2016 REGULAR SESSION
ACTUARIAL NOTE SB 18
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Senate Bill 18 SLS 16RS-79
Original
Author: Senator Barrow Peacock
Date: March 23, 2016
LLA Note S B 18.01
Organizations Affected:
All 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 SB 18 provides compliance
with the requirements of R.S. 24:52 1
Bill Header: RETIREMENT SYSTEMS. Provides for actuarial determinations and application of funds. (6/30/16)
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 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 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 Decrease Decrease Decrease Decrease Decrease
Agy Self Generated 0 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 Decrease Decrease Decrease Decrease Decrease
Annual Total $ 0 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 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 0 0 0 0
Annual Total $ 0 Decrease Decrease See Analysis Decrease Decrease
2016 REGULAR SESSION
ACTUARIAL NOTE SB 18
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Bill Information:
Current Law
Current law contains rules for 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) regarding the following.
1. The calculation of employee contribution requirements, and
2. The amount and timing of cost-of-living-adjustment (COLAs).
Proposed Law
SB 18 will substantially reorganize current law regarding the calculation of employee contribution requirements and the amount
and timing of COLAs. The reorganization portion of SB 18 does not change any rules pertaining to the four state systems. It
merely relocates provisions of law to make the law more readable and understandable.
Portions of SB 18 that modify or change current law are summarized below.
1. Twenty-Year Amortization Period − Under current law, the amortization period for most actuarial changes and gains
and losses is 30 years. Under SB 18, the amortization period will be reduced from 30 years to 20 years over a 5 year
period. The general amortization period will be 28 years for the 2016 valuation, 26 years for the 2017 valuation, 24
years for the 2018 valuation, 22 years for the 2019 valuation and 20 years for the 2020 and later valuations. This will
apply to all four state systems.
2. Amortization of Investment Gains Transferred to the Experience Account − Under current law a charge base is
established whenever an amount is transferred to the Experience Account. The charge base is amortized with level
payments over a 30-year period. Beginning with the June 30, 2019 valuations, such charge bases will be amortized with
level payments over 10 years. Under SB 18, charge bases attributable to transfers to the Experience Account will be
amortized with level payments over a 10-year period beginning with the June 30, 2016 valuation.
3. Merger of TRSL Sub Plans − Under current law, there are three sub plans pertaining to primary and secondary
education; regular K-12 teachers, Lunch Plan A staff, and Lunch Plan B staff. Separate employer contribution rates are
determined for each of these sub plans. Under SB 18, a single employer contribution rate will be determined for the
merged sub plans. This will first occur with the June 30, 2016 valuation.
4. Level Re- Amortization of the OAB and EAAB − Under current law, the OAB and EAAB for LASERS and TRSL
receive a portion of investment gains that are then used to reduce the outstanding balances of these bases. However the
payment schedule is not changed. As a result such charge bases are paid off sooner than they would have been
otherwise. Under SB 18, annual payment to amortize the OAB and EAAB with level payments over the remaining
amortization period will be calculated on each valuation date. If the level payment is less than the payment otherwis e
payable relative to the OAB or EAAB, then the level payments so calculated will replace the existing payment schedule.
5. Re-amortization of Certain UAL B ases − Under current law, outstanding balances of the OAB, EAAB, and the next
oldest charge base receiving allocations of investment gains, if applicable, will be re-amortized with level payments over
the remaining amortization period once the system become at least 85% funded. Under SB 18, the OAB, EAAB, and the
oldest charge base, if applicable will be re-amortized on June 30, 2016 an d every fifth year thereafter. Re-amortization
will not occur on June 30, 2017, 2018, 2019 or 2020 or on any June 30 that is not 2016 plus a multiple of 5 years.
However, once the system becomes 80% funded, re -amortization will occur every year with level payments over the
remaining amortization period.
6. Changing the Order of Debits and Credits to the EA – Current law as interpreted by LASERS and TRSL is compared
below with the provision of SB 18. Priority means the order in which adjustments to the Experience Account are made.
Priority Interpretation of Current Law SB 18
First
The present value of a COLA grant (debit)
Investment income (positive or negative)
attributable to the balance in the Experience
Account on the prior year’s valuation date.
