2016 REGULAR SESSION
ACTUARIAL NOTE HB 32
Page 1 of 5
House Bill 32 HLS 16RS-150
Original
Author: Representative Sam Jones
Date: April 13, 2016
LLA Note H B 32.01
Organizations Affected:
State 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 32 provides
compliance with the requirements of R.S. 24:52 1
Bill Header: RETIREMENT/COLAS: Authorizes payment of a benefit increase, funded by state retirement system experience
accounts, to certain retirees and beneficiaries of such 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 o r 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 $0
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 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 2016-17 2017-18 2018-19 2019-2020 2020-2021 5 Year Total
State General Fund $ 0 $ 0 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 0 0 Increase Increase Increase Increase
Annual Total Increase Increase Increase Increase Increase Increase
REVENUES 2016-17 2017-18 2018-19 2019-2020 2020-2021 5 Year Total
State General Fund $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Agy Self Generated 0 0 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 $ 0 Increase Increase Increase Increase
2016 REGULAR SESSION
ACTUARIAL NOTE HB 32
Page 2 of 5
Bill Information:
Current Law
Under current law, the board of trustees of a state retirement system may recommend to the legislature that the system be allowed
to grant a COLA to retirees and beneficiaries whenever specified conditions are satisfied and there are sufficient assets in the
Experience Account to fund the COLA on an actuarial basis.
The four state retirement systems – the Louisiana State Employees’ Retirement System (LASERS), the Teachers’ Retirement
System of Louisiana (TRSL), the Louisiana School Employees’ Retirement System (LSERS), and the Louisiana State Police
Retirement System (STPOL) – have all satisfied the conditions necessary to request approval for a COLA by the legislature.
However, the maximum amount that may be requested is a 0.10% COLA for all eligible retirees, beneficiaries and survivors of
LASERS, TRSL, LSERS, and STPOL (the increase in the CPI-U from June 2014 to June 2015 was 0.10%). An eligible retiree is
described in general as any retiree age 60 and older. In addition, retirees, beneficiaries, and survivors of STPOL who are age 65
and older are eligible for a 2.0% COLA.
There are sufficient funds in the Experience Accounts of each system to grant a 0.10% COLA. However, if the boards of trustees
request a COLA to become effective on July 1, 2016, and the legislature approves, then the systems will not be allowed to grant a
COLA beginning July 1, 2017. If a board of trustees elects not to request a 0.10% COLA effective July 1, 2016, and if the
increase in the CPI-U for the period June 2015 to June 2016 is larger than 0.10%, a larger COLA may be requested beginning
July 1, 2017.
Proposed Law
HB 32 provides for the following:
1. Definitive language specifying the order by which credits and debits are made to the Experience Account.
2. A special one- time cost of living adjustment that exceeds the amount that would otherwise by authorized under current
law.
Specified Order of Credits and Debits
HB 32 establishes the following calculations and the order by which cash flows to and from the Experience Account are credited
or debited. A summary is given below:
1. The outstanding balance of the Experience Account at the beginning of the year will be credited or debited with
investment earnings (positive or negative) based on the actuarial value of assets for the entire trust.
2. The appropriate amount of investment gain, if any, will be credited to the Experience Account.
3. The outstanding balance of the Experience Account after this calculation is made will be used to determine whether a
retirement system has sufficient funds to pay a COLA. If a COLA is approved, then the present value of the COLA so
granted is then debited from the Experience Account and credited to the system’s regular pool of assets.
These provisions of HB 32 become effective with the June 30, 2016 valuation and will apply to future years as well.
One-Time Special COLA
HB 32 provides a one-time COLA effective July 1, 2016 to eligible retirees, survivors, and beneficiaries. The maximum COLA
grant that may be given effective July 1, 2016 (0.10%) will be increased to the amounts shown below subject to available funds in
the Experience Accounts.
1. For LASERS: A 1.5% COLA.
2. For TRSL: A 1.5% COLA.
3. For LSERS: A 2.0% COLA.
4. For STPOL: A 2.0% COLA for all eligible retirees plus an additional 2.0% COLA for those over age 65.
If the balance in the Experience Accounts on June 30, 2016 is less that the cost to provide for the COLAs, the percentage increase
will be reduced accordingly. According to LSERS, the system may be only able to grant a 1.9% COLA.
This is a one-time special COLA that may be granted to eligible retires only on July 1, 2016. HB 32 will have no other effect on
the provisions of Act 399 of the 2014 session.
