2016 REGULAR SESSION
ACTUARIAL NOTE H B 33
Page 1 of 3
House Bill 33 HLS 16RS-388
Original
Author: Representative Sam Jones
Date: April 13, 2016
LLA Note H B 33.01
Organizations Affected:
State Retirement Systems
OR DECREASE 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 33 provides
compliance with the requirements of R.S. 24:52 1
Bill Header: RETIREMENT/COLAS: Provides for payment of cost -of-living adjustments (COLAs) to retirees and beneficiaries of
state retirement systems without legislative approval in certain circumstances.
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 Decrease
Total Five Year Fiscal Cost
Expenditures Decrease
Revenues Decrease
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 Decrease
Other Post Retirement Benefits $0
Total Decrease
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 Decrease Decrease Decrease Decrease
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 0 0 Decrease Decrease Decrease Decrease
Annual Total Decrease Decrease Decrease Decrease Decrease Decrease
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 Decrease Decrease Decrease Decrease
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 Decrease Decrease Decrease Decrease
2016 REGULAR SESSION
ACTUARIAL NOTE H B 33
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Bill Information:
Current Law
Current law provides a template setting forth the conditions under which a board of trustees for each of the 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) −
may recommend to the legislature that the system be allowed to grant a COLA to eligible retirees , beneficiaries, and survivors.
Currently, a COLA can be granted only if:
1. The necessary conditions as identified in the template have been satisfied.
2. The balance in the Experience Account is sufficient to fund the COLA on an actuarial basis.
3. The actuary for the legislative auditor agrees there are sufficient assets in the Experience Account.
4. The board of trustees approves a COLA that conforms to the template.
5. A bill is prepared to request the COLA.
6. The bill passes both the House and Senate by a two third majority vote.
7. The bill is signed by the governor.
Current law provides that COLAs be based on the first $60,000 of a retiree, beneficiary, or survivor ’s benefit. The $60,000 limit
will be increased in accordance with the increase in the CPI-U, if any. The first such adjustment will be made on July 1, 2016.
Proposed Law
Under HB 33, a board of trustees may grant a COLA if:
1. The necessary conditions as identified in the template have been satisfied.
2. The balance in the Experience Account is sufficient to fund the COLA on an actuarial basis.
3. The actuary for the legislative auditor agrees there are sufficient assets in the Experience Account.
4. The board of trustees approves a COLA that conforms to the template.
It will no longer be necessary to obtain approval from the legislature.
Under HB 33, COLAs will be provided only on the first $60,000 of an eligible retiree, beneficiary, or survivor’s benefit.
Indexation of the limit will begin July 1, 2028. Indexation will not be retroactive to July 1, 2015.
Implications of the Proposed Changes
Currently, legislative approval of a COLA requires a two-thirds majority vote of the House and Senate. Under HB 33, approval
will be automatic as long as it conforms to the template law. The limit on benefits subject to a COLA will be adjusted.
Cost Analysis:
Analysis of Actuarial Costs
HB 33 does not contain any benefit provisions having an actuarial cost .
Retirement Systems
HB 33 will have an actuarial cost only if you assume that the lack of legislative approval will result in COLA grants that are
greater than the amount called for under the current law template. However, experience has shown that the legislature is
more apt to grant a COLA that is larger than that provided for under current law. We therefore conclude that there is no cost
associated with this portion of HB 33.
The provisions of HB 33 pertaining to the limit on benefits subject to a COLA adjustment will result in a reduction of
actuarial costs. Instead of the limit being indexed beginning July 1, 2016, indexation will not begin until July 1, 2028.
Therefore, HB 33 will result in lower COLAs for retirees receiving large benefit amounts. There are very few retirees with a
benefit that exceed $60,000 today and there will be very few in the foreseeable future. Nevertheless, cost-of-living-
adjustments will be smaller in the aggregate under HB 33 than they are under current law. Therefore, actuarial costs will
decrease as a result of HB 33.
Other Post-Employment Benefits
There are no actuarial costs associated with HB 33 for post-employment benefits other than pensions. 2016 REGULAR SESSION
ACTUARIAL NOTE H B 33
Page 3 of 3
Analysis of Fiscal Costs
HB 33 will have the following effects on fiscal costs during the 5-year fiscal measurement period.
Expenditures:
1. Expenditures from the State General Fund will decrease because COLA benefit payments will be smaller for those
receiving large pensions. As a result, employer contribution requirements will be smaller. We estimate the first decrease
will occur for FYE 2019.
2. Expenditures from the retirement systems (Agy Self-Generated) will decrease for FYE 2017. COLA increases effective
July 1, 2016 will be smaller for those with large pensions.
3. Expenditures from Local Funds will decrease because COLA benefit payments will be smaller for those receiving large
pensions. As a result, employer contribution requirements will be smaller. We estimate the first decrease will occur for
FYE 2019.
Revenues:
• State retirement system revenues (Agy Self-Generated) will decrease because employer contributions 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 approved by PRSAC. These assumptions and methods are in compliance with actuarial standards of practice. This data,
methods, and assumptions are being used to provide consistency with the actuary for the retirement system who may also be providing testimony to the Senate and House retirement committees.
Actuarial Caveat
There is nothing in HB 33 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
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