2014 REGULAR SESSION
ACTUARIAL NOTE S B 29
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Senate Bill 29 SLS 14RS-282
Original
Author: Senator Michael A.
Walsworth
Date: March 28, 2014
LLA Note S B 29.01
Organizations Affected:
Teachers’ Retirement System of
Louisiana
OR +$312,500 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 29 provides compliance
with the requirements of R.S. 24:521.
Bill Header: TEACHERS RETIREMENT. Allows retired educational diagnosticians and reading specialists to avoid benefit
suspension during reemployment. (2/3 – CA10s29(F))
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 $312,500
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 $312,500
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 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 Increase Increase Increase Increase Increase
Agy Self Generated 40,406 25,000 25,000 25,000 25,000 140,406
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 $ 40,406 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 S B 29
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Bill Information:
Current Law
Current law generally prohibits any retiree of the Teachers’ Retirement System of Louisiana (TRSL) from receiving a retirement
benefit while reemployed.
Exceptions are made for certain classes of retirees including those holding advanced degrees in speech therapy, speech pathology,
and audiology. Benefits of these members will be suspended until the termination of his employment and the first anniversary of
his retirement, which ever first occurs.
Proposed Law
SB 29 adds educational diagnosticians and reading specialists to the list of retirees eligible for the less restrictive suspension of
benefit rules.
Implications of the Proposed Changes
SB 29 expands the list of retired teachers eligible for less restrictive suspension of benefit rules.
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 have otherwise earned.
There is a cost to SB 29. 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 SB
29, some of these same members would have remained fully employed without collecting a pension benefit.
Prior to the enactment of H B 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.
SB 29 will eliminate some of the savings estimated for Act 921. If SB 29 is enacted, we assume some workers will elect to
retire earlier than they would have otherwise. Without SB 29, 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?” There is no earnings limitation; therefore, it is likely that some members will be induced to
retire earlier than they would have otherwise because they can significantly enhance their retirement income through
reemployment.
Because there is no earnings limitation , SB 29 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 SB 29 cannot be
predicted with any degree of certainty. However, if one member retires each year a full year earlier than he would have
otherwise, the annual retiree payroll for TRSL will increase $25,000. This is based on the following information: 2014 REGULAR SESSION
ACTUARIAL NOTE S B 29
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1. On average, 3,500 members of TRSL retire each year.
2. One teacher is induced to retire one year earlier than he would have otherwise.
3. The average annual pension for the teacher induced to retire early is $25,000.
Therefore, the estimated annual cost is $25,000.
The actuarial present value of future benefit payments will increase approximately $312,500. This is based on the
assumption that one teacher will be collecting benefits each year in the future under SB 29 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 SB 29.
2. Employer premium expenditures may increase or decrease as a result of SB 29.
Analysis of Fiscal Costs
SB 29 will have the following effect on fiscal costs over the next 5 years.
Expenditures:
1. Expenditures from the General Fund will increase to the extent educational diagnosticians and reading specialists are
induced to retire earlier than they would have otherwise. Unanticipated TRSL expenditures will lead to higher employer
contribution requirements.
2. Expenditures from TRSL (Agy Self-Generated) will increase $25,000 a year in order to pay benefits that would not have
otherwise been paid. Administrative expenses will increase $15,406 in FYE 2015.
Revenues:
• TRSL revenues (Agy Self -Generated) will increase to the extent that employer contributions must be larger to
accommodate the estimated increase in annual benefit costs.
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 S B 29 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.
Dual Referral:
Senate House
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