2014 REGULAR SESSION
ACTUARIAL NOTE HB 79
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House Bill 79 HLS 14RS-387
Original
Author: Representative J. Kevin
Pearson
Date: April 22, 2014
LLA Note HB 79 .01
Organizations Affected:
Louisiana State Employees’
Retirement System
Harbor Police Retirement System
OR 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 79 provides compliance
with the requirements of R.S. 24:521.
Bill Header: RETIREMENT/STATE EMPS: Provides for enrollment of new hires of the Harbor Police Department of the Port of
New Orleans in the Hazardous Duty Services Plan in the La. State Employees’ Retirement System and for administration of the
Harbor Police Retirement System by the La. State Employees’ 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
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
government entities including the retirement systems and the Office of Group Benefits. Fiscal costs include estimated administrati ve
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 Decrease Decrease Decrease Decrease Decrease
Agy Self Generated 0 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 79
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Bill Information:
Current Law
Under current law, the Harbor Police Retirement System (HPRS) is a retirement system that is separately identified in Title 11 of
Louisiana revised statutes. It is operated by a board of trustees consisting of appointees by the Port of New Orleans, member s and
retirees of the Harbor Police, and other individuals elected in accordance with R.S. 11:3688.
Proposed Law
If HB 79 is enacted, the HPRS board of trustees will be dissolved on January 1, 2016, and the retirement system will be
administered by the Louisiana Employees’ Retirement System (LASERS). This transaction will occur by means of a cooperative
endeavor agreement (CEA) between the Port of New Orleans, the HPRS, and LASERS. Provisions of HB 79 relevant to the
agreement are summarized below:
Administration and Funding:
1. The HPRS board and the Board of Commissioners of the Port of New Orleans shall jointly select all service providers
for HPRS until administration of the system is assumed by LASERS. Thereafter, all service providers will be selected
by LASERS.
2. LASERS will administer the benefit provisions of HPRS in accordance with RS 11:3681-3697 once the CEA becomes
effective. However, no permanent benefit increases will be paid to members of HPRS using funds of LASERS
pertaining to non-HPRS members.
3. HPRS will be closed for any new members on or after July 1, 2014.
4. Assets of the HPRS will be transferred to LASERS and become part of the LASERS trust. A notational account shall be
established for the HPRS that will permit the tracking of HPRS assets, employer and employee contribution s, benefits,
expenses, and investment earnings.
5. HPRS will become a sub plan of LASERS. As a sub plan, contribution requirements for the Port of New Orleans will be
based on the following calculations.
a. A normal cost specifically calculated for HPRS using the same actuarial funding method as LASERS uses.
b. An unfunded accrued liability rate specifically calculated for the Port of New Orleans pertaining to legislation,
changes in governmental organization, or re-classification of employees or positions relative to employees of the
Police Department of the Port of New Orleans.
c. An unfunded accrued liability rate or annual amount established under the CEA necessary to liquidate the current
UAL of the HPRS.
d. A shared UAL rate relative to UALs incurred by LASERS on or after July 1, 2015. This rate will cease July 1, 2022
or a date established by the CEA if earlier.
e. A shared UAL rate relative to all UALS incurred by LASERS. This rate will begin July 1, 2022 or on a date
established by the CEA if earlier.
f. The 20% limit on employer contributions to HPRS will be eliminated.
g. All fines that otherwise were sources of revenue for HPRS will be retained by the Port of New Orleans.
6. Employees of the Police Department of the Port of New Orleans and retirees of the HPRS will be allowed to participate
in voting for appropriate representation on the LASERS board of trustees.
System Membership:
1. An active member of the HPRS first employed on or before June 30, 2014, and who has not participated in DROP may
irrevocably elect to transfer his membership to the Hazardous Duty sub plan of LASERS. Any actuarial cost associated
with such a transfer will be paid by the member.
2. Current participants in HPRS including retirees and active members shall retain all accrued benefits and shall continue to
accrue benefits under the HPRS benefit structure unless he or she transfers to the LASERS Hazardous Duty sub plan.
3. Commissioned employees of the Harbor Police Department for the Port of New Orleans first employed on or after July
1, 2014, shall become members of the LASERS Hazardous Duty sub plan.
4. Effective July 1, 2016, the calculation and granting of permanent benefit increases for member of the HPRS shall be in
accordance with R.S. 11:542. However, funds attributable to LASERS shall not be used to grant benefit increases to
members of HPRS. 2014 REGULAR SESSION
ACTUARIAL NOTE HB 79
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Effective Date:
1. Provisions of HB 79 pertaining to the enrollment of employees of the Harbor Police Department of the Port of New
Orleans become effective July 1, 2014.
2. Provisions of HB 79 pertaining to the assumption of administration of HPRS by LASERS become effective June 30,
2015.
