2016 REGULAR SESSION
ACTUARIAL NOTE H B 907
Page 1 of 5
House Bill 907 HLS 16RS-1141
Original
Author: Representative Harvey LeBas
Date: April 11, 2016
LLA Note H B 907.01
Organizations Affected:
Teachers’ Retirement System of
Louisiana
OR +$6,000,000 FC SG EX
This Note has been prepared by the Actuarial Services Department of the Office of
the Legislative Auditor. The attachment of this Note to HB 907 provides
compliance with the requirements of R.S. 24:52 1
Bill Header: RETIREMENT/TEACHERS: Increases the earnings allowed in the Teachers’ Retirement System of La. for retirees
who are reemployed as substitute classroom teachers.
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 $75,000,000
Total Five Year Fiscal Cost
Expenditures $54,026,000
Revenues $24,013,000
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 $75,000,000
Other Post Retirement Benefits Increase
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 $ 0 $ 0 $ 0 $ 0
Agy Self Generated 6,013,000 6,000,000 6,000,000 6,000,000 6,000,000 30,013,000
Stat Deds/Other 0 0 0 0 0 0
Federal Funds 0 0 0 0 0 0
Local Funds 0 6,013,000 6,000,000 6,000,000 6,000,000 24,013,000
Annual Total $ 6,013,000 $ 12,013,000 $ 12,000,000 $ 12,000,000 $ 12,000,000 $ 54,026,000
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 6,013,000 6,000,000 6,000,000 6,000,000 24,013,000
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 $ 6,013,000 $ 6,000,000 $ 6,000,000 $ 6,000,000 $ 24,013,000
2016 REGULAR SESSION
ACTUARIAL NOTE H B 907
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Bill Information:
Current Law
As a general rule under current law, the pension benefit for any retired member of the Teachers’ Retirement System of Louisiana
(TRSL) who is reemployed in a position covered by TRSL membership is suspended if the retiree is reemployed.
Current law provides that a retired member who returns to employment as a substitute classroom teacher who teaches any student
in pre-K through 12
th
grade is exempt from the general rule. “S ubstitute classroom teacher” is defined as a class room teacher
employed in a temporary capacity to fill the position of another classroom teacher who is unavailable to teach for any reason.
The earnings of such a reemployed retiree, attributable to her reemployment, may not exceed the following:
1. The earnings limit is $0 during her waiting period which extends from the date of her original retirement to the first
anniversary of her original retirement.
2. The earnings limit is 25% of her annual pension benefit during the fiscal year in which her waiting period ends and for
any fiscal year thereafter.
TRSL will recover from the reemployed retiree any pension benefits paid in excess of these limits.
Proposed Law
Under HB 907 the earnings of a retiree re-employed as a substitute classroom teacher, attributable to her re- employment, shall not
exceed the following.
1. The limit is $0 during her waiting period.
2. The limit is 25% of her annual pension benefit during the fiscal year in which her waiting period ends and for the fiscal
year immediately following the year in which her waiting period ends.
3. The limit is 50% of her annual pension benefit during all other fiscal years.
TRSL will recover from the reemployed retiree any pension benefits paid in excess of these limits .
Implications of the Proposed Changes
HB 907 increases the earnings limitation from 25% to 50% for a retiree of TRSL who is reemployed as substitute classroom
teacher. The 50% limitation will begin to apply for the second fiscal year following the end of the retiree’s waiting period.
Cost Analysis:
Analysis of Actuarial Costs
HB 907 contains benefit provisions having an actuarial cost.
Retirement Systems
There are two cost components associated with HB 907
1. The increased cost associated with TRSL paying benefits to a substitute classroom teacher who earns more than
25% of her pension benefit in the second fiscal year following her retirement.
2. The increased cost associated with an expansion of the pool of teachers willing to return to work as a substitute
classroom teacher and the related cost associated with teachers being induced to retire earlier than they would have
otherwise and then returning to work as a substitute classroom teacher.
Item 1 Cost
According to TRSL, 45 retirees were reemployed as substitute classroom teachers during FYE 2014 and exceeded the
earnings limit. 524 retirees were reemployed as substitute classroom teachers during FYE 2014 but did not exceed the
earnings limit.
For the purpose of the Item 1 cost analysis, we have assumed the following:
1. The average pension benefit is $30,000 a year.
2. The average annual salary for a retiree who returns to work on a full time basis is $60,000 a year.
3. Retired teachers, reemployed as substitute classroom teachers, do not return to work until the beginning of the
second full fiscal year of retirement.
2016 REGULAR SESSION
ACTUARIAL NOTE H B 907
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4. If there were no earnings limitation, the retiree who returns to employment and work half time would have a total
income of $60,000 ($30,000 of employment income and a $30,000 pension).
5. If the earnings limit is 25% x the annual pension benefit , the retiree’s total income would be $ 37,500 ($30,000 of
employment income and $7,500 from TRSL.
6. If the earnings limit is 50% x the annual pension, the retiree’s total income will be $45,000 ($30,000 of employment
income and $15,000 from TRSL.
If we assume 50 teachers are reemployed as substitute classroom teachers and they each earn more than 50% of their
pension benefit, then the annual cost to expand the earning limit from 25% to 50% is estimated to be $3 75,000 per year.
