2016 REGULAR SESSION
ACTUARIAL NOTE HB 32
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House Bill 32 HLS 16RS-150
Reengrossed F with Senate Floor
Legislative Bureau Amendment #3813
Author: Representative Sam Jones
Date: June 1, 2016
LLA Note H B 32.05
Organizations Affected:
State Retirement Systems
REF 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 legislation 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 $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
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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 if:
1. The balance in the Experience Account on the prior valuation date is sufficient to fund the COLA on an actuarial basis,
and
2. Other conditions specified in the law are satisfied.
The maximum amount of COLA that can be requested effective July 1, 2016 is 0.10%, the increase in the CPI -U for FYE 2015.
Balances in the Experience Accounts on June 30, 2015 were sufficient to grant a 0.10% COLA. 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
satisfied all of the remaining conditions necessary for approval by the legislature. The increase would become effective July 1,
2016.
An eligible retiree is generally defined as a person who is age 60 or older. STPOL may grant a 2.0% COLA to retirees age 65 and
older in addition to the regular 0.10% COLA.
Proposed Law
HB 32 increases the cost-of-living-adjustment that will become payable to retirees of the state retirement systems on July 1, 2016.
Under current law, the regular COLA for eligible retirees will be 0.10%. Under HB 32, the regular COLA will be increased to the
following amounts.
For LASERS A 1.5% COLA.
For TRSL A 1.5% COLA.
For LSERS* A 2.0% COLA.
For STPOL A 2.0% COLA for all eligible retirees plus an additional 2.0% COLA for those over age 65 and who
retired on or before June 30, 2001.
∗ According to LSERS, the balance in the LSERS Experience Account may only be sufficient to grant a 1.9% COLA
Although the COLA becomes a permanent part of a retiree’s benefit, the increase in the COLA grant only applies once; i.e., to
those who are eligible for a COLA on July 1, 2016. It will not affect the size of COLA grants that may become available in
future years.
HB 32 permanently reduces the number of retired state police eligible for the supplemental COLA. Under current law, a retired
state trooper who is at least 65 is eligible for a 2.0% COLA adjustment. Under HB 32, a retired state trooper must be at least age
65 and must have retired on or before June 30, 2001. As a result the number of retired troopers eligible for the supplemental
COLA will be reduced and the eligible number will become progressively smaller each year as older troopers pass away.
Implications of the Proposed Changes
HB 32 increases the regular COLA that otherwise would be paid under current law beginning July 1, 2016. On the other hand,
HB 32 reduces the number of retired state police who will be eligible to receive a supplemental COLA benefit beginning July 1,
2016 or any year thereafter.
Cost Analysis:
Analysis of Actuarial Costs
HB 32 contains benefit provisions having an actuarial cost.
Retirement Systems
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.
2016 REGULAR SESSION
ACTUARIAL NOTE HB 32
Page 3 of 5
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 who retired on or before June 30, 2001. 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. It does not reflect actuarial savings that will result from the provision of HB 32 that limits the special
COLAs to those who retired on or before June 30, 2001. The actuarial present value of COLA for STPOL is
overstated.
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%.
2016 REGULAR SESSION
ACTUARIAL NOTE HB 32
Page 4 of 5
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, 2016 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 a larger
COLA will be available on July 1, 2017 than the COLA (0.10%) 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 a charge base is only
established when funds are transferred to the Experience Account.
4. The earliest that the Experience A ccount 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.
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. 2016 REGULAR SESSION
ACTUARIAL NOTE HB 32
Page 5 of 5
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