2020 REGULAR SESSION
ACTUARIAL NOTE HB 15
Page 1 of 7
House Bill 15 HLS 20RS-195
Reengrossed
Author: Representative Coussan
Date: May 21, 2020
LLA Note HB 15.03
Organizations Affected:
Parochial Employees’ Retirement
System of Louisiana
Municipal Employees’ Retirement
System
RE NO IMPACT APV
This Note has been prepared by the Actuarial Services Department of the
Louisiana Legislative Auditor (LLA) with assistance from either the Fiscal Notes
staff of the Legislative Auditor or staff of the Legislative Fiscal Office (LFO). The
attachment of this Note provides compliance with the requirements of R.S. 24:521
as amended by Act 353 of the 2016 Regular Session.
Lowell P. Good, ASA, EA, MAAA
Actuarial Services Manager
Bill Header: RETIREMENT/LOCAL. Provides for membership of certain new hires of the Lafayette City-Parish Consolidated
Government in the Parochial Employees' Retirement System of Louisiana.
Cost Summary:
The estimated net actuarial and fiscal impact of this proposed legislation on the retirement systems and their plan sponsors is
summarized below. Net actuarial costs pertain to estimated changes in the net actuarial present value of future benefit payments and
administrative expenses incurred by the retirement system. Net fiscal costs or savings pertain to changes to all cash flows over the
next five year period including retirement system cash flows, OPEB cash flows, or cash flows related to local and state government
entities.
An increase in actuarial costs is denoted throughout the actuarial note by “Increase” or a positive number. Actuarial savings are
denoted by “Decrease” or a negative number. An increase in expenditures or revenues (fiscal impact) is denoted by “Increase” or a
positive number. A decrease in expenditures or revenues is denoted by “Decrease” or a negative number.
Estimated Actuarial Impact:
The top part of the following chart shows the estimated change in the net actuarial present value of future benefit payments and
expenses, if any, attributable to the proposed legislation. The bottom part shows the effect on cash flows (i.e., contributions, benefit
payments, and administrative expenses).
Net Actuarial Costs (Liabilities) Pertaining to: Net Actuarial Cost
The Retirement Systems $0
Other Post-employment Benefits (OPEB) 0
Total $0
Five Year Net Fiscal Cost Pertaining to: Expenditures Revenues
The Retirement Systems 0 Increase
Other Post-employment Benefits (OPEB) 0 0
Local Government Entities Increase 0
State Government Entities 0 0
Total Increase Increase
Bill Information
Current Law
Under current law, if the governing authorities of a municipality and a parish consolidate into one government, in general,
employees who were members of the Municipal Employees’ Retirement System (MERS) at the time of consolidation remained
members of MERS. All persons who became employed after such consolidation became members of the Parochial Employees’
Retirement System of Louisiana (PERS).
However, current law also provides that any employee of the Lafayette City-Parish Consolidated Government (LCPCG) first
employed on or after November 1, 2010, by a department created by the LCPCG Home Rule Charter, except for police and
firefighters, would become a member of MERS. Any employee first employed on or after November 1, 2010, by the City Court
of Lafayette, inclusive of the office of marshal, but exclusive of the judges of the city court, would also become a member of
MERS.
Proposed Law
HB 15 provides that any employee of the LCPCG first employed on or after November 1, 2020, by a department created by the
LCPCG Home Rule Charter, except for police and firefighters, will become a member of PERS instead of MERS. Any employee
first employed on or after November 1, 2020, by the City Court of Lafayette, inclusive of the office of marshal, but exclusive of
the judges of the city court, will also become a member of PERS, instead of MERS, provided membership eligibility conditions
are satisfied.
2020 REGULAR SESSION
ACTUARIAL NOTE HB 15
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For every position with the LCPCG which is covered by MERS on June 30, 2020 and is eliminated from MERS coverage after
October 31, 2020, the LCPCG will pay that portion of the unfunded accrued liability existing on June 30
th
immediately prior to
the date of elimination which is attributable to the eliminated position.
The amount due will be determined by the actuary employed by MERS using the entry age normal funding method and will be
paid in a lump sum or amortized over ten years in equal monthly payments with interest at MERS' actuarial valuation rate in the
same manner as regular payroll payments to MERS, at the option of the employer. The cost of this calculation will be paid by the
LCPCG.