Implications of the Proposed Changes
HPRS will be closed to new members effective June 30, 2014. Employees of the Harbor Police Department of the Port of New
Orleans first employed on or after July 1, 2014 will become members of the LASERS Hazardous Duty sub plan. LASERS will
assume responsibility for administering HPRS effective June 30, 2015.
Cost Analysis:
Analysis of Actuarial Costs
Retirement Systems
HB 79 contains benefit provisions having an actuarial cost. For example, the normal form of benefit for a retiree of HPRS is
a life annuity. The normal form of benefit for a retiree from the Hazardous Duty plan who has been married for at least 2
years is a joint and 75% survivor benefit.
HPRS is not an actuarially funded retirement system. It is financed by the following amounts:
1. Employee contributions equal to 9% of pay.
2. All fines collected from violations of ordinances of the City of New Orleans applicable to the wharves, landings, and
the river front.
3. Actuarially calculated employer contributions not to exceed 20% of pay.
These amounts are not sufficient to maintain the retirement system on an actuarially sound basis.
HB 79 provides that the Port of New Orleans will liquidate the UAL for the HPRS by June 30, 2022, and that employer
contributions to the system in the future will be actuarially calculated without regard to the 20% limitation.
The unfunded accrued liability of HPRS as of June 30, 2013, was about $7.8 million based on the Entry Age Normal Funding
method, a 7.0% discount rate, and a mortality table established in 1971. Under HB 79, the Port of New Orleans will liquidate
on or before June 30, 2022, the UAL for HPRS as calculated in accordance with assumptions and methods used by LASERS
(the Projected Unit Credit method, 8.0% discount rate, and a 2000 mortality table). It is uncertain whether the UAL
calculated by HPRS will be more or less than the UAL calculated by LASERS. Nevertheless, it is likely that the Port will be
liquidating a UAL that is approximately $8 million.
Once the Port has liquidated the UAL associated with HPRS, it will then contribute toward the UAL of the entire system
including UALs established before the Port became a participating employer of LASERS.
The following general conclusions can be drawn relative to the various stakeholders of LASERS and HPRS.
1. Contributions by the Post of New Orleans relative to members of HPRS and future commissioned Harbor Police
who will become members of the Hazardous Duty sub plan of LASERS will increase significantly. Currently, the
Port is only paying 20% of pay for existing members of HPRS. In the future it will be paying the employer normal
cost rate based on the Projected Unit Credit funding method and assumptions used by LASERS plus amortization
payments sufficient to maintain LASERS and the HPRS sub plan on an actuarially sound basis.
2. Contributions by the Port of New Orleans will increase in order to liquidate the UAL for the HPRS.
3. Contributions by the Port of New Orleans will increase for FYE 2023 and later years once it begins to be charged for
amortization of the shared UAL of LASERS occurring before the Port became a participating employer of LASERS.
4. Contributions by the Port of New Orleans will increase relative to its employees who become members of the
Hazardous Duty sub plan of LASERS. The benefit structure for the Hazardous Duty sub plan is more generous than
the benefit structure for HPRS.
5. Employer contributions from the General Fund will decrease as the Port of New Orleans begins to pay a share of the
UAL incurred by LASERS before the Port became a participating employer of LASERS.
6. Benefit payments from LASERS will increase as commissioned employees of the Harbor Police Department of the
Port of New Orleans join LASERS and receive more generous benefits.
2014 REGULAR SESSION
ACTUARIAL NOTE HB 79
Page 4 of 4
7. LASERS revenues will increase as it receives employer normal cost contributions, UAL liquidation payments, and
shared amortization payments from the Port of New Orleans.
Other Post-Employment Benefits
There are no actuarial costs associated with HB 79 for post-employment benefits other than pensions.
Analysis of Fiscal Costs
HB 79 will have the following effect on fiscal costs.
Expenditures:
1. Expenditures from General Funds will decrease to the extent that the Port of New Orleans begins to pay toward the
shared UAL for LASERS. This will happen immediately relative to Harbor Police first employed on or after July 1,
2014. Decreases relative to existing members of HPRS will not occur until FYE 2023.
2. Expenditures from LASERS (Agy Self-Generated) will increase relative to any member of HPRS who transfers to the
Hazardous Duty sub plan and then retires within the fiscal measurement period.
3. Expenditures from Local Funds will increase as the Port liquidates the H PRS UAL and pays larger contributions relative
to its employees participating in the HPRS and Hazardous Duty sub plans of LASERS.
Revenues:
• LASERS revenues (Agy Self-Generated) will increase as it receives employer normal cost contributions, UAL
liquidation payments, and shared amortization payments from the Port of New Orleans.
Actuarial Data, Methods and Assumptions
This actuarial note has been prepared based on the June 30 , 2013 actuarial valuation report prepared by Conefry & Company,
LLC. We are relying on the professional certification of the actuary signing this report. The note is also based on the June 30,
2013, actuarial valuation report for LASERS adopted by PRSAC in March 2014.
Actuarial Caveat
There is nothing in HB 79 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 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