2020 REGULAR SESSION
ACTUARIAL NOTE HB 19
Page 1 of 7
House Bill 19 HLS 20RS-118
Original
Author: Representative Bacala
Date: March 2, 2020
LLA Note HB 19.01
Organizations Affected:
Municipal Police Employees’
Retirement System (MPERS)
OR 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 BENEFITS. Establishes a funding deposit account for the Municipal Police Employees' Retirement
System and authorizes the board of trustees of the system to modify required employer contribution rates.
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
Current law provides for determining employer contribution rates annually for statewide public retirement systems.
Current law (R.S. 11:105(B)) grants certain statewide retirement systems, not including MPERS, the authority to maintain net
direct employer contribution rates which would otherwise be decreased.
Under current law (R.S. 11:105(C)), any excess funds resulting from the board's exercise of its authority, not including MPERS,
will be combined with any contribution surplus, or offset by any contribution shortfall, and the resulting balance, if greater than
zero, will be applied for the following purposes:
1. To reduce system frozen unfunded accrued liabilities or
2. To reduce the outstanding amortization charge base or bases or
3. To establish or add to a contribution surplus base, or to reduce the present value of future normal costs.
Current law (R.S. 11:106) grants certain statewide retirement systems, not including MPERS, the authority to increase required
employer contribution rates up to 3% more than the net direct employer contribution rate otherwise determined pursuant to R.S.
11:103.
Under current law (R.S. 11:107), in any fiscal year during which the recommended employer contribution rate would otherwise
be decreased, the board of trustees of certain statewide retirement systems, not including MPERS, can set the employer
contribution rate at any point between the previous year's rate and the decreased rate otherwise determined pursuant to R.S.
11:103 and 104. 2020 REGULAR SESSION
ACTUARIAL NOTE HB 19
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Current law (R.S. 11:107.1) establishes a "funding deposit account" (FDA) in certain statewide systems, not including MPERS.
Funds collected pursuant to the current law in excess of minimum required employer contribution rates are credited to this
account and may be used by the board of trustees of the system for the following purposes:
1. Reduce system unfunded accrued liabilities.
2. Reduce future employer contribution rates.
3. Pay all or a portion of any future net direct employer contributions.
4. Provide cost-of-living increases.
Current law (R.S. 11:2225(A)(7)) also provides that MPERS’ board is authorized to provide a cost-of-living increase from interest
earnings in excess of normal requirements to retirees, survivors and beneficiaries. The amount of the increase is permitted to be
up to 3% of the original benefits.
Current law (R.S. 11:246) also provides that certain statewide systems, including MPERS, may provide an additional or
supplemental cost-of-living increase from interest income on investments to all retirees and beneficiaries who are 65 years of age
or over provided certain requirements are met. The amount of the increase is to be 2% of the original benefit, provided the
interest income sufficiently exceeds the valuation interest rate applied to the actuarial value of assets.
Cost-of-living adjustments (COLAs) financed with investment earnings in excess of the stated threshold are commonly called
Gain-sharing COLAs, while COLAs financed with surplus contributions in FDA could be called FDA COLAs.
Proposed Law
HB 19 grants MPERS the same authority to set the employer contribution rate above the rate determined under current law as
certain other statewide systems under R.S. 11:105, R.S. 11:106, R.S. 11:107 and R.S. 11:107.1.
HB 19 establishes an FDA within MPERS and further provides that MPERS can only use FDA funds to provide for COLAs.
.
As of the effective date of the proposed bill, June 30, 2020, R.S. 11:2225(A)(7) is repealed. No Gain-sharing COLAs under that
section would be permitted thereafter.
HB 19 also provides that after June 30, 2020, the first additional or supplemental COLAs (under R.S. 11:246) permitted will be
provided from excess interest income from investments, but thereafter no such additional or supplemental Gain-sharing COLAs
under R.S. 11:246 would be available to MPERS. Any cost-of-living adjustments thereafter would only be provided from the
FDA pursuant to R.S. 11:107.1.
Implications of the Proposed Changes
HB 19 provides the opportunity for MPERS to set the employer contribution rate above the minimum rate otherwise determined
under current law, to accumulate all surplus funds in an FDA, and then to use that fund exclusively to provide COLAs.
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 19 allows MPERS to set the employer contribution rate above the rate otherwise determined under current law, to
accumulate all surplus funds in an FDA, and to use the FDA balance exclusively for cost-of-living increases.
The existence of the FDA will have no effect on minimum required employer contribution requirements as calculated by the
system’s actuary. However, the source of funding for the FDA is surplus employer contributions that MPERS will be allowed
to require from its participating employers. Therefore, while it may not be certain, it can be reasonably expected that the
MPERS board of trustees will exercise its authority to fund the FDA by establishing contribution rates in the future that are
higher than the minimum employer rate otherwise determined under current law. In addition, while it may not be certain, it
can be reasonably expected that sometime after accumulating sufficient funds in the FDA, the MPERS board would then
grant a COLA from the FDA balance.
Under current law, while it may not be certain, it can also be reasonably expected that one or both types of Gain-sharing
COLAs (R.S. 2225 and R.S. 246) would be granted whenever permitted.
However, under the proposed bill R.S. 11:2225 and R.S. 246 Gain-sharing COLAs are prohibited (beyond that one
exception). That in itself would constitute a decrease in future benefits otherwise expected and future contribution
requirements that would otherwise be required to finance the grants of COLAs. At the same time, the proposed bill
authorizes COLAs to be paid from surplus contributions accumulating in the FDA.
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ACTUARIAL NOTE HB 19
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Under current practice, the contributions to support Gain-sharing COLAs would commence whenever such an increase is
granted and continue thereafter. This can be considered pay-as-you-go funding, whereas the proposed bill is tantamount to
advance-funding. Given the length of time needed to accumulate sufficient FDA balances and the flexibility in granting
increases from the FDA COLAs in subsequent years, the proposed bill can be reasonably expected to result in a decrease of
actuarial costs over time.
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 for post-retirement medical insurance protection provided to retirees is not affected by the establishment of a
Funding Deposit Account.
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 0 0 Increase Increase Increase Increase
Annual Total $ 0 $ 0 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 0 0 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 $ 0 $ 0 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.
2020 REGULAR SESSION
ACTUARIAL NOTE HB 19
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2. Expenditures:
a. Expenditures from MPERS are not expected to change during the next five years as a result of the proposed bill. We
assume that assets in the Funding Deposit Account will not be used by MPERS until a substantial pool of assets is
accumulated for the payment of COLAs. Therefore, we conclude that expenditures from the Funding Deposit Account
for the granting of COLAs will be $0 during the five-year fiscal measurement period.
b. Expenditures from Local Funds will increase under the proposed bill for fiscal years in which the board requires an
employer contribution rate that is greater than the minimum actuarially required rate. This increase may be expected to
commence some time during the next five years.
3. Revenues:
MPERS revenues (Agy Self Generated) will increase under the proposed bill to the extent that the employer contribution rate
is greater than the minimum actuarially required rate
.
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 19
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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 19
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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 19
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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
X
HB 19 contains a retirement system benefit provision having an actuarial cost.
Some members of the Municipal Police Employees’ Retirement System could receive a larger benefit with the enactment of
HB 19 than what they would have received without HB 19.
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
X 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