Implications of the Proposed Changes
HB 15 provides that certain employees of the Lafayette City-Parish Consolidated Government, first employed on or after
November 1, 2020, will no longer become members of MERS but will instead become members of PERS.
Based on information from the MERS Plan actuary, Lafayette currently represents 16.3% of the active members and 17.5% of the
retirees and survivors of MERS Plan A. The contributions to the Plan include a normal cost and payments toward the Frozen
Unfunded Accrued Liability, and contributions are based on the active membership payroll.
Reengrossed HB 15, as amended, attempts to assign LCPGG-specific obligations for each position that is eliminated over time,
and do so in a way that avoids cost-shifting, i.e., does not materially increase the normal cost contribution burden of other MERS-
participating employers.
Employees currently participating in MERS would remain in that system until termination or retirement, and contributions would
continue to be paid into MERS by them and by LCPCG for them until termination or retirement. The funding requirements of
MERS Plan A are calculated using the Frozen Attained Age Normal Actuarial Cost Method.
It is unclear whether or how a ten-year amortization payment plan from LCPCG with respect to terminated positions would
reduce the contributions from other MERS-participating employers that would otherwise increase over time as a result of the
departure of covered members in the terminated positions under the Frozen Attained Age Normal Actuarial Cost Method.
I. ACTUARIAL IMPACT ON RETIREMENT SYSTEMS AND OPEB [Completed by LLA]
A. Analysis of Net Actuarial Costs
(Prepared by LLA)
This section of the actuarial note pertains to net actuarial costs or savings associated with the retirement systems and with OPEB.
1. Retirement Systems
The net actuarial cost or savings of the proposed legislation associated with the retirement systems is estimated to be $0. The
actuary’s analysis is summarized below.
A change in the membership from MERS to PERS for some employees hired on or after November 1, 2020 does not change
the amount or timing of benefit payments for the current members of MERS and PERS. However, more employees will
become members of PERS and fewer employees will become members of MERS. These employees will accrue retirement
benefits in PERS instead of MERS, and contributions to PERS would be required to fund the benefits while contributions to
MERS for such new hires would not be necessary since no benefits would accrue. The net effect of HB 15 on the net
actuarial present value of all benefits is expected to be offsetting because the benefit levels provided to new hires under PERS
are approximately the same as under MERS.
Reengrossed HB 15, as amended, attempts to assign LCPGG-specific obligations for each position that is eliminated over
time, and do so in a way that avoids cost-shifting, i.e., does not materially increase the normal cost contribution burden of
other MERS-participating employers.
As mentioned above, certain aspects of the actuarial funding under Reengrossed HB 15 are unclear, as written. Based on
discussions with the actuary for MERS, the following interpretations of this proposed bill are applied for the purpose of this
Actuarial Note:
The term “position” as used in the proposed bill is understood to mean employee and
Any ten-year amortization plan established by the System and paid by LCPCG would reduce the otherwise-
calculated present value of future normal costs financed over the payroll of remaining covered employees each year
under the Frozen Attained Age Normal Actuarial Cost Method. Such reduction could be accomplished either by (a)
treating any new ten-year amortization bases as a new Frozen Unfunded Actuarial Liability base, financed solely by
LCPCG or (b) treating any new 10-year amortization base as an asset of the System (however, this treatment could
be problematic for accounting purposes as well as funding purposes).
Under these interpretations, Reengrossed HB 15 approximately neutralizes the cost-shifting effects that otherwise would
occur. Furthermore, since the MERS and PERS benefits are approximately the same for new hires, the Net Actuarial Cost is
zero.
2. Other Post-employment Benefits (OPEB)
The net actuarial cost or savings of the proposed legislation associated with OPEB, including retiree health insurance
premiums, is estimated to be $0. The actuary’s analysis is summarized below. 2020 REGULAR SESSION
ACTUARIAL NOTE HB 15
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The liability for post-retirement medical insurance subsidies provided to retirees is not affected by the membership of certain
employees of the Lafayette City-Parish Consolidated Government, first employed on or after November 1, 2020, or by
requiring a participating employer to pay a portion of the unfunded accrued liability.
