2014 REGULAR SESSION
ACTUARIAL NOTE HB 77
Page 1 of 3
House Bill 77 HLS 14RS-452
Engrossed
Author: Representative Jack
Montoucet
Date: March 31, 2014
LLA Note HB 77.02
Organizations Affected:
Firefighters’ Retirement System
EG INCREASE APV
The Note was prepared by the Actuarial Services Department of the Office of the
Legislative Auditor. The attachment of the Note to HB 77 provides compliance
with the requirements of R.S. 24:521.
Bill Header: RETIREMENT/FIREFIGHTERS: Provides for conversion of leave to service credit in the Firefighters’ Retirement
System.
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/(Savings) to Retirement Systems and OGB 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.
Increase (Decrease) in
Actuarial Cost (Savings) to: The Actuarial Present Value
All Louisiana Public Retirement Systems Increase
Other Post Retirement Benefits $0
Total Increase
Estimated Fiscal Impact:
The chart below shows the estimated fiscal impact of the proposed legislation. This represents the effect on cash flows for
government entities including the retirement systems and the Office of Group Benefits. Fiscal costs include estimated administrative
costs and costs associated with other fiscal concerns. A fiscal cost is denoted by “Increase” or a positive number. F iscal savings are
denoted by “Decrease” or a negative number.
EXPENDITURES 2014-15 2015-16 2016-17 2017-2018 2018-2019 5 Year Total
State General Fund $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
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 Increase Increase Increase Increase Increase Increase
Annual Total Increase Increase Increase Increase Increase Increase
REVENUES 2014-15 2015-16 2016-17 2017-2018 2018-2019 5 Year Total
State General Fund $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
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 0 0 0 0
Annual Total Increase Increase Increase Increase Increase Increase
2014 REGULAR SESSION
ACTUARIAL NOTE HB 77
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Bill Information:
Current Law
Current law regarding the Firefighters’ Retirement System (FRS) does not contain any provision for the conversion of
accumulated unused annual and sick leave into service credits usable in the calculation of benefits.
Proposed Law
Under HB 77, each employer participating in FRS may elect to allow its employees convert unused and unpaid leave into
creditable service. This election must be made by resolution giving evidence to the election so made. The resolution must
specify whether the conversion of leave will be made on an employee’s entry into DROP or upon his date of separation of service.
Once made, the election is ir revocable and will apply to all employees of the employer from that moment on.
Rules for converting unused leave, which will only be applicable to employees of electing employers, are summarized below:
1. All unused sick leave, annual leave, and compensatory leave for which payment by law cannot be made at the time of
retirement, excluding extended sick leave, shall be converted into creditable service. This conversion will be made using
a ratio of number of hours of leave to be converted and the number of hours worked in the employee’s position which is
equivalent to one year of work for the position. The number of hours of unused leave to be converted into service credit
shall be determined by the employee .
2. There shall be no limit on the amount of unused leave that may be credited.
3. Regardless of the number of service credits granted, a member’s benefit may not exceed 100% of his final average
compensation.
4. The service credits granted for unpaid leave may not be used for the purpose of determining a member’s eligibility for a
benefit.
5. The actuarial cost associated with the additional benefit granted due to unused leave service credits will be calculated for
each retiring member. The employer of each retiring member will pay the additional actuarial cost so determined within
30 days of receiving an invoice from FRS.
6. The increase in benefit resulting from application of HB 77 shall not be an accrued benefit subject to the protection of
Article 10(29)(F) of the Constitution of Louisiana until FRS has received full payment from the employer.
7. An employer elects to have unused leave converted when an employee enters DROP. A member of such an employer
who is in DROP when the employer election is made will have his leave converted on the later of the following dates:
(a) the effective date of HB 77 or (b) the date the member entered DROP.
Implications of the Proposed Changes
HB 77 will permit the conversion of unused sick leave into service credits for members of FRS. The election to allow such
conversion will be made by each participating employer. Once an election is made it will be irrevocable.
Cost Analysis:
Analysis of Actuarial Costs
Retirement Systems
HB 77 contains benefit provisions having an actuarial cost.
HB 77 will have the following effects on various components of actuarial cost.
1. The actuarial present value of future benefit payments will increase.
2. The actuarial accrued liability of FRS will increase.
3. The unfunded accrued liability of FRS will not change because the employer pays the additional actuarial cost
associated with each retiring member.
Other Post-Employment Benefits
There are no actuarial costs associated with HB 7 7 for post-employment benefits other than pensions.
2014 REGULAR SESSION
ACTUARIAL NOTE HB 77
Page 3 of 3
Analysis of Fiscal Costs
HB 77 will have the following effect on fiscal costs during the five-year fiscal measurement period.
Expenditures:
1. FRS expenditures (Agy Self-Generated) will increase because benefits paid to members will be larger.
2. Expenditures from L ocal Funds will increase because employers electing conversion rights are required to pay the
increased actuarial cost. Contribution requirements for employers not electing to provide conversion rights will not
increase.
3. Expenditures from local funds will decrease to the extent that a local employer provides for a lump sum payment of
unused leave. It is generally less expensive to provide conversion of leave into service credits than to pay the lump sum
amount. However rules regarding payment of unused leave credit vary widely from employer to employer. Therefore
no universal conclusion can be drawn.
Revenues:
• FRS revenues will increase to the extent that employers elect to provide conversion rights to their employees; employees
obtain additional service credits and larger pension benefits; and the increase in the actuarial cost is paid by the
employer.
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 77 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 State Fiscal Cost ≥ $100,000
13.5.2: Annual Tax or Fee Change ≥ $500,000 6.8(F)(2): Annual State Revenue Reduction ≥ $500,000
6.8(G): Annual Tax or Fee Change ≥ $500,000