2015 REGULAR SESSION
ACTUARIAL NOTE SB 18
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Senate Bill 18 SLS 15RS-159
Original
Author: Senator Robert R. Adley
Date: May 13, 2015
LLA Note S B 18.01
Organizations Affected:
Teachers’ Retirement System of
Louisiana
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 18 provides compliance
with the requirements of R.S. 24:52 1.
Bill Header: TEACHERS RETIREMENT. Provides for higher education liability payments. (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 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 $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 Increase Decrease Decrease Decrease Decrease Increase
Agy Self Generated Decrease Decrease Decrease Decrease Decrease Decrease
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 Decrease Decrease Decrease Decrease Increase
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 Increase Decrease Decrease Decrease Decrease 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 Decrease Decrease Decrease Decrease Increase
2015 REGULAR SESSION
ACTUARIAL NOTE SB 18
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Bill Information:
Current Law
Under current law, government entities engaged in providing higher educational services in Louisiana are required to participate
in the Teachers’ Retirement System of Louisiana (TRSL) as a participating employer. As a result, employees of participating
employers must become either a member of TRSL or a member of the Optional Retirement Program (ORP).
Proposed Law
SB 18 gives the following entities of Higher Education the option to liquidate its unfunded accrued liability under TRSL and
freeze future benefit accruals for active employees who are members of the TRSL DB plan.
1. The Board of Regents.
2. The Board of Supervisors for the University of Louisiana System.
3. The Board of Supervisors of Louisiana State University A&M.
4. The Board of Supervisors of Southern University A&M.
5. The Board of Supervisors of Community and Technical Colleges.
6. Any institution under the authority of the Board of Regents or one of the boards of supervisors listed above.
A single entity may make this election or a group of entities may collectively make the election. An elector is defined as a single
entity or a group of entities making this election.
Under SB 18, an elector will pay a lump sum amount to TRSL to liquidate its unfunded accrued liability and will freeze future
benefit accruals for its active employees participating in the TRSL DB plan. Other provisions of SB 18 are summarized below.
1. Accrued benefits for all employees of an elector will be frozen on the date the elector liquidates its unfunded accrued
liability (UAL).
2. All employees and former employees of the elector will remain participants in TRSL. E mployees of the elector on the
liquidation date will continue to participate in TRSL not as an active participant in TRSL accruing benefits but as a
terminated vested participant with a frozen benefit. The status of former employees of the elector who are terminated
vested participants in TRSL will not change. They will still be entitled to receive a deferred pension benefit. Former
employees of the elector who are retired, disabled, or are deceased with beneficiaries and survivors in pay status will also
remain participants of TRSL.
3. No new employee hired by the elector after the liquidation date will be allowed to become a member of TRSL.
4. Retirees, beneficiaries, and survivors of an elector will not be entitled to Permanent Benefit Increases (PBIs) unless the
elector pays an additional lump sum to TRSL for this benefit.
Payment to Be Made by the Elector:
1. An elector will liquidate its unfunded accrued liability by paying to TRSL an amount equal to its proportional share of
the TRSL unfunded accrued liability.
2. This calculation will be made in the following manner:
a. The accrued liability for all non-elector employers will be determined based on the assumptions and methods used in
the most recent valuation approved by PRSAC.
b. The accrued liability for all electors will be determined based on the assumptions and methods used in the most
recent valuation approved by PRSAC and as measured after benefit accruals are frozen for existing employees of the
electors.
c. The electors’ share of TRSL actuarial value of assets shall be equal to the TRSL actuarial value of assets multiplied
by the ratio of the electors’ accrued liability to the total TRSL accrued liability.
d. TRSL will accept bids for a single premium annuity contract with an insurance carrier to provide the benefit
otherwise promised by TRSL to employees and former employees of the electors. The elector may choose to
include PBIs in this contract or may elect not to provide PBIs to its employees and former employees.
e. The elector’s liquidation payment will be equal to the value of the single premium for a group annuity contract
minus TRSL assets allocated to the elector.
3. TRSL may elect to transfer its risk associated with an elector by completing the contract purchase identified in Item 2d.
Alternatively, TRSL may assume the all demographic and investment risks associated with the elector.