This is based on the following:
Annual Cost = 50 retirees x (50% new limit - 25% current limit) x $30,000 pension = $375 ,000
Each of the 524 retirees who were reemployed as a substitute classroom teacher self-limited her reemployment income to
25% of her pension benefit. If the earning limit is raised to 50%, the behavior of some of these reemployed retirees will
not change but many will increase their employment to attain the 50% limit. In addition, some retirees will consider
reemployment for the first time. The 25% limit was too restrictive to make reemployment worthwhile. But a 50% limit
allows the retired teacher to make a meaningful contribution to the education of students. If we assume that 600 retirees
will be employed as substitute classroom teachers and that each such retiree will earn 50% of her pension, then the
annual cost will be $4,500,000. The annual cost calculation is shown below:
Annual Cost = 600 retirees x (50% new limit - 25% current limit) x $30,000 pension = $4,500,000
The total annual increase in cost to TRSL will be about $ 4,875,000, or about $4.9 million a year.
Item 2 Cost
Prior to 2000, pension benefits were suspended for any retiree who returned to work. About 3,500 retirees elected to be
re-employed even though their pension benefit would be suspended. The law was changed in 2000 eliminating benefit
suspensions. By 2010, the number of re-employed retirees had increased to 7,500.
Act 921 of the 2010 session restored benefit suspension rules to TRSL. However, the following exceptions were made:
1. A retiree who returned to active service as a classroom teacher in a critical teacher shortage area. Pension
benefits would be suspended if re-employment earnings exceeded 25% of pay.
2. A retiree who was re-employed as a full time certified speech therapist, speech pathologist, or audiologist in
any school district where a shortage of persons to fill such positions exists. Pension benefits were not
suspended.
3. Pension benefits for a retiree who returned to active service on or before June 30, 2010 were not suspended.
Annual savings associated with Act 921 of the 2010 session were estimated to reach $108,000,000 within five years.
The number of re-employed retired teachers has decreased significantly since 2010. And even though suspension- of-
benefit rules have been relaxed to some extent since 2010, the number of re-employed retirees has decreased to about
5,000 a year and is still falling. The savings predicted in the actuarial note for Act 921 have been generally realized.
Currently, a retiree who returns to work as a substitute classroom teacher can work full time and for the fiscal year in
which her waiting period ends and for every year thereafter can collect 25% of her pension from TRSL. Under HB 907,
she will be able to work full time and collect 25% of her pension for the fiscal year in which her waiting period ends and
for the fiscal year following the fiscal year in which her waiting period ends. Thereafter she will be able to collect 50%
of her pension.
The increase in the earnings limit will tend to encourage teachers to retire earlier than they would have otherwise.
However, because the increase will not occur until the third full fiscal year following her retirement date, HB 907’s
effect on retirement patterns will be small. As a teacher considers her retirement options, she may not be willing to retire
and return to work if her pension is reduced to only 25% of the full amount. She may be much more willing to retire
early if she can work full time and collect 50% of her pension. But because the limit does not apply until she has been
retired at least two years, its influence on a teacher’s willingness to retire is likely to be small.
If we assume that each fiscal year there are 100 teachers on the retiree payroll who are there because they were induced
to retire as a result of HB 907, the cost associated with the inducement aspects of the bill is estimated to be $ 1,112,500 a
year.
The development of the cost per teacher induced to retire early is summarized below:
1. We assume that 50 of the 100 teachers are employed during fiscal years in which the 25% limit applies and 50
are employed in fiscal years in which the 50% limit applies.
2. Fifty of these teachers will receive 25% of their pension that they would not have received otherwise and 50
will receive 50% of the pension that they would not have received otherwise.
2016 REGULAR SESSION
ACTUARIAL NOTE H B 907
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3. The average pension is $30,000 a year.
4. Therefore, 50 teachers will be collecting $7,500 from TRSL that otherwise would not have been paid and 50
teachers will be collecting $15,000.
5. The annual cost of HB 42 is estimated to be $1,112,500 (50 x $7,500 + 50 x $15,000), or about $1.1 million.
Total Annual Cost
The total cost for HB 907 as analyzed above is estimated to be about $6,000,000 a year. Because there is no precise way
to predict retirement behavior, the cost estimate is subject to significant variability. Therefore, we estimate the annual
cost for HB 907 will range from $4 million to $8 million.
Assuming the additional annual cost continues indefinitely into the future, the actuarial present value cost is estimated to
be about $75,000,000
Other Post-Employment Benefits
HB 907 will induce teachers to retire earlier then they would have otherwise. If they retire one year early and a portion of the
retiree health insurance premium is paid for by the school district, the annual cost for post- employment benefits other than
pensions will increase.
Analysis of Fiscal Costs
HB 907 will have the following effects on fiscal costs during the five year measurement period.
Expenditures:
1. Expenditures from TRSL (Agy Self Generated) will increase $4.0 to $8 .0 million a year to pay pension benefits that
would not otherwise have been paid.
2. Expenditures from Local Funds will increase about $4.0 to $8 .0 million a year because employer contribution
requirements must increase to pay for the larger annual cost.
3. Expenditures from Local Funds will increase to the extent that school districts pay a portion of annual premiums for
retiree health insurance.
Revenues:
• TRSL revenues (Agy Self-Generated) will increase to the extent that employer contributions must be larger to
accommodate the estimated increase in costs.
According to TRSL, administrative costs associated with communicating the proposed legislation and making modifications to
existing computer programs is estimated to be $13,000 for FYE 2017 .
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 H B 907 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.
2016 REGULAR SESSION
ACTUARIAL NOTE H B 907
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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