2016 REGULAR SESSION
ACTUARIAL NOTE HB 907
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House Bill 907 HLS 16RS-1141
Engrossed with House Retirement
Committee Amendment #3552
Author: Representative Harvey LeBas
Date: May 2, 2016
LLA Note H B 907.02
Organizations Affected:
Teachers’ Retirement System of
Louisiana
EG +$4,500,000 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 to fill certain vacancies.
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 $58,000,000
Total Five Year Fiscal Cost
Expenditures $40,500,000
Revenues $18,000,000
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 $58,000,000
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 4,500,000 4,500,000 4,500,000 4,500,000 4,500,000 22,500,000
Stat Deds/Other 0 0 0 0 0 0
Federal Funds 0 0 0 0 0 0
Local Funds 0 4,500,000 4,500,000 4,500,000 4,500,000 18,000,000
Annual Total $ 4,500,000 $ 9,000,000 $ 9,000,000 $ 9,000,000 $ 9,000,000 $ 40,500,000
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 4,500,000 4,500,000 4,500,000 4,500,000 18,000,000
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 $ 4,500,000 $ 4,500,000 $ 4,500,000 $ 4,500,000 $ 18,000,000
The values in the above table assume there will be 400 reemployed retirees filling extended leave vacancies each year (see the
analysis).
2016 REGULAR SESSION
ACTUARIAL NOTE HB 907
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Bill Information:
Current Law
Under current law, the pension benefit of a retiree of the Teachers’ Retirement System of Louisiana (TRSL) who is reemployed in
a position covered by TRSL membership will be suspended if the retiree is reemployed. However, current law provides an
exception to the general rule for a retiree who is reemployed as a substitute K-12 classroom teacher. “Substitute classroom
teacher” is defined as a classroom teacher employed in a temporary capacity to fill the position of another teacher who is
unavailable to teach for any reason.
The earnings of a retiree reemployed as a substitute K-12 classroom teacher attributable to his reemployment may not exceed:
1. $0 during the period from his first day of reemployment to the earlier of his last day of reemployment or the first
anniversary of his original retirement date.
2. 25% of his annual pension benefit during the fiscal year in which the first anniversary date of his original retirement
occurs.
3. 25% of his pension benefit for any fiscal year thereafter.
TRSL will recover from the reemployed retiree any pension benefit paid in excess of these limits.
Proposed Law
Under HB 907 a retiree who is reemployed as a substitute classroom teacher and who is also filling an extended leave vacancy
may be reemployed and earn up to 50% of his pension benefit in any fiscal year following the fiscal year in which he retires.
The earnings of such a retiree may not exceed.
1. 50% of his annual pension benefit during the fiscal year in which the first anniversary date of his original retirement
occurs.
2. 50% of his pension benefit for any fiscal year thereafter.
TRSL will recover from the reemployed retiree any pension benefit pai d in excess of these limits .
Implications of the Proposed Changes
HB 907 provides that a retiree of TRSL reemployed as substitute classroom teacher who is filling an extended leave vacancy may
earn up to 50% of his pension benefit in any fiscal year following the fiscal year in which he retires.
Cost Analysis:
Analysis of Actuarial Costs
HB 907 contains benefit provisions having an actuarial cost.
Retirement Systems
Cost Components
There are two cost components associated with HB 907
1. Component #1: The increased cost associated with TRSL paying benefits to a substitute classroom teacher filling
an extended leave vacancy.
2. Component #2: The increased cost associated with an expansion of the pool of teachers willing to return to work as
a substitute classroom teacher filling an extended leave vacancy and the related cost associated with teachers being
induced to retire earlier than they would have otherwise.
Information obtained from TRSL
The following information was provided by TRSL and derived from other sources
1. During FYE 2015, 787 retirees were reemployed as substitute classroom teachers: 62 retirees had earnings that
exceeded the 25% earnings limit; 725 retirees did not exceed the earnings limit.
2. During FYE 2014 , 569 retirees were reemployed as substitute classroom teachers: 45 retirees had earnings that
exceeded the 25% earnings limit; 524 retirees did not exceed the earnings limit.
3. About 3,500 retirees were reemployed in FYE 2001 even though a portion or all of their pension benefit s were
suspended.
2016 REGULAR SESSION
ACTUARIAL NOTE HB 907
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4. Legislation was enacted in 2001 to substantially eliminate existing suspension of benefit rules. A retiree could work
and still collect his pension benefit. By 2010, the number of reemployed retirees had increased to about 7,500.
5. As a result of Act 921 of 2010, retirees could no longer work and collect a pension from TRSL. Act 921 provided
for only three exceptions to the general rule. However, the number of exceptions has increase because of legislation
enacted during the 2011 through 2015 session.
6. Nevertheless, the number of reemployed retirees has decreased to about 5,400.
Assumptions
We used the following assumptions in our analysis of costs.