B. Actuarial Data, Methods and Assumptions
(Prepared by LLA)
Unless indicated otherwise, the actuarial note for the proposed legislation was prepared using actuarial data, methods, and
assumptions as disclosed in the most recent actuarial valuation report adopted by the Public Retirement Systems’ Actuarial
Committee (PRSAC). The 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. With certain exceptions,
the actuary for the LLA finds the assumptions used by the retirement systems and PRSAC to be reasonable.
C. Actuarial Caveat
(Prepared by LLA)
There is nothing in the proposed legislation that will compromise the signing actuary’s ability to present an unbiased statement of
actuarial opinion.
II. FISCAL IMPACT ON RETIREMENT SYSTEMS AND OPEB [Completed by LLA]
This section of the actuarial note pertains to fiscal (annual) costs or savings associated with the retirement systems (Table A) and with
OPEB (Table B). Fiscal costs or savings in Table A include benefit-related actuarial costs and administrative costs incurred by the
retirement systems.
A. Estimated Fiscal Impact – Retirement Systems
(Prepared by LLA)
1. Narrative
Table A shows the estimated fiscal impact of the proposed legislation on the retirement systems and the government entities
that sponsor them. A fiscal cost is denoted by “Increase” or a positive number. Fiscal savings are denoted by “Decrease” or
a negative number. A revenue increase is denoted by “Increase” or a positive number. A revenue decrease is denoted by
“Decrease” or a negative number.
Retirement System Fiscal Cost: Table A EXPENDITURES 2020-21 2021-22 2022-23 2023-24 2024-25 5 Year Total
State General Fund $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Agy Self Generated 0 0 0 0 0 0
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 2020-21 2021-22 2022-23 2023-24 2024-25 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
All expenditures for employer contributions are reflected on a single line in the table above. The actual sources of funding
(e.g., Federal Funds, State General Fund) may vary by employer and are not differentiated on the table.
The proposed legislation will have the following effects on retirement related fiscal costs and revenues during the five year
measurement period.
2. Expenditures:
a. Expenditures by PERS (Agy Self Generated) are expected to increase beginning in 2020-21, when more employees than
currently expected will become members of PERS.
b. Expenditures by MERS (Agy Self Generated) are expected to decrease beginning in 2020-21, when fewer employees
than currently expected will become members of MERS.
c. The net effect on the expenditures (Agy Self Generated) is expected to be offsetting.
2020 REGULAR SESSION
ACTUARIAL NOTE HB 15
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d. Under the interpretations outlined above, to the extent that LCPCG elects to pay lump sums to MERS, it could cause an
increase in LCPCG’s expenditures and an increase in the net total Local Funds’ expenditures, even though LCPCG
contributions for new hires would be lower. However, to the extent that LCPCG elects a ten-year amortization plan, the
net total Local Funds’ expenditures is expected to be approximately the same or somewhat higher under the
interpretations outlined above. On balance, therefore, an increase in total Local Funds’ expenditures is expected over the
next five years.
3. Revenues:
a. PERS revenues (Agy Self Generated) are expected to increase since higher employer contributions will be received for
additional new hires covered.
b. MERS revenues (Agy Self Generated) are expected to decrease since lower employer contributions will be received for
fewer new hires covered. The decrease in revenues will be partially offset by an increase in revenues whenever LCPCG
opts for paying a lump sum of the portion of MERS’ unfunded accrued liability attributable to positions with the LCPCG
eliminated from MERS coverage.
c. The net effect on the revenues (Agy Self Generated) is expected to be an increase over the next five years.
B. Estimated Fiscal Impact – OPEB
(Prepared by LLA)
1. Narrative
Table B shows the estimated fiscal impact of the proposed legislation on actuarial benefit and administrative costs or savings
associated with OPEB and the government entities that sponsor these benefit programs. A fiscal cost is denoted by
“Increase” or a positive number. Fiscal savings are denoted by “Decrease” or a negative number. A revenue increase is
denoted by “Increase” or a positive number. A revenue decrease is denoted by “Decrease” or a negative number.
OPEB Fiscal Cost: Table B EXPENDITURES 2020-21 2021-22 2022-23 2023-24 2024-25 5 Year Total
State General Fund $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Agy Self Generated 0 0 0 0 0 0
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 $ 0 $ 0 $ 0 $ 0 $ 0
REVENUES 2020-21 2021-22 2022-23 2023-24 2024-25 5 Year Total
State General Fund $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Agy Self Generated 0 0 0 0 0 0
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 $ 0 $ 0 $ 0 $ 0 $ 0
All expenditures for employer contributions are reflected on a single line in the table above. The actual sources of funding
(e.g., Federal Funds, State General Fund) may vary by employer and are not differentiated on the table.
