2015 REGULAR SESSION
ACTUARIAL NOTE SB 14
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Senate Bill 14 SLS 15RS-151
Original
Author: Senator Elbert L Guillory
Date: April 14, 2015
LLA Note S B 14.01
Organizations Affected:
All State Retirement Systems
OR NO IMPACT APV
This Note has been prepared by the Actuarial Services Department of the Office of
the Legislative Auditor. The attachment of this Note to SB 1 4 provides compliance
with the requirements of R.S. 24:52 1
Bill Header: Provides for determination of employer contributions. (6/30/15)
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 $0
Total Five Year Fiscal Cost
Expenditures $ 172,355,362
Revenues $ 172,355,362
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 $0
Other Post Retirement Benefits $0
Total $0
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 2018-2019 2019-2020 5 Year Total
State General Fund $ 0 $ 26,115,067 $ 24,809,486 $ 23,464,737 $ 22,079,646 $ 96,468,936
Agy Self Generated 0 0 0 0 0 0
Stat Deds/Other 0 0 0 0 0 0
Federal Funds 0 0 0 0 0 0
Local Funds 0 20,516,133 19,506,787 18,467,161 17,396,345 75,886,426
Annual Total $ 0 $ 46,631,200 $ 44,316,273 $ 41,931,898 $ 39,475,991 $ 172,355,362
REVENUES 2015-16 2016-17 2017-18 2018-2019 2019-2020 5 Year Total
State General Fund $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Agy Self Generated 0 46,631,200 44,316,273 41,931,898 39,475,991 172,355,362
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 $ 46,631,200 $ 44,316,273 $ 41,931,898 $ 39,475,991 $ 172,355,362
2015 REGULAR SESSION
ACTUARIAL NOTE SB 14
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Bill Information:
Current Law
The actuarially required employer contribution for the four state retirement systems – Louisiana State Employees’ Retirement
System (LASERS), Teachers’ Retirement System of Louisiana (TRSL), Louisiana School Employees’ Retirement System
(LSERS), and Louisiana State Police Retirement System (STPOL) − is defined as the sum of the following:
1. The employer normal cost,
2. The annual amortization payment necessary to amortize changes in unfunded accrued liabilities (UAL) occurring in prior
years,
3. The annual amortization payment necessary to amortize the most recent year’s over- or under-payment of employer
contributions, and
4. The annual amortization payment necessary to amortize changes in UAL resulting from gains/losses, asset valuation
method changes, changes in actuarial assumptions or funding methods, and benefit changes occurring over the most
recent year.
Because the formula for employer contributions does not include any provision for their recovery, administrative expenses
produce an actuarial loss each year. Each annual loss is amortized with level payments over a 30 year period.
Proposed Law
SB 14 changes the contribution formula to include projected annual administrative expenses in the calculation of employer
contribution requirements. Administrative expense will no longer be treated as an actuarial loss. If enacted, SB 14 will be
implemented for the state retirement systems beginning with the June 30, 2015 valuations and will first affect contribution
requirements for FYE 2017.
Implications of the Proposed Changes
If SB 14 is enacted, estimated noninvestment related administrative expenses will be included in the calculation of employer
contribution requirements.
Cost Analysis:
Analysis of Actuarial Costs
Retirement Systems
SB 14 contains no benefit provisions.
Current Law
Since FYE 1990, annual administrative expense ha s been treated as an actuarial loss and amortized over 30 years . Table 1
shows the cumulative cost of amortizing administrative expense for LASERS, TRSL, LSERS, and STPOL for each year from
June 30, 1990 through June 30, 2015. It shows cumulative administrative expense incurred for FYE 1990 through FYE 2015 ,
cumulative amortization payments over the same period, and cumulative amortization payments that remain. It also shows
actual administrative expenses for FYE 2015 and the FYE 2015 payment to cover the amortization of unpaid administrative
expense prior to June 30, 2015 .