Implications of the Proposed Changes
HB 32 permanently clarifies the order of credits and debits to the Experience Account. HB 32 provides for a special one- time
COLA that overrides the COLA that would otherwise be available under current law. This COLA is to be effective only on
July 1, 2016.
2016 REGULAR SESSION
ACTUARIAL NOTE HB 32
Page 3 of 5
Cost Analysis:
Analysis of Actuarial Costs
HB 32 contains benefit provisions having an actuarial cost.
Retirement Systems
Actuarial Cost Associated with the Specified Order of Credits and Debits
There is no actuarial cost associated with this provision of HB 32. It merely codifies the practices already used by the
retirement systems.
Actuarial Costs Associated with the One-Time Special COLA
The maximum benefit increase, under current law, that may be granted to eligible retirees on July 1, 2016 is 0.10%. The cost
associated with this increase is shown below in Table 1.
Table 1
Current Law COLA Effective July 1, 2016
LASERS TRSL LSERS STPOL
a
Total
0.10% COLA 0.10% COLA 0.10% COLA 0.10% COLA 0.10% COLA
Number Eligible for a COLA:
Regular Retirees 33,575 58,751 10,146 696 103,168
Survivors & Beneficiaries 5, 834 6, 771 1,662 335 14,602
Disabled Retirees 2,457 4,121 331 62 6,971
Total 41,866 69,643 12,139 1,093 12 4,741
Actuarial Present Value of COLA
b
Regular Retirees $ 7,222,948 $ 13,584,770 $ 1, 116,168 $ 3,667,675 $ 25,591,561
Survivors and Beneficiaries 706,320 980,668 114,745 856,204 2,657,937
Disabled Retirees 279,318 413,310 24,313 146,833 863,774
Total $ 8,208,586 $ 14,978,748 $ 1,255,226 $ 4,670,712 $ 29,113,272
Estimated Balance in the
Experience Account on
June 30, 2016
c
$ 123,579,684 $ 226,356,559 $ 23,058,055 $ 12,416,791 $ 385,411,089
a. The actuarial present value of COLA for STPOL includes the 2.0% special COLA applicable to STPOL retirees age 65
and older.
b. The liability is calculated using census data as of June 30, 2015 and rolled forward to June 30, 2016.
c. These present value measurements are based on the assumption that there will be no allocation to the Experience
Account on June 30, 2016, and the return on the actuarial value of assets for FYE 2016 will be 0.00%.
The maximum benefit increase, under HB 32, that may be granted to eligible retirees on July 1, 2016 is 1.50% for LASERS and TRSL, 1.90% for LSERS, and 2.00% for STPOL. STPOL may grant an additional 2.00% COLA to retirees age 65 and
older. The cost associated with these COLAs is shown below in Table 2 .
Table 2
HB 32 COLA Effective July 1, 2016
LASERS TRSL LSERS STPOL
a
1.50% COLA 1.50% COLA 1.90% COLA 2.00% COLA
Total
Number Eligible for a COLA:
Regular Retirees 33,575 58,751 10,146 696 103,168
Survivors & Beneficiaries 5,834 6,771 1,662 335 14,302
Disabled Retirees 2,457 4,121 331 62 6,971
Total 41,866 69,643 12,139 1,093 12 4,741
Actuarial Present Value of COLA
b
Regular Retirees $ 108,344,228 $ 203,771,553 $ 21,207,211 $ 8,764,005 $ 342,086,997
Survivors & Beneficiaries 10,594,802 14,710,016 2,180,174 1,948,874 29,433,866
Disabled Retirees 4,189,763 6,199,640 461,942 464,548 11,315,893
Total $ 123,128,793 $ 224,681,209 $ 23,849,327 $ 11,177,427 $ 382,836,756
Estimated Balance in the
Experience Account on
June 30, 2016
c
$ 123,579,684 $ 226,356,559 $ 23,058,055 $ 12,416,791 $ 385,411,089
a. The actuarial present value of COLA for STPOL includes the 2.0% special COLA applicable to STPOL retirees age
65 and older. 2016 REGULAR SESSION
ACTUARIAL NOTE HB 32
Page 4 of 5
b. The liability is calculated using census data as of June 30, 2015 and rolled forward to June 30, 2016.
c. These present value measurements are based on the assumption that there will be no allocation to the Experience
Account on June 30, 2016, and the return on the actuarial value of assets for FYE 2016 will be 0.00%.
