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Bill Detail: HB20-1044

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Title Modify Pension Plans Administered By FPPA Fire And Police Pension Association
Status Governor Signed (04/01/2020)
Bill Subjects
  • Local Government
House Sponsors S. Bird (D)
T. Exum Sr. (D)
A. Garnett (D)
Senate Sponsors L. Garcia (D)
J. Ginal (D)
House Committee Finance
Senate Committee Local Government
Date Introduced 01/08/2020
Description

Pension Review Commission. The bill modifies various plans
administered by the fire and police pension association (FPPA).
The bill modifies the old-hire pension plans as follows:
State-assisted old hire plans. There are 26 state-assisted old hire
police officers' and firefighters' pension plans with 5 or fewer retirees or
beneficiaries who are still receiving benefits. Current law states that the

amount of annual local government contributions to those plans is an
amount that will amortize the unfunded liabilities of the plan over a
period not to exceed 20 years or the average remaining life expectancy of
the pension fund's members. Section 1 of the bill modifies the method by
which the contribution is calculated to more precisely set contribution
requirements as the plans' liabilities decrease. The bill allows the FPPA
board of directors (board) to consider the following when determining the
contribution amount: Stabilizing the amount of the annual required
contributions over time; keeping the funded ratio of the pension fund
from declining; and reducing or eliminating contributions as may be
prudent based on actuarial experience.
The bill modifies the statewide defined benefit plan as follows:
Increase in employee and employer contributions. Current
statute specifies that all members covered under the statewide defined
benefit plan administered by the FPPA contribute 8% of their salary to the
FPPA on a monthly basis. In addition, every employer employing
members who are covered by the statewide defined benefit plan
administered by the FPPA contributes 8% of the salary paid to such
members to the FPPA on a monthly basis.
In 2014, the members and employers of the statewide defined
benefit plan authorized a 4% increase in the member contribution rate to
be implemented over 8 years with an increase of .5% per year for a total
employee contribution rate of 12% of salary. The first .5% increase in the
member contribution rate occurred in 2015 and the member contribution
rate will continue to increase by .5% each year thereafter through 2022.
Sections 2, 3, and 4 of the bill codify the increases in the member
contribution rates that are already in effect and make required conforming
amendments.
Sections 2, 3, and 4 of the bill increases the employer contribution
rate by 4%, to be implemented over 8 years with an increase of .5% a year
for a total employer contribution rate of 12% of salary. The bill requires
the first .5% increase in the employer contribution rate to occur in 2021,
and requires an additional .5% increase each year thereafter through 2028.
Retirement eligibility. Currently, a member of the statewide
defined benefit plan may retire with a full retirement benefit if the
member has completed at least 25 years of service and is at least 55 years
old. A member of the statewide defined benefit plan is eligible for an
early retirement with a reduced benefit if the member has either
completed at least 30 years of service or is at least 50 years old. Section
2
of the bill would allow a member of the statewide defined benefit plan
to retire with an unreduced retirement benefit if the member is at least 50
years old and has a combined age and years of service that is equal to at
least 80.
To cover the cost of the new full retirement benefit eligibility,
section 2 of the bill increases the employer contribution rate, in addition
to all other increases in the employer contribution rate, by 1% of base
salary to be implemented over 2 years. In 2021, the bill requires the
employer contribution rate to increase by .5% of base salary and in 2022,
requires the employer contribution rate to increase by an additional .5%
of base salary. The implementation of the increase may be deferred while
other increases are being implemented.
Conforming amendment to current plan. Originally, the pension
benefit for members of the statewide defined benefit plan was capped at
50% of a member's highest average salary, even when the member earned
more than 25 years of service credit. In the 1990s, the cap was eliminated
by an amendment to the plan approved by election of the members and
employers. Sections 3 and 4 of the bill eliminate the cap to conform to
the current plan benefits.
Stabilization reserve account. When the statewide defined
benefit plan was initially established, the revenue generated from the 8%
member contribution rate and the 8% employer contribution rate was
more than necessary to pay the normal costs of the defined benefit plan.
Any money in excess of what was necessary to pay the normal costs of
the plan was deposited into the stabilization reserve account. The
stabilization reserve account consists of separate retirement accounts and
upon retirement, members who have satisfied the vesting requirements of
the plan are eligible for distributions from the account.
Since the stabilization reserve account was established, benefits
allowed under the statewide defined benefit plan have increased to the
extent that all of the revenue generated from the member and employer
contributions are required to pay the normal costs of the plan and money
is no longer deposited into the stabilization reserve account. Sections 3,
5, and 6
of the bill change the nature of the separate retirement accounts
in the stabilization reserve account to defined contribution accounts,
subject to self direction by the member. In addition, the bill requires the
board to transfer the balances of the separate retirement accounts in the
stabilization reserve account to defined contribution accounts by a
specified date.
Authorization to increase employer contribution rate. Current
law authorizes the board to increase the member contribution rate for
members in the statewide defined benefit plan. Section 7 of the bill
authorizes the board to increase the member and employer contribution
rates in equal amounts above the rates established pursuant to law or
eliminate an increase in the member and employer contribution rates if
certain specified conditions are satisfied, including approval by members
and employers at an election proposing such increase or decrease.
Continuing rate of contribution. Pursuant to current law, any
county that does not cover, under the federal Social Security Act,
salaried employees whose duties are directly involved with the provision
of law enforcement or fire protection may elect coverage under the
statewide defined benefit plan and the statewide death and disability plan.
Section 9 of the bill specifies that the board may determine a continuing
rate of contribution for all members who are active on the effective date
of coverage to fund benefits to ensure that the affiliating employers'
coverage does not have an adverse financial impact on the actuarial
soundness of the plan.
Employers that have withdrawn from the statewide defined
benefit plan but later reenter the plan are required to pay a continuing rate
of contribution for all members who are active on the effective date of
coverage. The continuing rate of contribution is a contribution in addition
to the member and employer contribution and accounts for increased
costs associated with members employed by employers who reenter the
plan. The board established the continuing rate of contribution pursuant
to law; however, the rate set by the board was higher than necessary to
pay the costs of benefits for impacted members and current law does not
authorize the board to decrease the rate. Section 12 of the bill authorizes
the board to decrease the continuing rate of contribution when it
determines that the rate is higher than what is necessary to pay the costs
of the benefits of members who are employees of employers who rejoined
the plan.
The bill modifies the death and disability plan as follows:
Costs of death and disability benefits. For members hired on or
after January 1, 1997, and who are eligible for death and disability
coverage provided by the FPPA, current law requires a contribution to the
death and disability account not to exceed 2.4% of the members salary;
except that the board is authorized to increase the contribution rate every
2 years by .1%. The current rate is 2.8% of salary. Sections 8, 10, and 11
of the bill increase the maximum contribution rate in 2021 to 3% of salary
and authorizes the board to increase the contribution every year by up to
.2% of the member's salary.
For members hired before January 1, 1997, the state previously
payed the costs for those members' participation in the death and
disability plan. In the mid 1990s, the general assembly determined that the
costs associated with death and disability benefits should be covered by
local governments. The general assembly made a lump-sum payment to
cover the costs of participation in the death and disability plan for
members hired before January 1, 1997, and implemented the system
described above to cover the costs of death and disability benefits for
members hired thereafter. The FPPA recently determined that the amount
of the lump-sum payment from the state was insufficient to cover the
death and disability benefits for members hired before January 1, 1997.
Section 11 of the bill requires the general assembly to make an additional
lump-sum payment to the FPPA to fund the unfunded liabilities of the
death and disability benefits for those members.
1

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