2015 REGULAR SESSION
ACTUARIAL NOTE H B 10
Page 1 of 4
House Bill 10 HLS 15RS-23
Original
Author: Representative J. Kevin
Pearson
Date: April 21, 2015
LLA Note H B 10.01
Organizations Affected:
Teachers’ Retirement System of
Louisiana
OR SEE ACTUARIAL ANALYSIS
This Note has been prepared by the Actuarial Services Department of the Office of
the Legislative Auditor. The attachment of this Note to H B 10 provides
compliance with the requirements of R.S. 24:52 1
Bill Header: RETIREMENT/TEACHERS: Authorizes a member of the Teachers’ Retirement System of Louisiana to purchase
credit for service as a teacher at an out-of-state nonpublic school.
Cost Summary:
The estimated actuarial and fiscal impact of the proposed legislative 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 to Retirement Systems See Actuarial Analysis
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.
Change in the
Actuarial Cost to: Actuarial Present Value
All Louisiana Public Retirement Systems See Actuarial Analysis
Other Post Retirement Benefits See Actuarial Analysis
Total See Actuarial Analysis
Estimated Fiscal Impact:
The chart below shows the estimated fiscal impact of the proposed legislation. This represents the effect on cash flows for the
retirement systems and other government entities.. Fiscal costs include estimated administrative costs and costs associated with other
fiscal concerns. A fiscal cost is denoted by “Increase” or a positive number. Actuarial or fiscal savings are denoted by “Decrease” or
a negative number.
EXPENDITURES 2015-16 2016-17 2017-18 2018-19 2019-2020 5 Year Total
State General Fund See Analysis See Analysis See Analysis See Analysis See Analysis See Analysis
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 See Analysis See Analysis See Analysis See Analysis See Analysis See Analysis
Annual Total See Analysis See Analysis See Analysis See Analysis See Analysis See Analysis
REVENUES 2015-16 2016-17 2017-18 2018-19 2019-2020 5 Year Total
State General Fund Increase 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 Decrease Decrease Decrease Decrease Decrease Decrease
Annual Total See Analysis See Analysis See Analysis See Analysis See Analysis See Analysis
2015 REGULAR SESSION
ACTUARIAL NOTE H B 10
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Bill Information:
Current Law
An active member of the Teachers’ Retirement System of Louisiana (TRSL) may purchase service credits under the system for
teaching service rendered in any of the following:
1. A charter school.
2. A nonpublic college or university in Louisiana.
3. A state-approved elementary or secondary nonpublic or parochial school in Louisiana.
To obtain such credit, the active member must submit an application to the board of trustees. The application:
1. Must be made prior to the date of the member’s application for retirement.
2. Must furnish a detailed statement of all service for which credit is claimed.
3. Must pay an amount equal to the present value of the additional benefit to be granted as a result of the purchased service
credit. This calculation is based on the following assumptions:
a. If the member is eligible to retire (early or normal retirement), he will retire immediately. The amount to be paid by
the member will be based on interest and mortality tables approved by the board of trustees and used in the most
recent actuarial valuation.
b. If the member is not yet eligible to retire (early or normal retirement), he will remain in service until he is eligible
and then retire. The amount to be paid by the member will be based on the following:
1). The member will not leave the system for any reason until he become eligible to retire.
2). The member’s salary will increase from the date of the service purchase until the date of his earliest eligibility
for retirement.
3). It will be assumed that the member will retire on the date he is first eligible for retirement.
4). Interest and mortality used in the present value calculation will be based on assumptions approved by the board
of trustees and used in the most recent valuation.
To obtain such credit, the board of trustees must verify the statement of service claimed by the member.
Proposed Law
Under HB 10, the list of institutions for which additional service credits can be purchased will be expanded to include elementary
or secondary nonpublic schools in a state other than Louisiana.
Implications of the Proposed Changes
HB 10 authorizes a member of TRSL to purchase service credit for time spent as a teacher in a nonpublic elementary or
secondary school in another state.
Cost Analysis:
Analysis of Actuarial Costs
HB 10 contains a benefit improvement: the ability to purchase service credits relative to out of state nonpublic school teaching. If HB
10 is enacted, there will be actuarial costs for some TRSL members who purchase such service and actuarial savings for others.