The proposed legislation will have the following effects on OPEB related fiscal costs and revenues during the five year
measurement period.
2. Expenditures:
No measurable effects.
3. Revenues:
No measurable effects.
III. FISCAL IMPACT ON LOCAL GOVERNMENT ENTITIES [Completed by LLA]
This section of the actuarial note pertains to annual fiscal costs, cost savings, and revenue impacts incurred by local government
entities other than those included in Tables A and B. See Table C.
2020 REGULAR SESSION
ACTUARIAL NOTE HB 15
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Estimated Fiscal Impact - Local Government Entities (other than the impact included in Tables A and B)
(Prepared by Bradley Cryer, Director of Local Government Services)
1. Narrative
From time to time, legislation is proposed that has an indirect effect on expenditures and revenues associated with local
government entities (other than the impact included in Tables A and B). Table C shows the estimated fiscal impact of the
proposed legislation on such local government entities. A fiscal cost is denoted by “Increase” or a positive number. Fiscal
savings are denoted by “Decrease” or a negative number. A revenue increase is denoted by “Increase” or a positive number.
A revenue decrease is denoted by “Decrease” or a negative number.
Fiscal Costs for Local Government Entities: Table C EXPENDITURES 2020-21 2021-22 2022-23 2023-24 2024-25 5 Year Total
State General Fund $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Agy Self Generated 0 0 0 0 0 0
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 $ 0 $ 0 $ 0 $ 0 $ 0
REVENUES 2020-21 2021-22 2022-23 2023-24 2024-25 5 Year Total
State General Fund $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Agy Self Generated 0 0 0 0 0 0
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 $ 0 $ 0 $ 0 $ 0 $ 0
The proposed legislation will have the following effects on fiscal costs and revenues related to local government entities
during the five year measurement period.
2. Expenditures:
No measurable effects.
3. Revenues:
No measurable effects.
IV. FISCAL IMPACT ON STATE GOVERNMENT ENTITIES [Completed by LFO]
This section of the actuarial note pertains to annual fiscal costs, cost savings, and revenue impacts incurred by state government
entities other than those included in Tables A and B. See Table D.
Estimated Fiscal Impact − State Government Entities (other than the impact included in Tables A and B)
(Prepared by John Carpenter, Legislative Fiscal Officer)
1. Narrative
Legislation may be proposed that has an indirect effect on expenditures and revenues associated with state government
entities (other than the impact included in Tables A and B). Table D shows the estimated fiscal impact of the proposed
legislation on such state government entities. A fiscal cost is denoted by “Increase” or a positive number. Fiscal savings are
denoted by “Decrease” or a negative number. A revenue increase is denoted by “Increase” or a positive number. A revenue
decrease is denoted by “Decrease” or a negative number.
2020 REGULAR SESSION
ACTUARIAL NOTE HB 15
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Fiscal Costs for State Government Entities: Table D EXPENDITURES 2020-21 2021-22 2022-23 2023-24 2024-25 5 Year Total
State General Fund $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Agy Self Generated 0 0 0 0 0 0
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 $ 0 $ 0 $ 0 $ 0 $ 0
REVENUES 2020-21 2021-22 2022-23 2023-24 2024-25 5 Year Total
State General Fund $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Agy Self Generated 0 0 0 0 0 0
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 $ 0 $ 0 $ 0 $ 0 $ 0
The proposed legislation will have the following effects on fiscal costs and revenues related to state government entities
during the five year measurement period.
2. Expenditures:
N/A - This bill only impacts local government and therefore, has no state impact. The LFO does not review local government
bills.
3. Revenues:
N/A - This bill only impacts local government and therefore, has no state impact. The LFO does not review local government
bills.
Credentials of the Signatory Staff:
Lowell P. Good is the Actuary for the Louisiana Legislative Auditor. He is an Enrolled Actuary, a member of the American Academy
of Actuaries, an Associate 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.
James J. Rizzo is a Senior Consultant and Actuary with Gabriel, Roeder, Smith & Company, which currently serves as staff for the
Actuarial Services Department of the Louisiana Legislative Auditor. He is an Enrolled Actuary, a member of the American Academy
of Actuaries, an Associate 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.