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. A retiree only
works half time.
3. Retired teachers, reemployed as substitute classroom teachers under current law, do not return to work until the first
day of the first full fiscal year that occurs after retirement. For example, if a member retires on July 15, 2016, the
fiscal year in which he retired is fiscal year ending June 30, 2017. The last day of the first full fiscal year following
retirement is June 30, 2018 . The first day of the second full fiscal year is July 1, 2018.
4. Under HB 907, a reemployed retiree filling an extended leave vacancy may earn up to 50% of his pension benefit in
any fiscal year following the year in which he retires, which in our example is FYE 2018.
Component #1 Cost
Actuarial and fiscal costs will increase if the earnings limit for retirees reemployed to fill an extended leave vacancy is
allowed to earn up to 50% of his pension in any fiscal year following the year in which he retirees.
1. Suppose a retiree who originally retired on July 15 , 2016, is reemployed August 1, 2016 as a full-time substitute
classroom teacher filling an extended leave vacancy.
2. Under current law, the retiree’s total inco me for FYE 2017 (the fiscal year in which he retired) will be $30,000
($30,000 of employment income and $0 from TRSL). Under proposed law, his total income will also be $30,000
($30,000 of employment income and $0 form TRSL).
3. Under current law, the retiree’s total income for FYE 2018 (the first full fiscal year after retirement) will be $37,500
($30,000 of employment income and $7,500 from TRSL). Under HB 907, his total income will be $45,000
($30,000 of employment income and $15,000 from TRSL).
4. Under current law, the retiree’s total income for FYE 2019 (the second full fiscal year after retirement) will be
$37,500 ($30,000 of employment income and $7,500 from TRSL). Under HB 907, his total income will be $45,000
($30,000 of employment income and $15,000 from TRSL).
Suppose there are 2 00 retirees each fiscal year with employment and retirement characteristics similar to the example given
above. Let’s further assume that the waiting period from all 200 retirees has expired. Then the annual cost associated with
HB 907 is estimated to be $1,500,000.
Annual Cost = The number of retirees x the increase in the earnings limit x the annual pension benefit
= 200 x (50% - 25%) x $30,000
= $1,500,000
The total annual cost increase associated with Component #1 will be about $ 1,500,000 for every 2 00 retirees who are
reemployed beyond the waiting period to fill an extended leave vacancy .
Component 2 Cost
The ability to be reemployed to fill an extended leave vacancy and earn 50% of his pension benefit tend s to encourage
teachers to retire earlier than they would have otherwise. As he considers his retirement options, a teacher may not be willing
to retire and then return to work as long as he is classified as a substitute classroom teacher and is subject to a 25% earning
limit. As a result, he continues to be employed.
However, a teacher may find it appealing to be able to collect a full pension while at the same time work enough to earn 50%
of his pension benefit. Under these circumstances, the change in the earnings limit from 25% to 50% has induced earlier
retirement.
Suppose we assume that each year there are 2 00 retirees who are retired because of Act 907 and that 100 of these retirees are
being reemployed in the first full fiscal year after retirement and 100 are being reemployed in the second full fiscal year
following retirement. 2016 REGULAR SESSION
ACTUARIAL NOTE HB 907
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The cost per teacher induced to retire early is developed below.
1. If these teachers had not been induced to retire (i.e., they continued to be employed), no pension benefits would be
paid.
2. The 100 teachers induced to retire who are in the first full fiscal year of retirement will receive 50% of the pension
that they would not have received had they not been induced to retire early. Each of these teachers will collect
$15,000 that they would not have otherwise. The total cost per 100 such reemployed retirees is $1,500,000.
3. The 100 teachers induced to retire who are in the second full fiscal year of retirement will receive 50% of the
pension that they would not have received had they not been induce to retire early. Each of these teachers will
collect $15,000 that they would not have otherwise. The total cost per 100 such reemployed retirees is $1,500,000.
4. The annual cost of HB 907 relative to Component #2 is estimated to be $ 3,000,000 for every 200 teachers induced
to retire ($1,500,000 + $1,500 ,000)
Total Annual Cost
The total cost for HB 907 as analyzed above is estimated to be about $4,500,000 a year for every 400 retirees
reemployed to fill an extended leave vacancy. Because there is no precise way to predict retirement behavior, the cost
estimate is subject to significant variability.
Assuming the additional annual cost continues indefinitely into the future, the actuarial present value cost for400 such
positions is estimated to be about $58,000,000
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 assuming there will be 400
extended leave vacancies filled by reemployed retirees.
Expenditures:
1. Expenditures from TRSL (Agy Self-Generated) will increase $4,500,000 a year to pay pension benefits that would not
otherwise have been paid.
2. Expenditures from Local Funds will increase about $4,500,000 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.
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 HB 907
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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