor. The attachment of the Note to SB 2 provides compliance with
the requirements of R.S. 24:521.
Bill Header: RETIREMENT BENEFITS. Provides relative to public employee benefits. (1/1/2015)
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 See Actuarial Analysis
Revenues See Actuarial Analysis
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 Decrease
Other Post Retirement Benefits See Actuarial Analysis
Total See Actuarial 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 See Below See Below See Below See Below See Below
Agy Self Generated Decrease 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 Decrease 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 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 $ 0 See Below See Below See Below See Below See Below
2014 REGULAR SESSION
ACTUARIAL NOTE S B 2
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Bill Information:
Current Law
PERS
Current law for P ERS provides for the following:
1. An employer that is a hospital taxing district of a parish may elect to participate in the Parochial Employees’
Retirement System (PERS).
2. If a taxing district, branch or section of a parish terminates its participation in PERS, it must pay to PERS an amount
equal to the unfunded accrued liability associated with its employees who will no longer be members of the system.
LASERS
Current law for LASERS provides for the following:
1. §446(F) − If a member selects any form of benefit other than a joint and survivor benefit and if the member fails to
provide an appropriately executed spousal consent to such form of benefit, then LASERS shall establish the benefit
as if the member had selected the Option 3 joint and survivor annuity.
2. §450(B) − An employee who continues in employment after the end of the DROP period must resume making
employee contributions to the system. Current law specifies that for certain public safety employees, the employee
contribution rate will be that prescribed in current law.
3. §471.1(G) − If a member dies, even after retirement, eligible minor children shall receive specified survivor
benefits. This provision pertains to members first employed on or after January 1, 2011.
Proposed Law
PERS
SB 2 will provide for the following:
1. A hospital service district within a parish with a population between 70,000 and 80,000 will be permitted to
terminate its participation in PERS for new employees hired by the employer after a specified future date.
Employees of the employer who are participating in PERS on the specified date will continue to participate in
PERS.
2. The employer shall pay PERS the portion of the unfunded actuarial accrued liability attributable to the prospective
termination. This calculation will be made in accordance with the Entry Age Normal funding method.
LASERS
SB 2 revises current law in the following manner:
1. §446(F) − SB 2 clarifies that LASERS will make the selection of the Option 3 annuity at the time of the member’s
retirement.
2. §450(B) − SB 2 clarifies that all employees (not just certain public safety employees) continuing employment after
exiting DROP will resume making employee contributions in accordance with rates specified in the law.
3. §471.1(G) − SB 2 provides that eligible children (not eligible minor children) will receive specified survivor
benefits. As a result, adult handicapped children will be eligible for survivor benefits.
Implications of the Proposed Changes
SB 2 will permit a participating employer of P ERS to discontinue its participation in the system for its employees hired after a
specified future date. It will require such employer to pay its share of the unfunded accrued liability, if any, associated with its
decision to end its participation in the system relative to new members.
SB 2 makes three remedial corrections to current LASERS law.
2014 REGULAR SESSION
ACTUARIAL NOTE S B 2
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Cost Analysis:
Analysis of Actuarial Costs
Retirement Systems
PERS
No member of PERS will receive a larger benefit from PERS as a result of SB 2 than he or she would have received under
current law. New employees of an employer electing to terminate from PERS under SB 2 will not be eligible to participate
or receive any benefit from PERS. Therefore, the present value of future benefit payments to future members of P ERS will be
reduced. The present value of future contributions relative to future new members will be reduced an equivalent amount.
If an employer terminates its participation in PERS relative to new hires, the number of new participants joining the
retirement system after the termination date will be reduced. Such reduction will generally result in higher costs for the
remaining employers. The reasons are given below.
1. Increases in the Employer Contribution Rate
a. Employer costs associated with PERS for a given year is an aggregation of costs for individual members that
vary by gender, age, pay and service. Costs can vary significantly from member to member.
b. The aggregation of costs for the current year will differ form costs for the subsequent year because some
members will terminate employment and new members join the system.
c. Members who join the retirement system in a given year are generally younger and significantly less costly than
members already in the system, for members who have terminated, and for members who have retired during
the year.
d. Therefore, new hires tend to reduce the aggregate cost to participating employers of the retirement system.
e. However, if an employer elects to terminate its participation in PERS for its younger and less costly new hires,
the characteristics of the remaining participants will change and the change will generally accelerate
contribution levels for the remaining members. As a result, contribution level s for entities that continue
participation with PERS will increase with cost shifting from the terminating employer to the remaining
employers.