Table 1: Historical Analysis FYE 1990 through FYE 20 15
LASERS TRSL LSERS STPOL Total
a. Cumulative Administrative Expenses:
FYE 1990 through FYE 2015
$ 324,566,221 $ 299,121,094 $ 75,016,300 $ 10,107,226 $ 708,810,841
b. Cumulative Amortization Payments:
FYE 1990 through FYE 2015
265,399,080 246,607,320 58,166,323 7,962,762 578,135,485
c. Amortization Payments that Remain on
Losses from FYE 1990 Through FYE
2015
518,445,898 475,786,300 115,199,219 14,873,826 1,124,305,243
d. Interest Paid to Date:
= (b) + (c) – (a)
459,278,757 423,272,526 98,349,242 12,729,363 993,629,887
e. Administrative Expense for FYE 2015 18,168,272 18,048,582 4,764,347 641,366 41,621,567
f. Payment in FYE 2015 to Amortize
Losses Due to Administrative Expense s
Incurred Prior to 2015
26,128,166 24,079,787 5,778,851 761,220 56,748,024
g. Ratio = (f) /(e) 144% 133% 121% 119% 136% 2015 REGULAR SESSION
ACTUARIAL NOTE SB 14
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The process used to pay for administrative expenses under current law is summarized below.
1. Instead of paying administrative expenses each year, participating employers are allowed to “ borrow” these costs
from the retirement system and pay the system back over a 30 year period at the plan’s assumed long term rate.
2. A new “ loan” is taken out by employers each year for that year’s expenses.
3. Eventually, employers will have 30 “ loans”, each with an amortization payment.
4. The first “loan” ($2,577,670 for LASERS and $3,464,997 for TRSL) made in FYE 1990 will be paid off in FYE
2020. Over the thirty years, LASERS will have paid $6,360,210 to pay off the FYE 1990 administrative expense
($2,577,670) TRSL will have paid $8,549,640 to pay off the FYE 1990 administrative expense ($3,464,997).
5. On the June 30, 2019 valuation date, there will be 30 outstanding “loans”, one for each year from FYE 1990 through
FYE 2019. Each year thereafter, there will be 30 “loans” for each state system.
6. For example, “loan” payments relative to administrative expenses will cost participating employers of LASERS
$33.9 million for FYE 2020 . Actual administrative expense for FYE 2020 is estimated to be only about $21.1
million. Employer “loan” payments will be 59% larger than actual administrative expenses projected for FYE 202 0.
7. LASERS’ administrative expense for FYE 2015 was $18,168,272. However, employers made $26,128,166 in “loan”
payments to the system relative to cumulative administrative expenses. Employers paid 44% more in “loan”
payments than the actual administrative expenses incurred in FYE 2015.
8. If it is assumed that administrative expense will increase 3% a year, t he ratio of “loan” payments for LASERS to
actual administrative expense will increase to about 172% by FYE 2029. The ratio will then gradually decrease and
eventually stabilize at about 163%.
9. The ratio of “loan” payments to cover cumulative administrative expenses for TRSL is currently about 1 33% of
actual administrative expense for FYE 2015 . This ratio is projected to reach 167% for FYE 2034 and will eventually
level off at about 163 %.
Senate Bill 14
SB 14 will end the “loan” process. Estimated administrative expenses for FYE 2016 and later years will be included in the
calculation of the employer contribution rate. The annual cost to employers will be the sum of the amount needed to make
the amortization payment for “loans” from FYE 1990 through FYE 2015, and administrative expense expected to be incurred
for FYE 2016 .
If SB 14 is enacted, “ loans” will begin to be liquidate d one year at a time starting in FYE 2020. By FYE 2045, all loans
made FYE 1990 through FYE 2015 will be liquidated, and employer contribution requirements will only include
administrative expense as it occurs.
Tables 2.1 through 2.4 show the projected payments to cover administrative expenses under current law and SB14.
Table 2.1: LASERS
Current Law SB 14 Impact of SB14
FYE
Admin.
Expenses-
New Loan
Amortization
Payment on the
New Loan
Cumulative
Payments on
Historical Loans
Admin.
