2014 REGULAR SESSION
ACTUARIAL NOTE SB 26
Page 1 of 4
Senate Bill 26 SLS 14RS-174
Engrossed
Author: Senator Elbert L. Guillory
Date: April 2, 2014
LLA Note S B 26.02
Organizations Affected:
State Retirement Systems
EG NO IMPACT 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 26 provides compliance
with the requirements of R.S. 24:521.
Bill Header: RETIREMENT SYSTEMS. Provides for the assessment of employer contributions to fund certain administrative
expenses (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 $0
Total Five Year Fiscal Cost
Expenditures $196,976,419
Revenues $196,976,419
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 $0
Other Post Retirement Benefits $0
Total $0
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 $ 30,199,219 $ 29,042,657 $ 27,636,484 $ 26,186,104 $ 113,064,464
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 22,412,660 21,554,307 20,510,701 19,434,287 83,911,955
Annual Total $ 0 $ 52,611,879 $ 50,596,964 $ 48,147,185 $ 45,620,391 $ 196,976,419
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 52,611,879 50,596,964 48,147,185 45,620,391 196,976,419
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 $ 52,611,879 $ 50,596,964 $ 48,147,185 $ 45,620,391 $ 196,976,419
2014 REGULAR SESSION
ACTUARIAL NOTE SB 26
Page 2 of 4
Bill Information:
Current Law
The actuarially required employer contribution for the four state retirement systems – Louisiana State Employees’ Retirement
System (LASERS), Teachers’ Retirement System of Louisiana (TRSL), Louisiana School Employees’ Retirement System
(LSERS), and Louisiana State Police Retirement System (STPOL) − is defined as the sum of the following:
1. The employer normal cost,
2. The annual amortization payment necessary to amortize changes in unfunded accrued liabilities occurring in prior years,
3. The annual amortization payment necessary to amortize the most recent year’s over or underpayment of employer
contributions, and
4. The annual amortization payment necessary to amortize changes in unfunded accrued liabilities resulting from
gains/losses, asset valuation method changes, changes in actuarial assumptions or funding methods, and benefit changes
occurring over the most recent year.
Because the formula for employer contributions does not include any provision for their recovery, administrative expenses
produce an actuarial loss each year. Each annual loss is amortized over a 30 year period.
Proposed Law
SB 26 changes the formula to include projected annual administrative expenses in the calculation of employer contribution
requirements.
Implications of the Proposed Changes
If SB 26 is enacted, estimated noninvestment related administrative expenses will be included in the calculation of employer
contribution requirements.
Cost Analysis:
Analysis of Actuarial Costs
Retirement Systems
SB 26 contains no benefit provisions.
Administrative expenses have been included in actuarial losses since 1990. Table 1 shows administrative expenses for
LASERS and TRSL for each year since 1990. It also shows the amortization payment necessary to pay for the actuarial loss
over 30 years and the cumulative payments that are currently being made. Table 2 shows a projection of administrative
expenses through 2019. For example, LASERS administrati ve expense for 2000 was $10,242,213. This became an actuarial
loss which was then amortized over 30 years with level payments of $842,398. The cumulative payment of all past losses
attributable to administrative expenses was $5,575,617.
The process currently required by Louisiana law for administrative expenses can be summ arized as follows:
1. Instead of paying administrative expenses each year, participating employers are allowed to borrow these costs from
the retirement system and pay the system back over a 30 year period.
2. A new loan is taken out by employers each year for that year’s expenses.
3. Eventually, employers will have 30 loans, each with an amortization payment.
4. After 30 years, the first loan made in 1990 is paid off, but participating employers obtain a new loan for the then
current year administrative expenses.
5. Administrative expenses for 2013 for LASERS were $18,932,247. However, employers are now paying
$23,749,891 in loan payments to the system relative to administrative expenses. Employers are paying 125% more
in loan payments than they would have paid if they had paid for administrative expenses as they occurred.
6. The last loan payment for the 1990 loan will be paid in 2019. At that time, 30 loan payments will cost participating
employers of LASERS $34.1 million. Actual expenses will be only $22.6 million. Employer loan payments will be
151% larger than expenses.
7. The ratio of loan payments to administrative expenses will continue to grow thereafter, but will eventually stabilize
at about 167%.
8. The ratio of loan payments to administrative expenses for TRSL is currently about 123%. It is projected to be about
149% in 2019 and will eventually level off at about 167%.