Actuarial Disclosure: Risks Associated with Measuring Costs
This Actuarial Note is an actuarial communication, and is required to include certain disclosures in compliance with Actuarial
Standards of Practice (ASOP) No. 51.
A full actuarial determination of the retirement system’s costs, actuarially determined contributions and accrued liability require the
use of assumptions regarding future economic and demographic events. The assumptions used to determine the retirement system’s
contribution requirement and accrued liability are summarized in the system’s most recent Actuarial Valuation Report accepted by the
respective retirement board and by the Public Retirement Systems’ Actuarial Committee (PRSAC).
The actual emerging future experience, such as a retirement fund’s future investment returns, may differ from the assumptions. To the
extent that emerging future experience differs from the assumptions, the resulting shortfalls (or gains) must be recognized in future
years by future taxpayers. Future actuarial measurements may also differ significantly from the current measurements due to other
factors: changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the
methodology used for these measurements (such as the end of an amortization period; or additional cost or contribution requirements
based on the system’s funded status); and changes in plan provisions or applicable law.
Examples of risk that may reasonably be anticipated to significantly affect the plan’s future financial condition include:
1. Investment risk – actual investment returns may differ from the expected returns (assumptions);
2. Contribution risk – actual contributions may differ from expected future contributions. For example, actual contributions
may not be made in accordance with the plan’s funding policy or material changes may occur in the anticipated number of
covered employees, covered payroll, or other relevant contribution base;
3. Salary and Payroll risk – actual salaries and total payroll may differ from expected, resulting in actual future accrued liability
and contributions differing from expected;
4. Longevity and life expectancy risk – members may live longer or shorter than expected and receive pensions for a period of
time other than assumed; 2020 REGULAR SESSION
ACTUARIAL NOTE HB 15
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5. Other demographic risks – members may terminate, retire or become disabled at times or with benefits other than assumed,
resulting in actual future accrued liability and contributions differing from expected.
The scope of an Actuarial Note prepared for the Louisiana Legislature does not include an analysis of the potential range of such
future measurements or a quantitative measurement of the future risks of not achieving the assumptions. In certain circumstances,
detailed or quantitative assessments of one or more of these risks as well as various plan maturity measures and historical actuarial
measurements may be requested from the actuary. Additional risk assessments are generally outside the scope of an Actuarial
Note. Additional assessments may include stress tests, scenario tests, sensitivity tests, stochastic modeling, and a comparison of the
present value of accrued benefits at low-risk discount rates with the actuarial accrued liability.
However, the general cost-effects of emerging experience deviating from assumptions can be known. For example, the investment
return since the most recent actuarial valuation may be less (or more) than the assumed rate, or a cost-of-living adjustment may be
more (or less) than the assumed rate, or life expectancy may be improving (or worsening) compared to what is assumed. In each of
these situations, the cost of the plan can be expected to increase (or decrease).
The use of reasonable assumptions and the timely receipt of the actuarially determined contributions are critical to support the
financial health of the plan. However, employer contributions made at the actuarially determined rate do not necessarily guarantee
benefit security.
Information Pertaining to Article (10)(29(F) of the Louisiana Constitution
HB 15 contains a retirement system benefit provision having an actuarial cost.
Employees of the Lafayette City-Parish Consolidated Government who become members of PERS would not receive a larger
benefit with the enactment of HB 15 than what they would have received without HB 15.
Dual Referral Relative to Total Fiscal Costs or Total Cash Flows:
The information presented below is based on information contained in Tables A, B, C, and D for the first three years following the
2020 regular session.
Senate House
13.5.1 Applies to Senate or House Instruments. 6.8F Applies to Senate or House Instruments.
If an annual fiscal cost ≥ $100,000, then bill is
dual referred to:
If an annual General Fund fiscal cost ≥
$100,000, then the bill is dual referred to:
Dual Referral: Senate Finance Dual Referral to Appropriations
13.5.2 Applies to Senate or House Instruments. 6.8G Applies to Senate Instruments only.
If an annual tax or fee change ≥ $500,000,
then the bill is dual referred to:
If a net fee decrease occurs or if an increase in
annual fees and taxes ≥ $500,000, then the bill is
dual referred to:
Dual Referral: Revenue and Fiscal Affairs
Dual Referral: Ways and Means