2014 REGULAR SESSION
ACTUARIAL NOTE S B 5
Page 1 of 3
Senate Bill 5 SLS 14RS-48
Original
Author: Senator Elbert L. Guillory
Date: March 16, 2014
LLA Note S B 5.01
Organizations Affected:
Teachers’ Retirement System of
Louisiana
OR INCREASE 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 5 provides compliance with
the requirements of R.S. 24:521.
Bill Header: TEACHERS RETIREMENT. Allows an optional retirement plan participant to transfer to the regular plan. (2/3 -
CA10s29(F)) (6/15/14)
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 Increase
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 Increase
Other Post Retirement Benefits $0
Total Increase
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 Increase 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 Increase 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 Increase 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 Increase Increase Increase Increase Increase Increase
2014 REGULAR SESSION
ACTUARIAL NOTE S B 5
Page 2 of 3
Dual Referral:
Senate House
x 13.5.1: Annual Fiscal Cost ≥ $100,000 x 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
Bill Information:
Current Law
Current law provides that academic and administrative employees of public institutions of higher education may elect to
participate in the TRSL Optional Retirement Plan. The Optional Retirement Plan (ORP) is a defined contribution plan designed
to provide employees in higher education with benefit portability. The election to participate must be made within 60 days of the
employee’s date of hire. The election is irrevocable.
Proposed Law
SB 5 will provide members of ORP who elected ORP participation before December 31, 2013, to make a one time irrevocable
election to transfer from ORP to TRSL’s defined benefit plan. This transfer will be implemented in accordance with the
following:
1. The entire ORP account balance of an electing member will be transferred from ORP to the defined benefit plan.
2. The system’s actuary shall determine the amount of service credit that may be purchased with the member’s account
balance. This calculation shall be made in accordance with the provisions of R.S. 11:158.
3. If the amount balance is not sufficient to purchase the full service credits that the member would have earned under the
TRSL defined benefit plan had he not joined ORP, then he may purchase all or a portion of the additional credits to
which he would have been entitled. The purchase price is equal to the cost of such service credits calculated in
accordance with R.S. 11:158.
Implications of the Proposed Changes
SB 5 gives a member of ORP who made an irrevocable election to participate in ORP the right to revoke that election and become
a participant in the TRSL defined benefit plan.
Cost Analysis:
Analysis of Actuarial Costs
Retirement Systems
SB 5 allows a member to revoke an irrevocable election. No matter how well crafted, such a change in law will lead to an
increase in the present value of benefits payable to individual members and to an increase in the unfunded accrued liability.
On its surface, SB 5 appears to be cost neutral: the transferring member pays the actuarial cost associated with the transfer.
However, the transferring member has more knowledge about his position in life than the retirement system. Therefore, a
member who perceives that a transfer will be favorable will initiate a transfer and TRSL will incur an unfunded liability. The
system cannot accommodate in its actuarial cost calculation all the contingencies associated with the individual’s position in
life. A member who perceives a transfer to be unfavorable will not request a transfer and no actuarial unfunded liability will
be created.
In light of this, we conclude the following:
1. SB 5 contains a benefit provision with an actuarial cost.
2. The present value of future benefit payments associated with SB 5 cannot be measured, but will increase.
3. The unfunded accrued liability of the retirement system associated with SB 5 cannot be measured, but will increase.
4. The present value of future employer contributions associated with SB 5 cannot be measured, but will increase.
Other Post-Employment Benefits
There are no actuarial costs or savings associated with SB 5 for other post-employment benefits.
2014 REGULAR SESSION
ACTUARIAL NOTE S B 5
Page 3 of 3
Analysis of Fiscal Costs
SB 5 will have the following effect on fiscal costs.
Expenditures:
1. To the extent that members of ORP transfer to the defined benefit plan, employer contributions payable from General
Funds to TRSL will increase as a result of anti-selection.
2. To the extent that members of ORP elect to transfer to the defined benefit plan, expenditures from TRSL (Agy Self-
Generated) will increase. Benefits payable from TRSL will be larger because members eligible for benefit payments will
increase.
Revenues:
1. To the extent that members of ORP transfer to the defined benefit plan, employer contributions payable TRSL (Agy
Self-Generated) will increase as a result of anti-selection.
2. TRSL revenues (Agy Self-Generated) will increase as funds are transferred from ORP to TRSL and as members make
additional payments to purchase additional service credits.
It is likely that expenditures from the General Fund or from TRSL will increase more than $100,000 in one of the first three years
of 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. The actuary signing this note may or may not agree with or endorse these assumptions. He is using
this data, methods and assumptions to provide consistency with the actuary for the retirement system who also may be providing
testimony to the Senate and House retirement committees.
Actuarial Caveat
There is nothing in S B 5 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.