2014 REGULAR SESSION
ACTUARIAL NOTE S B 555
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Senate Bill 555 SLS 14RS-340
Original
Author: Senator Dan W. “Blade”
Morrish
Date: April 11, 2014
LLA Note S B 555.01
Organizations Affected:
Teachers’ Retirement System of
Louisiana
OR +$21,690,000 FC LF EX
The Note was prepared by the Actuarial Services Department of the Office of the
Legislative Auditor. The attachment of the Note to S B 555 provides compliance
with the requirements of R.S. 24:521.
Bill Header: TEACHERS RETIREMENT. Provides for reemployment following retirement. (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 Increase
Total Five Year Fiscal Cost
Expenditures $21,690,000
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 See Note
Total Increase
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 Increase Increase Increase Increase Increase
Agy Self Generated 15,406 21,690,000 21,690,000 21,690,000 21,690,000 86,775,406
Stat Deds/Other 0 0 0 0 0 0
Federal Funds 0 0 0 0 0 0
Local Funds 0 Increase Increase Increase Increase Increase
Annual Total $ 15,406 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 555
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Bill Information:
Current Law
Current law prohibits any retiree of the Teachers’ Retirement System of Louisiana (TRSL) from receiving a retirement benefit
while reemployed, subject to certain exceptions. The benefit of a reemployed retiree is suspended for the duration of
reemployment.
Proposed Law
SB 555 adds retirees who have attained the age of 65 to the exceptions of those authorized for reemployment under current law.
Implications of the Proposed Changes
SB 555 will allow retirees of TRSL who have attained the age of 65 to return to work without being subject to a suspension of
benefits.
Cost Analysis:
Analysis of Actuarial Costs
Retirement Systems
SB 555 contains benefit provisions having an actuarial cost.
Currently, 34 retirees of TRSL age 65 and older who do not qualify as a “retired teacher,” are actively working and who have
had their entire retirement benefit suspended. There are 135 retirees age 65 and older who qualify as a “retired teacher” who
are actively working and have had their benefit suspended under the 25% rule. If SB 555 is enacted, benefit payments to
these retirees will resume. As a result, TRSL will pay out more in benefits that it is required to pay under current law.
If we assume the benefit suspended on average is $10,000 a year, then the annual cost of SB 555 is $1,690,000.
In addition, there are about 2,000 active teachers age 65 and older who have never retired. If SB 55 is enacted, it is likely that
these teachers will retire immediately, begin to collect a pension, and still continue to work. The annual cost of SB 555
associated with these members of TRSL is about $20 million, once again assuming the average pension that would be paid is
only $10,000.
The total annual cost ($21,690,000) is a conservative estimate. The true cost is likely to be larger. The average pension
benefit for TRSL is $24,500, not $10,000. If we had assumed the average suspended benefit was $24,500 and the average
benefit that would be payable to active teachers working after attaining age 65 was $24,500, the annual cost of SB 555 would
be about $53 million.
Other Post-Employment 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 555.
2. Employer premium expenditures may increase or decrease as a result of SB 555.
Analysis of Fiscal Costs
SB 555 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 members of TRSL who have attained the age of 65 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 $21,690,000 a year in order to pay benefits that would
otherwise have not been paid. Administrative expenses will increase $15,406 in FYE 2015.
Revenues:
• TRSL revenues (Agy Self-Generated) will increase because employer contribution requirements will increase.
2014 REGULAR SESSION
ACTUARIAL NOTE S B 555
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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 555 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
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 ≥ $500,000
6.8(G): Annual Tax or Fee Change ≥ $500,000