DIGEST
The digest printed below was prepared by House Legislative Services. It constitutes no part of the
legislative instrument. The keyword, one-liner, abstract, and digest do not constitute part of the law
or proof or indicia of legislative intent. [R.S. 1:13(B) and 24:177(E)]
HB 65 Original 2016 Regular Session Ivey
Abstract: Establishes a hybrid retirement plan for members of state retirement systems whose first
employment making them eligible for membership in a state system occurred on or after July
1, 2018.
Present law establishes 4 state retirement systems—the La. State Employees' Retirement System
(LASERS), the Teachers' Retirement System of La. (TRSL), the La. School Employees' Retirement
System (LSERS), and the State Police Retirement System (STPOL)—and provides a defined benefit
retirement plan for members of each system. Proposed law establishes a hybrid retirement plan
(Hybrid Plan)—consisting of a combination of a small defined benefit pension and a defined
contribution (DC) account—for members of each system whose first employment making them
eligible for membership in a state system occurred on or after July 1, 2018 (hereafter referred to as
"new members").
Cost Sharing
Present law establishes a fixed rate at which members must contribute to each state and statewide
retirement system. Proposed law retains present law for those who are not new members. Further
establishes a floating rate for new members based on an equal division of the cost of the plan for new
members.
Present law establishes the formula by which employer contribution rates are calculated each year.
Generally requires the employer to fund 100% of unfunded accrued liability (UAL) payments.
Proposed law requires new members to split equally the cost of their benefit accruals (the "Normal
Cost") and the cost of any UAL attributable to their plan. Does not require new members to pay any
portion of UAL created prior to the establishment of the Hybrid Plan.
COLAs
Present law provides a mechanism for paying cost-of-living adjustments (COLAs) to retirees of state
retirement systems using investment gains over and above certain pre-determined levels. Proposed
law retains present law for those who are not new members. For new members, proposed law
establishes a pre-funded COLA mechanism, the cost of which is split between new members and
employers. Upon retirement (or death), in every odd-numbered year, a qualifying new member or
beneficiary of such will receive a COLA equal to the lesser of:
(1)Two percent. (2)The CPI-U for the South as calculated by the U.S. Dept. of Labor, Bureau of Labor Statistics,
for the 12-month period ending on the May thirtieth immediately preceding the payment of
the benefit increase.
Further provides that such COLA shall only be paid on the first $50,000 of a retiree or beneficiary's
benefit amount.
Proposed law establishes the following qualifications for receipt of a COLA:
(1)Any retiree who has received a benefit for at least one year and who has attained at least his
normal retirement age.
(2)Any nonretiree beneficiary who has received a benefit for at least one year (aggregated with
any time the deceased member may have received a benefit) if the deceased member would
have attained his normal retirement age.
(3)Any disability retiree or any beneficiary who receives benefits based on the death of a
disability retiree if benefits have been received for at least one year.
Regular Retirement Benefits
Defined Benefit Plan
Present law provides a retirement benefit that combines average compensation with a percentage
multiplier for each year of service. This calculation can be rendered as:
Accrual Rate x Years of Service x Average Compensation
Present law for TRSL, LSERS, and rank-and-file members of LASERS provides an accrual rate of
2.5% of average compensation for each year of a member's service. Proposed law
retains present law for those who are not new members. Further establishes a 1% accrual rate for
regular retirement benefit calculations for new members.
Present law for STPOL and for the Hazardous Duty Services Plan (hereafter "Haz. Duty") members
provides an accrual rate of 3.33% of average compensation for each year of such member's service.
Proposed law retains present law for those who are not new members. Further establishes a 1.33%
accrual rate for regular retirement benefit calculations for new members.
Present law establishes a five-year vesting period for the right to a benefit from the defined benefit
plan. Proposed law retains present law for all members, regardless of the date of hire.
DC Plan
Proposed law establishes a DC account with a third-party provider for each new member. Requires
the board of trustees of each system to select up to three third-party providers who will administer
the DC accounts for new members. Establishes criteria for the board to use in evaluating potential
third-party providers. Requires each board to select from the funds offered by each provider a minimum of 10 and a maximum of 25 fund options in a range of risk and return profiles that will be
offered to new members in the DC plan. Requires at least one investment option to be a fund with
a guaranteed rate of return.
Proposed law provides that new member DC accounts for TRSL, LSERS, and rank-and-file
members shall be credited with 10% of pay each month. Further provides that new member DC
accounts for STPOL and hazardous duty members shall be credited with 12% of pay each month.
Proposed law establishes a five-year vesting period for the right to employer contributions and
interest credited to the new member's account. The new member's right to access interest on
employee and employer contributions made to the DC account is triggered by the member's
retirement (regular or disability) or death, whichever occurs first.
Proposed law provides that if a member terminates employment prior to attaining five years of
participation in the defined contribution plan, the employee is entitled to a return of all employee
contributions, without interest. All interest and employer contributions will be forfeited to the
system.