Retirement Systems
1. Analysis relative to a member who is eligible to retire and who purchases service under the provisions of HB 10
a. The purchase price for such a member will be equal to the increase in the accrued liability incurred by the retirement
system. However, this conclusion does not account for adverse selection costs or the cost associated with the
member being induced to retire earlier than he would otherwise.
b. Adverse selection is likely to occur because a member who purchases such service knows information about himself
that the retirement system cannot use in its purchase price calculation or its accrued liability calculations.
c. A member who is already eligible to retire may retire earlier with the additional service credits than he would have
without them. The additional service credits may be sufficient to provide the member with a retirement benefit that
he will deem satisfactory for his retirement.
2015 REGULAR SESSION
ACTUARIAL NOTE H B 10
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d. The net effect will be an increase in actuarial costs.
2. Analysis relative to a member who is not eligible to retire and who purchases service under the provisions of HB 10.
a. The purchase price for such a member will be greater than the increase in the accrued liability incurred by the
retirement system. Therefore, actuarial savings will occur. However, this conclusion does not account for adverse
selection costs.
b. Adverse selection is likely to occur because a member who purchases such service knows information about himself
that the retirement system cannot use in its purchase price calculation or its accrued liability calculations.
c. A member who terminates employment before becoming eligible to retire is likely to retire as soon as he become
eligible regardless of the amount of service credit he has. Therefore, this portion of HB 10 will not induce earlier
retirement and there are no additional actuarial costs associated with retirement inducements.
d. The actuarial savings discussed under item “a” above will be offset by adverse selection costs (item “b”). The net
effect will be a cost for some members and savings for others.
Other Post-Employment Benefits
Actuarial costs associated with post-employment benefits other than pensions will increase to the extent that a person who
makes such a purchase is induced to retire earlier that he would have otherwise. Actuarial costs will also increase should the
percentage of the premium paid by the state or school be based on accumulated service credits.
Analysis of Fiscal Costs
HB 10 will have the following effects on fiscal costs during the five year measurement period.
Expenditures:
1. Expenditures from the General Fund to TRSL will increase or decrease depending upon the characteristics of higher
education members electing to purchase HB 10 service credits .
2. Expenditures from the General Fund to retiree health insurance providers will increase to the extent that higher education
members are induced to retire earlier than otherwise. Premiums will be paid by the state for a longer period of time.
3. The net effect of items 1 and 2 will be an increase or decrease depending on the characteristics of the higher education
members purchasing HB 10 service credits.
4. Expenditures from TRSL (Agy Self Generated) will increase to the extent that a member purchases service credits and
retires during the 5-year fiscal measurement period.
5. Expenditures from Local Funds to TRSL will increase or decrease depending upon the characteristics of K-12 teachers
electing to purchase HB 10 service credits.
6. Expenditures from Local Funds to retiree health insurance providers will increase to the extent that higher education
members are induced to retire earlier than otherwise. Premiums will be paid by school district for a longer period of
time.
7. The net effect of items 5 and 6 will be an increase or decrease depending on the characteristics of the K-12 members
purchasing HB 10 service credits.
Revenues:
1. General Fund revenues will increase to the extent that higher education members are induced to retire ear lier than
otherwise. Health insurance premiums will be received from employees and higher education employers for a longer
period of time.
2. TRSL revenues (Agy Self Generated) will increase to the extent that members purchase such service credits during the 5 -
year fiscal measurement period.
3. Local Fund revenues will decrease to the extent that the percentage of the health insurance premium paid by a member in
K-12 who purchases such service decreases.
The net effect on expenditures and revenues can only be determined for each individual member actually electing to purchase HB
10 service. No definitive conclusion about expenditures and revenues in the aggregate can be made. However, e xpenditures and
revenues for each Fund separately and in total during the three year period immediately following the 2015 session are estimated
to be less than $100,000.
According to TRSL, publications and educational/training materials must be updated should HB 10 become law. However, on-
going education/training and the issuance of updated publications will be covered in communications and education/training
programs which are already in place for TRSL.
2015 REGULAR SESSION
ACTUARIAL NOTE H B 10
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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 adopted by PRSAC.
Actuarial Caveat
There is nothing in H B 10 that will compromise the signing actuary’s ability to present an unbiased statement of actuarial opinion.
Actuarial Credentials:
Paul T. Richmond is the actuary 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 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