The actuarial present value of the additional COLA benefits provided under HB 32 are shown in Table 3.
Table 3
Increases Due to HB 32 Effective July 1, 2016
LASERS TRSL LSERS STPOL
Total
Number Eligible for a COLA:
Regular Retirees 33,575 58,751 10,146 696 103,168
Survivors & Beneficiaries 5,834 6,771 1,662 335 14,302
Disabled Retirees 2, 457 4, 121 331 6 2 6,971
Total 41,866 69,643 12,139 1,093 124,741
Increase in the Actuarial Present
Value Due to HB 32:
Regular Retirees $ 101,121,280 $ 190,186,783 $ 20,091,043 $ 5,096,330 $ 316,495,436
Survivors 9,888,482 13,729,348 2,065,429 1,092,670 26,775,929
Disabled Retirees 3,910,445 5,786,330 437,629 317,715 10,452,119
Total $ 114,920,207 $ 209,702,461 $ 22,594,101 $ 6,506,715 $ 353,723,484
Election to Decline the July 1, 2026 COLA.
The boards of trustees under current law may decline a COLA on July 1, 2016 by not seeking approval from the legislature.
A new set of circumstances may allow a larger COLA to be paid in the subsequent year. However, it not likely that larger
COLA will be available on July 1, 2017 than the 0.10% COLA that is available on July 1, 2016. The reasons why are
discussed below.
1. The CPI-U has decreased 0.06% from June 2015 through February 2016. Unless, there is significant inflation in
March through June 2016, it is unlikely that deferral of a COLA under current law until July 1, 2017 will result in a
significantly larger COLA than the 0.10% COLA available on July 1, 2016. Furthermore, waiting a year may result
in no COLA being available.
2. The return on the market value of assets for the state systems through February 2016 has been about 0.00%. It is
quite likely that the return on the actuarial value of assets for FYE 2016 will be less than 8.25%. If so, then the
COLA available on July 1, 2017 will be equal to the CPI for FYE 2016, which is also likely to be very small.
Summary
1. A COLA as provided under HB 32 will increase the retirement system’s accrued liability by $
354 million.
2. It is likely that the Experience Account of each state system will have sufficient funds to cover the cost of the total
COLA to be granted (the COLA available under current law plus the additional COLA provided under HB 32).
3. A COLA granted under HB 32 will not result in a new amortization charge base because already there are sufficient
assets in the Experience Accounts.
4. There earliest that the account would be depleted under current law (assuming the 0.10% COLA is not rejected by
the boards of trustees) is June 30, 2019. The earliest that investment gains could be transferred to the Experience
Account would be July 1, 2019.
HB 32 will deplete the assets the in Experience Account of each state system on June 30, 2016. The earliest that
investment gains are likely to be available for transfer into the Experience Accounts is June 30, 2017.
Other Post-Employment Benefits
There are no actuarial costs associated with HB 32 for post-employment benefits other than pensions.
Analysis of Fiscal Costs
HB 32 will have the following effects on fiscal costs during the 5-year fiscal measurement period.
Expenditures:
1. Expenditures from the General Fund will increase as soon as conditions align sufficiently to permit investment gains to
be transferred to the Experience Account. This is not likely to occur under current law until July 1, 2019. Employer
contribution requirements under current law will increase for FYE 2021, based on the June 30, 2019 valuation.
Expenditures from the General Fund may increase as soon as FYE 2019 under HB 32. Therefore, there will be a fiscal
cost to HB 32 as early as FYE 2019.
2016 REGULAR SESSION
ACTUARIAL NOTE HB 32
Page 5 of 5
2. Expenditures from the state retirement systems (Agy Self-Generated) will increase beginning with the 2016-17 fiscal
year.
3. Expenditures from Local Funds will increase as soon as conditions align sufficiently to permit investment gains to be
transferred to the Experience Account. This is not likely to occur under current law until July 1, 2019. Employer
contribution requirements under current law will increase for FYE 2021, based on the June 30, 2019 valuation.
Expenditures from the Local Funds may increase as soon as FYE 2019 under HB 32. Therefore, t here will be a fiscal
cost to HB 32 as early as FYE 2019.
Revenues:
• State retirement system revenues (Agy Self-Generated) will increase as early as the 2018-19 fiscal year.
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.
Actuarial Caveat
There is nothing in HB 32 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 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