2015 REGULAR SESSION
ACTUARIAL NOTE H B 40
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House Bill 40 HLS 15RS-540
Original
Author: Representative Randal L.
Gaines
Date: April 29, 2015
LLA Note H B 40.01
Organizations Affected:
Statewide Retirement Systems
OR INCREASE APV
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 40 provides
compliance with the requirements of R.S. 24:52 1
Bill Header: RETIREMENT CREDIT: Authorizes the purchase of military service credit for vesting purposes in statewide
retirement systems.
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 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.
Change in the
Actuarial Cost to: Actuarial Present Value
All Louisiana Public Retirement Systems Increase
Other Post Retirement Benefits Increase
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 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 2019-20 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 Increase Increase Increase Increase Increase Increase
Annual Total Increase Increase Increase Increase Increase Increase
REVENUES 2015-16 2016-17 2017-18 2018-19 2019-20 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
2015 REGULAR SESSION
ACTUARIAL NOTE H B 40
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Bill Information:
Current Law
Current law establishes guidelines for members of the statewide retirement systems relative to the purchase of credit for military
service.
The following are considered statewide retirement systems:
1. Louisiana Assessors’ Retirement Fund (ASSR)
2. Clerks of Court Retirement and Relief Fund (CCRS)
3. District Attorneys’ Retirement System (DARS)
4. Firefighters’ Retirement System (FRS)
5. Municipal Employees’ Retirement System (MERS)
6. Municipal Police Employees’ Retirement System (MPERS)
7. Parochial Employees’ Retirement System (PERS)
8. Registrars of Voters Employees’ Retirement System (RVRS)
9. Sheriffs’ Pension and Relief Fund (SPRF)
Current law contains the following rules regarding the use of military service credits.
1. A member may purchase up to 4 years of military credit.
2. Military service may be used to determine eligibility for normal retirement benefits.
3. Military service may not be used to determine eligibility for disability and survivor benefits.
4. Military service may not be used to satisfy eligibility requirements for any retirement criteria based on 20 years of
service at any age or based on 20 years of service at age 50.
5. Military service may not be used to satisfy eligibility requirements for any retirement criteria based on less than 20 years
of service.
6. For items 3, 4, and 5, military service credits and the cost of purchasing such credits may not be calculated until a
member has at least 20 years of service.
These rules apply to the following retirement systems that provide unreduced benefits at any age with 20 or more years of service
or at age 50 with 20 years of service. – FRS and MPERS. These rules also apply to the rest of the statewide retirement systems,
which allow for actuarially reduced benefits with 20 years of service.
Proposed Law
HB 40 authorizes members of the statewide retirement systems to purchase military service credit at any time, regardless of the
number of years of service credit the member has in the system, and use such service credit for retirement eligibility.
Implications of the Proposed Changes
HB 40 will allow military service to be used for the purpose of satisfying service requirements for regular (unreduced) and early
(reduced) retirement.
Cost Analysis:
Analysis of Actuarial Costs
HB 40 contains benefit provisions having an actuarial cost.
Retirement Systems
Under current law, members of the statewide retirement systems may purchase military service that can be used for
retirement eligibility as long as it is not used to meet the minimum eligibility requirement for any regular retirement of 20
years or less.
HB 40 allows members of statewide retirement systems to purc hase military service credit and use it for retirement
eligibility.
Under HB 40, a member with 16 years of service with a statewide retirement system may purchase 4 years of military service
and then retire immediately with a benefit based on 20 years of service. Under current law, he would have had to work four
additional years to obtain 20 years of service. He could then purchase 4 years of military, retire, and have his benefit based
on 24 years of service credit.
As a result of HB 40, a member who purchases military service credit will be able to retire four years earlier than he would
have otherwise. 2015 REGULAR SESSION
ACTUARIAL NOTE H B 40
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Because the member must pay the full actuarial cost associated with the purchase of such military service, there is no
actuarial cost to the system except for costs associated with adverse selection.
Other Post-Employment Benefits
There are potent ial actuarial costs associated with HB 40 for post-employment benefits other than pensions since the member
of such system may retire earlier than expected. HB 40 will induce members of statewide retirement system to retire earlier
then they would have otherwise. If the employer pays a portion of the retiree health insurance premium, the annual cost for
post-employment benefits other than pensions will increase.
Analysis of Fiscal Costs
Statewide retirement system members may purchase military service credit under HB 40 and become eligible to retire earlier than
expected. Benefit payments to such member will increase on account of additional service credits and earlier eligibility to normal
retirement. HB 40 will have the following effects on fiscal costs during the five year measurement period.
Expenditures:
1. Expenditures from statewide retirement systems (Agy Self-Generated) will increase to pay pension benefits that would not
otherwise have been paid due to earlier retirement than expected.
2. Expenditures from Local Funds will increase because employer contribution requirements will increase due to the cost of
adverse selection.
3. Expenditures from Local Funds will increase to the extent that employers pay a portion of annual premiums for retiree health
insurance.
Revenues:
1. Revenues for statewide retirement systems (Agy Self-Generated) will increase to the extent that military service is purchased
and members deposit funds with the systems to pay for such service credits.
2. Revenues for statewide retirement systems (Agy Self-Generated) will increase to the extent that employer contributions
increase due to adverse selection.
It cannot be determined when a statewide retirement system member or members will purchase military service. However, it is
quite likely that the sum of pension benefits being paid that would not have otherwise been paid will exceed $100,000 in the three
years immediately following the 2015 legislative session.
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 40 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 act uarial opinion contained herein.
Dual Referral:
Senate House
x 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