Expense
Cumulative
Payments on
Historical Loans
Total
Payments
Increase/
(Decrease)
2016 $ 18,712,290 $ 1,506,373 $ 27,634,539 $ 18,172,290 $ 26,128,166 $ 44,840,456 $ 17,205,917
2017 19,273,659 1,551,564 29,186,103 19,273,659 26,128,166 45,401,825 16,215,722
2018 19,851,869 1,598,111 30,784,215 19,851,869 26,128,166 45,980,035 15,195,820
2019 20,447,425 1,646,055 32,430,269 20,447,425 26,128,166 46,575,591 14,145,322
2020 21,060,848 1,695,436 33,918,198 21,060,848 25,920,659 46,981,507 13,063,309
2021-2044 746,802,213 32,479,272 1,246,997,058 746,802,213 388,012,575 1,134,814,788 (112,182,270)
2045 44,096,742 3,549,867 71,666,331 44,096,742 - 44,096,742 (27,569,589)
2015 REGULAR SESSION
ACTUARIAL NOTE SB 14
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Table 2.2: TRSL
Current Law SB 14 Impact of SB14
FYE
Admin.
Expenses-
New Loan
Amortization
Payment on the
New Loan
Cumulative
Payments on
Historical Loans
Admin.
Expense
Cumulative
Payments on
Historical Loans
Total
Payments
Increase/
(Decrease)
2016 $ 18,590,039 $ 1,496,532 $ 25,576,319 $ 19,590,039 $ 24,079,787 $ 42,669,826 $ 17,093,507
2017 19,147,740 1,541,428 27,117,747 19,147,740 24,079,787 43,227,527 16,109,781
2018 19,722,172 1,587,670 28,705,417 19,722,172 24,079,787 43,801,959 15,096,542
2019 20,313,837 1,635,301 30,340,717 20,313,837 24,079,787 44,393,624 14,052,907
2020 20,923,252 1,684,360 31,746,138 20,923,252 23,800,849 44,724,101 12,977,962
2021-2044 741,923,155 59,726,152 1,209,038,830 741,923,155 355,666,302 1,097,589,457 (111,449,374)
2045 43,808,644 3,526,675 71,198,116 43,808,644 - 43,808,044 (27,389,472)
Table 2.3: LSERS
Current Law SB 14 Impact of SB14
FYE
Admin.
Expenses-
New Loan
Amortization
Payment on the
New Loan
Cumulative
Payments on
Historical Loans
Admin.
Expense
Cumulative
Payments on
Historical Loans
Total
Payments
Increase/
(Decrease)
2016 $ 4,907,277 $ 378,030 $ 6,156,882 $ 4,907,277 $ 5,778,851 $ 10,686,128 $ 4,529,247
2017 5,054,495 389,371 6,546,253 5,054,495 5,778,851 10,833,346 4,287,094
2018 5,206,130 401,052 6,947,305 5,206,130 5,778,851 10,984,981 4,037,677
2019 5,362,314 413,084 7,360,389 5,362,314 5,778,851 11,141,165 3,780,777
2020 5,523,183 425,476 7,685,211 5,523,183 5,678,197 11,201,380 3,516,170
2021-2044 195,847,961 15,087,071 301,971,044 195,847,961 86,405,616 282,253,577 (19,717,467)
2045 11,564,315 890,852 17,984,937 11,564,315 - 11,564,315 (6,420,622)
Table 2.4: STPOL
Current Law SB 14 Impact of SB14
FYE
Admin.
Expenses-
New Loan
Amortization
Payment on the
New Loan
Cumulative
Payments on
Historical Loans
Admin.
Expense
Cumulative
Payments on
Historical Loans
Total
Payments
Increase/
(Decrease)
2016 $ 660,607 $ 49,753 $ 810,973 $ 660,607 $ 761,220 $ 1,421,827 $ 610,854
2017 680,425 51,246 862,219 680,425 761,220 1,441,645 579,426
2018 700,838 52,783 915,002 700,838 761,220 1,462,058 547,056
2019 721,863 54,367 969,369 721,863 761,220 1,483,083 513,714
2020 743,519 55,998 1,015,330 743,519 751,183 1,494,702 479,372
2021-2044 26,364,641 1,985,637 39,448,725 26,364,641 11,077,765 37,442,406 (2,006,319)
2045 1,556,764 117,247 2,367,030 1,556,764 - 1,556,764 (810,266)
Other Post-Employment Benefits
There are no actuarial costs or savings associated with SB 14 for post-employment benefits other than pensions.
Analysis of Fiscal Costs
Table 3 compares fiscal costs relative to the state retirement systems under SB 14 and current law. Note: SB 14 has no effect
on FYE 2016 because the contribution requirement has already been established.