2014 REGULAR SESSION
ACTUARIAL NOTE SB 26
Page 3 of 4
Table 1
Historical Analysis
Year
LASERS TRSL
Administrative
Expense
Amortization
Payment
Cumulative
Payments
Administrative
Expense
Amortization
Payment
Cumulative
Payments
1990 $ 2,577,670 $ 212,007 $ 212,007 $ 3,464,997 $ 284,988 $ 284,988
1991 3,145,390 258,701 470,708 3,950,865 324,949 609,937
1992 3,494,170 287,387 758,095 5,246,970 431,551 1,041,488
1993 4,702,924 386,804 1,144,900 5,366,598 441,390 1,482,878
1994 5,724,497 470,826 1,615,726 10,732,502 882,723 2,365,601
1995 6,465,576 531,778 2,147,504 6,811,064 560,194 2,925,794
1996 6.668,955 548,506 2,696,010 7,344,398 604,059 3,529,854
1997 6,773,908 557,138 3,253,148 6,011,443 494,427 4,024,281
1998 9,205,446 757,126 4,010,274 6,705,255 551,491 4,575,772
1999 8,789,889 722,947 4,733,221 7,044,432 579,388 5,155,160
2000 10,242,213 842,398 5,575,617 7,733,666 636,076 5,791,235
2001 13,872,637 1,140,991 6,716,610 8,655,615 711,904 6,503,139
2002 16,964,656 1,395,303 8,111,913 9,361,965 769,999 7,273,138
2003 11,829,437 972,943 9,084,856 11,178,783 919,428 8,192,567
2004 13,424,318 1,104,118 10,188,974 11,385,025 936,391 9,128,958
2005 18,634,313 1,532,628 11,721,602 12,717,185 1,045,958 10,174,916
2006 16,041,572 1,319,381 13,040,983 13,831,845 1,137,636 11,312,553
2007 15,784,050 1,298,201 14,339,184 14,370,760 1,181,961 12,494,513
2008 20,342,656 1,673,135 16,012,319 18,498,003 1,521,417 14,015,930
2009 19,623,966 1,614,025 17,626,344 19,321,250 1,589,127 15,605,057
2010 18,897,997 1,554,315 19,180,659 19,100,619 1,570,981 17,176,038
2011 18,181,272 1,495,366 20,676,025 18,189,491 1,496,042 18,672,080
2012 18,441,062 1,516,734 22,192,759 18,864,917 1,551,595 20,223,675
2013 18,932,247 1,557,132 23,749,891 17,661,969 1,452,655 21,676,330
Table 2
Prospective Analysis
Year
LASERS TRSL
Administrative
Expense
Amortization
Payment
Cumulative
Payments
Administrative
Expense
Amortization
Payment
Cumulative
Payments
2014 $ 19,500,214 $ 1,603,846 $ 25,353,738 $ 18,191,828 $ 1,496,235 $ 23,172,564
2015 20,085,220 1,651,962 27,005,699 18,737,583 1,541,122 24,713,686
2016 20,687,777 1,701,520 28,707,220 19,299,710 1,587,355 26,301,041
2017 21,308,410 1,752,566 30,459,786 19,878,701 1,634,976 27,936,017
2018 21,947,662 1,805,143 32,264,929 20,475,062 1,684,025 29,620,042
2019 22,606,092 1,859,297 34,124,226 21,089,314 1,734,546 31,354,588
SB 26 will stop the loan process. Estimated administrative expenses for FYE 2016 and later years will be included in the
calculation of the employer contribution rate. However, employers will still have to pay off the loans that have been made to
date. A projection for LASERS and TRSL of the fiscal costs associated with SB 26 is shown below in Table 3.
Table 3
Fiscal Cost Analysis
FYE
LASERS TRSL
Current Law SB 26
Increase /
(Decrease) Current Law SB 26
Increase /
(Decrease)
2015 $ 25,353,738 $ 25,353,738 $ 0 $ 23,172,564 $ 23,172,564 $ 0
2016 27,005,669 50,882,090 23,876,391 24,713,686 46,988,066 22,274,380
2017 28,707,220 51,499,723 22,792,503 26,301,041 47,891,840 21,590,799
2018 30,459,786 52,141,975 21,682,189 27,936,017 48,488,201 20,552,184
2019 32,264,929 52,800,405 20,535,476 29,620,042 49,102,453 19,482,411
Total $ 143,791,372 $ 232,677,931 $ 88,886,559 $ 131,743,350 $ 215,643,124 $ 83,899,774
2014 REGULAR SESSION
ACTUARIAL NOTE SB 26
Page 4 of 4
We estimate administrative expenses for LSERS and STPOL are about 14% of administrative expense for LASERS and
TRSL. Therefore the fiscal cost for the next five years for all state systems combined is shown below in Table 4.
Table 4
Allocation of F iscal Costs to the General Fund and to Local Funds
FYE
Increase / (Decrease)
Factor
Total Increase
/ (Decrease) General Fund
Local
Funds LASERS TRSL Total
2015 $ 0 $ 0 $ 0 1.14 $ 0 $ 0 $ 0
2016 23,876,391 22,274,380 46,150,771 1.14 52,611,879 30,199,219 22,412,660
2017 22,792,503 21,590,799 44,383,302 1.14 50,596,964 29,042,657 21,554,307
2018 21,682,189 20,552,184 42,234,373 1.14 48,147,185 27,636,484 20,510,701
2019 20,535,476 19,482,411 40,017,887 1.14 45,620,391 26,186,104 19,434,287
Total $ 88,886,559 $ 83,899,774 $ 172,786,333 1.14 $ 196,976,419 $ 113,064,464 $ 83,911,955
If SB 26 is enacted, no new loans will be given and beginning in in 2020 old loans will be liquidated one year at a time. By 2044, the only amount that will be included in employer contribution requirements relative to administrative expenses will be
the administrative expenses as they occur. All loans made through 2014 will be liquidated.
Other Post-Employment Benefits
There are no actuarial costs or savings associated with SB 26 for post -employment benefits other than pensions.
Analysis of Fiscal Costs
SB 26 will have the following effect on fiscal costs:
Expenditures:
1. Expenditures from the General Fund will increase because employer contribution requirements will increase during the
five year measurement period.
2. Local Fund expenditures will increase because employer contribution requirements will increase during the five year
measurement period.
Revenues:
• LASERS, TRSL, LSERS and STPOL revenues will increase because employer contribution requirements will increase
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 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 26 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.
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 ≥ $100,000
6.8(G): Annual Tax or Fee Change ≥ $500,000