2. Forfeitures of Employer Contributions
a. A significant factor in the cost structure of a retirement system is the forfeiture of employer contributions.
b. It is anticipated in the cost calculation that many of the employees who join PERS will terminate employment
prior to becoming eligible for a benefit.
c. Members who terminate without being eligible for a benefit receive a refund of their own contributions to
PERS.
d. However, contributions that have been made by the employer relative to these employees are retained by PERS.
e. New members who terminate employment within a few years after joining the system are a significant source of
forfeitures.
f. Therefore, if an employer elects to terminate its participation in PERS, the number of new members will be
reduce, the number of forfeitures will be reduced , and amounts forfeited to the system will be smaller.
3. Cost Shifting
a. PERS is funded according to the Aggregate funding method and, as a result, has no unfunded accrued liability.
All legacy gains and losses are included in the normal cost calculation.
b. PERS has accumulated a significant net legacy loss. Under the Aggregate funding method, this loss is allocated
to all members of the system including new members.
c. SB 2 eliminates a source of new members. Legacy costs will be allocated over fewer members. I t is likely that
employer contribution rates for all employers will increase. However, the payroll for all employers continuing
to participate will not change. As a result, the dollar cost for non-terminating entities will increase. The
terminating employer will have effectively transferred a portion of its legacy cost to all other entities
participating in PERS.
In light of the above discussion, we draw the following conclusions:
1. SB 2 does not contain any benefit provisions with an actuarial cost.
2014 REGULAR SESSION
ACTUARIAL NOTE S B 2
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2. Employer contribution rates are likely to increase. However, because payroll for non- terminating employers remain
the same, dollar cost for non- terminating employer will increase.
3. The dollar cost for the terminating entity will decrease because it will have lowered the payroll to which the
employer contribution rate applies.
4. The present value of future benefit payments by PERS relative to future members will decrease. The present value
of future employer contributions to PERS for future members will decrease.
5. The present value of future benefit payments by PERS relative to existing members does not change. The present
value of future employer contributions to PERS for existing members does not change.
6. Based on future demographics of the entities that continue to participate in PERS and those that terminate
participation, some cost shifting is likely to occur from the employer s that terminate to employers who do not.
LASERS
There are no actuarial costs associated with the changes made by SB 2.
Other Post-Employment Benefits
The effect of SB 2 on other post-employment benefit (OPEB) costs depends on OPEB arrangements made by each
participating employer in PERS. We were unable to obtain this information. There are no actuarial costs associated with
post-employment benefits other than pensions relative to the changes made by SB 2 to LASERS law.
Analysis of Fiscal Costs
SB 2 will have the following effects on fiscal costs during the five year measurement period.
PERS
Expenditures:
1. There will be relative minor changes in e xpenditures from Local Funds over the five year measurement period. First, a
participating entity has to elect to cease participation for new employees. Second, the number of new employees for a
terminating entity is likely to be relatively small during the five year measurement period. Any increase in dollar
contributions to the retirement system from employers is not likely to exceed $100,000 over the three year period
immediately following the 2014 legislative session.
2. Expenditures from PERS are likely to decrease. If an employer elects to terminate its participation in PERS, new hires
of the employer will not join the system. Refunds of employee contributions to these new hires upon their termination of
employment will not occur.
Revenues:
• There will be relative minor changes in PERS r evenues over the five year measurement period. Any decrease in
revenues is not likely to exceed $100,000 over the three year period immediately following the 2014 legislative session.
LASERS
SB 2 will have no effect on fiscal costs for LASERS during the five year measurement period.
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 adopted by PRSAC.
Actuarial Caveat
There is nothing in SB 2 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 necessary to render the actuarial opinion contained herein.
2014 REGULAR SESSION
ACTUARIAL NOTE S B 2
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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 Revenue Reduction ≥ $100,000
6.8(G): Annual Tax or Fee Change ≥ $500,000