Future Liabilities and Contributions for the Elector:
1. No further actuarial liabilities, funded or unfunded, shall accrue to the elector after the date selected by the elector to
liquidate its UAL.
2015 REGULAR SESSION
ACTUARIAL NOTE SB 18
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2. The elector’s obligation to TRSL will cease as of the liquidation date. No future contributions will be required from the
elector.
Implications of the Proposed Changes
Under SB 18, an electing entit y associated with Higher Education will have the option to settle or liquidate its unfunded accrued
liabilities associated with its employees and former employees who are participating or who have participated in TRSL.
Liquidation will relieve the elector from future contribution requirements and elimina te significant risks it has relative to its UAL,
including investment and mortality risks. These risks may be transferred to TRSL or to the private sector through the purchase of
an annuity contract. The elector will freeze benefit accrual s services rendered by its employees after the liquidation date.
Cost Analysis:
Analysis of Actuarial Costs
Retirement Systems
SB 18 will give an elector associated with Higher Education the option to settle or liquidate its obligations to TRSL. If we
assume that all Higher Education entities elect to liquidate, then total cost for Higher Education electors will be $3,788
million. This estimate is based on demographic data, actuarial assumptions and methods set forth in the June 30, 2014
valuation of the plan approved by PRSAC. It includes additional premiums associated with additional assumptions of risk by
TRSL or by a private insurer.
TRSL’s unfunded accrued liability on June 30, 2015 is projected to be $11.868 billion with an accrued liability of $28.709
billion and assets equal to $16.841 billion. The allocation of assets, accrued liability, and unfunded accrued liability to
Higher Education and to K-12 and other entities is shown below.
Allocation of Assets, Accrued Liability, and Unfunded Accrued Liability
Elector Grouping
Accrued Liabilities
Actuarial Value
of Assets
Unfunded
Accrued Liability
Ratio
Higher Education $ 4,625,000,000 $ 2,713,000,000 $ 1,912,000,000 16.11%
K-12 and Other Entities 24,084,000,000 14,128,000,000 9,956,000,000 83.89%
Total $ 28,709,000,000 $ 16,841,000,000 $ 11,868,000,000 100.00%
If all of Higher Education becomes an elector and TRSL purchases annuities from an insurer, the accrued liability for Higher
education increases from $4.625 billion to $6.501 billion. The lump sum liquidation payment that must be made by Higher
Education to TRSL is estimated to be $3,788 million.
Liquidation Payment for Higher Education
Accrued Liability* $ 6,501,000,000
Assets Allocated to Higher Education 2,713,000,000
Liquidation Payment $ 3,788,000,000
Other Post-Employment Benefits
There are no actuarial costs associated with SB 18 relative to post-employment benefits other than pensions.
Analysis of Fiscal Costs
SB 18 will have the following effect on fiscal costs during the five year measurement period if Higher Education is an elector, it
makes its election in FYE 2015, and TRSL chooses not to purchase annuities.
Expenditures:
1. Expenditures from the General Fund will increase for FYE 2015 because of the liquidation payment from Higher
Education to TRSL.
2. Expenditures from the General Fund will decrease. The method used to allocate assets to Higher Education will lead to a
shift in employer contribution requirements from Higher Education to K-12 and other entities.
3. Expenditures from the General Fund will decrease because no contributions will be made relative to the elector’s
employees.
4. Expenditures from TRSL (Agy Self-Generated) will decrease. Employees of Higher Education will no longer accrue
benefits. Therefore, benefits entitlements from TRSL for Higher Education employees who terminate employment over
the five year measurement period will be smaller than they would have been otherwise.
5. Expenditures from Local Funds will increase. The method used to allocate asset to Higher Education will lead to a shift
in employer contribution requirements from Higher Education to K-12 and other entities.
2015 REGULAR SESSION
ACTUARIAL NOTE SB 18
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Revenues:
1. TRSL revenue (Agy Self Generated) will increase in FYE 2015 because it will receive single lump sum payment from
the elector in FYE 2015 to liquidate its unfunded accrued liability.
2. TRSL revenues (Agy Self Generated) will decrease because employer contribution requirements will decrease.
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 SB 18 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
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