Proposed law further provides that if a member terminates employment after attaining five years of
participation in the DC plan, but prior to retirement, he must leave his account balance with the
third-party provider until the first age at which he may begin to draw an unreduced retirement benefit
and may then exercise all options in proposed law for members who retire from the system.
Proposed law provides that upon retirement, a member must annuitize at least 75% of his DC
account balance with the third-party provider. The member may chose the percentage of his account,
up to 25%, that will not be annuitized. Any portion of the account that is not annuitized may be
withdrawn in one or more lump-sum payments or rolled to another qualified retirement account, such
as an IRA.
Proposed law prohibits a new member who has not terminated employment or retired from
withdrawing funds from his DC account or borrowing against such funds.
Retirement Eligibility
Present law for TRSL, LSERS, and rank-and-file members of LASERS provides that a member hired
on or after July 1, 2015, is eligible for regular retirement if he has:
(1)Five years of service at age 62 or thereafter.
(2)20 years of service at any age, actuarially reduced.
Proposed law provides that, for TRSL, LSERS, and rank-and-file members of LASERS, a new
member is eligible for regular retirement if he has:
(1)Five years of service at age 65 or thereafter. (2)20 years of service at age 55 or thereafter, actuarially reduced.
Present law for STPOL and the Hazardous Duty members of LASERS provides that a member hired
on or after July 1, 2015, is eligible for regular retirement if he has:
(1)12 years of service at age 55 or thereafter.
(2)25 years of service at any age.
(3)20 years of service at any age, actuarially reduced.
Proposed law provides that for STPOL and the Haz. Duty members of LASERS, a new member is
eligible for regular retirement if he has:
(1)12 years of service at age 57 or thereafter.
(2)20 years of service at any age, actuarially reduced.
Disability & Death Benefits
Proposed law provides that disability and death benefits for new members shall be calculated as
though the member had been hired prior to July 1, 2018 ("Tier 1"); however, restricts the accrual rate
used in any such calculation to the hybrid plan rate applicable to the member.
Proposed law provides that if the new member did not meet the eligibility requirements for the
applicable Tier 1 survivors benefits, his designated beneficiary or his estate shall receive the DC
account balance the member would otherwise have been entitled to as a lump-sum or a transfer to
another qualified retirement plan.
Proposed law provides that if a member does meet the Tier 1 survivor benefit qualifications, his DC
account shall be divided as follows:
(1)If there is a surviving spouse and at least one minor child or child with a disability, the
surviving spouse shall receive an annuity based on one half of the account balance. The
other half of the account balance shall be divided pro rata between the minor children and
children with disabilities and annuitized.
(2)If there is no surviving spouse but there is at least one minor child or child with a disability,
the account shall be divided pro rata between the minor children and children with
disabilities and annuitized.
Proposed law provides that a member receiving disability benefits from the defined benefit plan may
access and annuitize his DC account, including employer contributions and all interest.
Proposed law provides that if a disability retiree who is under his normal retirement age is restored to active service, his disability benefit payments and access to the balance of his DC account shall
cease. He shall resume contributions to the retirement system and if he continues in service for at
least three years after restoration, the period of time spent on disability shall be counted toward
normal retirement eligibility, but will not count towards calculation of benefits. Requires the
remaining value of any annuity based on the DC account balance to be converted back into a lump
sum and deposited into the member's account. Further provides that contributions to the member's
DC account shall resume and be added to the balance in the account at the time he is restored to
active service.
Applicability of Tier 1 Provisions
Proposed law provides that the provisions of the Tier 1 tier that the member would have been
enrolled in but for his date of hire shall apply in any case where the provisions of the Hybrid Plan
are silent.
Effective if and when the proposed amendment of Article X of the Constitution of La. contained in
the Act which originated as House Bill No. _____ of this 2016 R.S. of the Legislature is adopted at
a statewide election and becomes effective.
(Amends R.S. 11:62(4)(intro. para.), (5)(intro. para.), (10)(intro. para.), and (11)(intro. para.),
102(B)(1) and (3)(a) and (d)(vi)(aa)(I) and (viii)(aa)(I), (C)(1)(a), (h), (j), (k), and (m) and (4)(a),
(b)(i), and (c), and (D)(1) and (4), 102.3, 247(A)(1), (D), and (E), 542(C)(1)(intro. para.),
883.1(C)(1)(intro. para.), 927(A) and (B)(2)(a) and (b) and (3)(a)(i), 1145.1(C)(1)(intro. para.),
1332(C)(1)(intro. para.) and (F); Adds R.S. 11:62(4.1), (5.1), (10.1), and (11.1), 102(C)(1)(n),
102.4, 542(C)(4)(e), 883.1(C)(4)(f), 1145.1(C)(4)(d), 1332(C)(4)(d), and 1399.1-1399.11)