(credit or debit)
Second
Investment income (positive or negative)
attributable to the balance in the Experience
Account on the prior year’s valuation date.
(credit or debit)
The portion of investment gains to be transferred to the Experience Account (credit)
Third
The portion of investment gains to be transferred
to the Experience Account (credit)
The present value of a COLA grant (debit)
Implications of the Proposed Changes
SB 18 is essentially a bill that reorganizes sections of current law regarding the calculation of employee contribution requirements
and the amount and timing of COLAs. SB 18 also modifies amortization rules. 2016 REGULAR SESSION
ACTUARIAL NOTE SB 18
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Cost Analysis:
Analysis of Actuarial Costs
SB 18 does not contain benefit provisions having an actuarial cost.
Retirement Systems
SB 18 affects the funding policy. The allocation of actuarial costs to future periods will change and future employer
contribution requirements will change. The effects of these changes are summarized below.
1. Twenty Year Amortization Period – This provision affects the Funding Policy of the retirement systems. It has no
effect on benefits or the present value of future benefits. Employer contribution requirements may increase or
decrease as a result of this portion of SB 18 depending on whether a base is positive or negative.
2. Amortization of the Investment Gains Transfer red to the Experience Account – This provision affects the
Funding Policy of the retirement system. It has no effect on benefits or on the present value of future benefits.
Employer contribution requirements for FYE 2018, 2019,and 2020 may potentially increase as a result of this
portion of SB 18.
3. Merger of TRSL Sub Plans – The merger of the K-12 sub plan, the Lunch Plan A sub plan and the Lunch Plan B
sub plan into a single sub plan has no effect on employer contribution requirements.
4. Level Re-amortization of the OAB and EAAB – This provision affects the Funding Policy of the retirement
system. It has no effect on benefits or on the present value of future benefits . Employer contribution requirements
will decrease as a result of this portion of SB 18.
5. Re-amortization of Certain UAL B ases – This provision affects the Funding Policy of the retirement system. It
has no effect on benefits or on the present value of future benefits . Employer contribution requirements will
decrease as a result of this portion of SB 18.
6. Changing the Order of Debits and Credits to the EA – COLA grants are likely to be smaller and less frequent
with the enactment of SB 18 than under current law. Employer contribution requirements will decrease as a result
of this portion of SB 18.
Other Post-Employment Benefits
There is no actuarial cost associated with S B 18 for post-retirement benefits other than pensions.
Analysis of Fiscal Costs
Changes in fiscal costs are summarized below:
Expenditures:
1. Expenditures from the General Account will decrease as a result of SB 18 because employer contribution
requirements will decrease. The portion of SB 18 relative to re -amortization of the OAB and EAAB produced a
significant decrease in employer contribution requirements. See table below.
Impact of Re-amortization of the OAB and EAAB on UAL Payments
Current Law SB 18 Impact of SB 18
Fiscal Year LASERS TRSL LASERS TRSL
2016-2017 $ 403,755,796 $ 605,420,387 $ 383,502,079 $ 577,197,162 $ (48,476,942)
2017-2018 423,943,586 644,772,712 402,677,183 592,928,794 (73,110,321)
2018-2019 427,917,730 650,336,332 406,375,167 598,083,928 (73,794,967)
2019-2020 431,971,357 656,011,225 410,147,111 603,342,166 (74,493,305)
2020-2021 436,106,057 661,799,615 428,371,914 628,748,255 (40,785,503)
Total $ 2,123,694,527 $ 3,218,340,271 $ 2,031,073,455 $ 3,000,300,305 $ (310,661,038)
Employer contribution requirements relative to the remaining SB 18 changes may increase or decrease. It is more
likely than not that employer contribution requirements in the aggregate will decrease.
2. Expenditures from the retirement systems (AGY Self-Generated) will decrease because COLA grants will be
smaller and less frequent under SB 18 than under current law.
3. Expenditures from Local Funds will decrease as a result of SB 18 because employer contribution requirements will
decrease.
2016 REGULAR SESSION
ACTUARIAL NOTE SB 18
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Revenues:
1. Retirement System revenues (Agy Self-Generated) will decrease under SB 18 because employer contribution
requirements 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 SB 18 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