2020 REGULAR SESSION
ACTUARIAL NOTE HB 18
Page 1 of 7
House Bill 18 HLS 20RS-116
Engrossed
Author: Representative Bacala
Date: May 11, 2020
LLA Note HB 18.02
Organizations Affected:
Municipal Police Employees’
Retirement System
EG DECREASE 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/MUNICIPAL POL: Provides relative to contributions to and the administration of the Municipal Police
Employees’ Retirement System.
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 Decrease
Other Post-employment Benefits (OPEB) 0
Total Decrease
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
The current laws for the provisions affected by HB 18 are:
1. Current law provides that members of the Municipal Police Employees’ Retirement System (MPERS) may remain in the
Deferred Retirement Option Plan (DROP) for a period not to exceed three years.
2. Current law provides that upon the effective date of commencement of participation in DROP, neither employee nor
employer contributions are payable.
3. Current law provides for the payment of the unfunded accrued liability by an employer participating in MPERS that fully
dissolves its police department and contracts for police services with another entity. It also provides that payments are
payable beginning July first of the fiscal year following the withdrawal from MPERS by the participating employer.
4. Current law provides that when a member has earned benefits equal to one hundred percent of his average final
compensation, no further contributions are required from him.
5. Current law provides that a member who is receiving worker's compensation and who does not pay the full amount that
would be his employee contribution if he were not receiving worker's compensation may receive service credit for
purposes of eligibility determination but not for computation of benefits purposes.
2020 REGULAR SESSION
ACTUARIAL NOTE HB 18
Page 2 of 7
Proposed Law
The provisions under HB 18 corresponding to the above current laws are:
1. HB 18 provides that, if the employer contributions on behalf of a member are suspended during his participation in the
DROP as a result of interruption of employment, the benefit payments in the DROP will also be suspended until the
employer contributions are restored. In such a case the member’s participation in the DROP will be extended by the
number of months the benefit payments were suspended. The participation period may therefore extend over a period
exceeding three calendar years, but benefit payments would only be made into the participant’s DROP subaccount for up
to thirty-six months.
2. HB 18 provides that upon the effective date of commencement of participation in DROP, employee contributions will
cease but employer contributions will continue to be payable for employees who commence participation in the DROP
on or after July 1, 2021.
3. HB 18 provides that payments for withdrawals that occur on or after July 1, 2018 are payable beginning July 1
st
of the
second fiscal year following the withdrawal determination by the MPERS’ actuary of the amount owed. Beginning July
1
st
of the fiscal year following the withdrawal, interest will accrue at MPERS’ actuarial valuation rate, compounded
annually. If an employer of MPERS fails to make a payment timely and the amount due is collected by action in a court
of competent jurisdiction, the delinquent employer will also be liable for any legal and actuarial fees incurred by MPERS
in the collection of amounts.
4. HB 18 provides that both employer and employee contributions will continue after a member has earned benefits equal
to one hundred percent of his final average compensation on or after July 1, 2021.
5. HB 18 provides that beginning on July 1, 2021 a member who is receiving worker's compensation and who does not pay
the full amount that would be his employee contribution if he were not receiving worker's compensation, will not receive
service credit for any purpose.
The following provisions are also contained in HB 18:
a. HB 18 provides that delinquent payments of employee or employer contributions by an employer of MPERS are subject
to the following:
1. Interest charged at the legal rate from the date the payment became delinquent.
2. Payments delinquent in excess of 90 days are subject to a penalty of 25% of the aggregate contributions due.
3. Payments delinquent in excess of 180 days are subject to payment of the greater of (1) or (2) above and an amount
equal to the actuarial cost of a purchase of the service credit for which contributions were not timely paid calculated
by the MPERS’ actuary.
4. Reimbursement of MPERS for legal and actuarial fees paid by MPERS in the collection of amounts under HB 18.
b. HB 18 authorizes MPERS’ board of trustees to make, amend, and promulgate rules and to provide for the establishment
and maintenance of MPERS.
c. HB 18 provides that all employers need to report separately the amount of compensation paid for overtime on their
monthly contribution reports.
Implications of the Proposed Changes
The implications of the four provisions under HB 18 affecting the above current laws are:
1. Current law does not address how DROP participation is affected by an interruption of employment. MPERS has
interpreted and is already administering the DROP provisions according to the description in the proposed law. HB 18
provides clarity to the DROP provisions when a member has an interruption of employment while participating in the
DROP.
2. Employer contributions are expected to increase because they will continue to be payable for employees who commence
participation in the DROP on or after July 1, 2021.
3. Payments following the withdrawal from MPERS by the participating employer will be payable beginning July 1
st
of the
second fiscal year following the withdrawal determination by the MPERS’ actuary of the amount owed rather than
beginning July 1st of the fiscal year following the withdrawal from MPERS. This is not expected to result in a change in
the amount of contributions payable.
4. Employee contributions are expected to increase since they will continue to be payable after a member has earned
benefits equal to one hundred percent of his final average compensation on or after July 1, 2021.
5. Actuarial liabilities are expected to decrease because beginning on July 1, 2021 a member who is receiving worker's
compensation and who does not pay the full amount that would be his employee contribution if he were not receiving
worker's compensation will not receive service credit for purposes of eligibility determination. This is generally
expected to result in delaying the member’s retirement date.
In addition, HB 18 is expected to ensure that MPERS will receive contributions required by participating employers and
employees under the current law in a timely manner. 2020 REGULAR SESSION
ACTUARIAL NOTE HB 18
Page 3 of 7
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 a
decrease in cost. The actuary’s analysis is summarized below.
HB 18 makes several changes to the current law. The changes that affect revenues and liabilities are:
Employer contributions will continue to be payable for members who enter the DROP (revenue increase) on or after
July 1, 2021.
Employee contributions will continue to be payable after a member has earned benefits equal to one hundred percent
of his final average earnings (revenue increase) on or after July 1, 2021.
Beginning on July 1, 2021 a member on workers compensation who is no longer paying his full employee
contribution, will no longer receive service credit for purposes of eligibility. Since eligibility for retirement is
generally a function of age and service, this change can be expected to delay retirement eligibility for such a
member (liability and benefit decrease in later years).
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.
The liability of local participating employers for post-retirement medical insurance subsidies provided to retirees is not
affected by any of the provisions contained in HB 18.
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.
2020 REGULAR SESSION
ACTUARIAL NOTE HB 18
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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 MPERS (Agy Self Generated) are not expected to change materially during the next five years, while in
years thereafter, there may be slight decreases due to delayed eligibilities for members receiving workers compensation.
b. Expenditures from the Local Funds will increase to the extent that more employer contributions will be required for
members who enter the DROP on or after July 1, 2021, and to the extent that interest will be charged on delinquent
amounts and required payments to MPERS will be made earlier (e.g., in 2020-21) than they would have otherwise.
3. Revenues:
MPERS revenues (Agy Self Generated) will increase to the extent that more employer contributions will be received for
members who enter the DROP on or after July 1, 2021, and to the extent that required payments will be paid earlier (e.g., in
2020-21) and interest will be charged on delinquent amounts.
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
2020 REGULAR SESSION
ACTUARIAL NOTE HB 18
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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.
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.
2020 REGULAR SESSION
ACTUARIAL NOTE HB 18
Page 6 of 7
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.
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: 2020 REGULAR SESSION
ACTUARIAL NOTE HB 18
Page 7 of 7
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;
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 18 contains a retirement system benefit provision having an actuarial cost.
No member of the Municipal Police Employees’ Retirement System would receive a larger benefit with the enactment of
HB 18 than what he would have received without HB 18.
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 Mea