Table 3: Fiscal Cost Analysis
Year
LASERS TRSL
Current Law SB 14
Increase /
(Decrease) Current Law SB 14
Increase /
(Decrease)
2015-16 $ 27,634,539 $ 27,634,539 $ - $ 25,576,319 $ 25,576,319 $ -
2016-17 29,186,103 49,401,825 20,339,869 27,117,747 47,324,731 20,206,985
2017-18 30,784,215 50,104,182 19,319,967 28,705,417 47,899,163 19,193,746
2018-19 32,430,269 50,699,738 18,269,469 30,340,717 48,490,828 18,150,111
2019-20 34,125,705 51,313,161 17,187,456 32,025,077 49,100,243 17,075,166
Total $ 154,160,831 $ 229,277,592 $ 75,116,760 $ 143,765,277 $ 218,391,285 $ 74,626,008
2015 REGULAR SESSION
ACTUARIAL NOTE SB 14
Page 5 of 6
Year
LSERS STPOL
Current Law SB 14
Increase /
(Decrease) Current Law SB 14
Increase /
(Decrease)
2015-16 $ 6,156,882 $ 6,156,882 $ - $ 810,973 $ 810,973 $ -
2016-17 6,546,253 11,907,147 5,360,895 862,219 1,585,671 723,452
2017-18 6,947,305 12,058,782 5,111,478 915,002 1,606,084 691,082
2018-19 7,360,389 12,214,966 4,854,578 969,369 1,627,109 657,740
2019-20 7,785,865 12,375,835 4,589,971 1,025,366 1,648,765 623,398
Total $ 34,796,692 $ 54,713,613 $ 19,916,921 $ 4,582,928 $ 7,278,600 $ 2,695,672
We have assumed that TRSL administrative expenses will be allocated to K-12 and Higher Education based on relative
payrolls. Although this is the assumption we have made, other methods of allocating TRSL expenses may also be valid.
Using our method, 75% of TRSL administrative expenses have been allocated to K-12 and 25% to Higher Education.
Allocations of fiscal costs to the General Fund and to Local Funds are shown below.
Table 4
Allocation of Increase/(Decrease) in Fiscal Costs to the General Fund
Year LASERS TRSL Higher Ed STPOL Total
2015-16 $ - $ - $ - $ -
2016-17 20,339,869 5,051,746 723,452 26,115,067
2017-18 19,319,967 4,798,437 691,082 24,809,486
2018-19 18,269,469 4,537,528 657,740 23,464,737
2019-20 17,187,456 4,268,792 623,398 22,079,646
Total $ 75,116,760 $ 18,656,502 $ 2,695,672 $ 96,468,935
Allocation of Increase/(Decrease) in Fiscal Costs to Local Funds
Year TRSL K-12 LSERS Total
2015-16 $ - $ - $ -
2016-17 15,155,239 5,360,895 20,516,133
2017-18 14,395,310 5,111,478 19,506,787
2018-19 13,612,583 4,854,578 18,467,161
2019-20 12,806,375 4,589,971 17,396,345
Total $ 55,969,506 $ 19,916,921 $ 75,886,427
In summary, SB 14 will have the following effect on fiscal costs:
Expenditures:
1. Expenditures from the General Fund will increase because employer contribution requirements will increase during the
five-year measurement period.
2. Expenditures from Local Funds will increase because employer contribution requirements will increase during the five-
year measurement period.
Revenues:
• LASERS, TRSL, LSERS and STPOL (Agy Self-Generated) revenues will increase because employer contribution
requirements will increase during 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 adopted by PRSAC.
Note: Treatment of administrative expenses as an actuarial loss every year is contrary to Actuarial Standards of Practice (ASOPs)
and could be construed as not being actuarial sound. Unless SB 14 is enacted, actuaries for the state retirement systems will be
required under ASOPs to insert a caveat in the annual valuation reports stating that the valuations were not prepared in
accordance with ASOPs because Louisiana law constrains them from doing so.
Actuarial Caveat
There is nothing in SB 14 that will compromise the signing actuary’s ability to present an unbiased statement of actuarial opinion.
2015 REGULAR SESSION
ACTUARIAL NOTE SB 14
Page 6 of 6
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 actu arial opinion contained herein.
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