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Once again, HB 42 passed with flying colors (this time out of the Senate Retirement Committee), despite the serious harm that it may cause to your retirement system, benefits, and police departments, as indicated by MPERS' fiduciary and tax counsel. As you know, MPERS' Board of Trustees has voted to oppose HB 42.
If you have concerns about HB 42 (and you might if you are receiving or want to receive retirement benefits), please contact senators (your individual senator as well as the others) via email and phone immediately. Their contact info can be found here. They would appreciate your input. If you share the same concerns as MPERS' board, you can find a sample script here. You may even want to contact the bill's author and coauthors, although only the senators will be voting on it next.
MPERS' tax attorneys tell us that HB 42 would jeopardize MPERS’ funded status and significantly increase employers' costs, as it makes employer compliance essentially voluntary, limits MPERS’ ability to collect delinquent employer contributions to a liberative prescription of three years (and if MPERS can't collect more than three years of contributions, police officers won't receive a benefit related to the earlier time), and makes collections subject to the provisions of the Louisiana Governmental Claims Act.
Therefore, if HB 42 becomes law, not only would it risk MPERS’ funded status, but it would encourage employers to continue to refuse to enroll eligible police officers into MPERS and make employer contributions. As a result, in order to continue to pay promised benefits to existing and future retirees and beneficiaries, MPERS likely will face the need to sell investments in order to have the necessary liquid assets to pay earned (and promised) benefits. Certainly, this need to convert investments to liquid assets further jeopardizes MPERS’ funded status as MPERS may be faced with selling assets without regard to market conditions or without regard for any potential loss or penalty associated with the sale.
Significantly, HB 42 potentially jeopardizes MPERS’ funding and funded status – not just for the municipalities who refuse to comply with Louisiana state law, but for all participating employers and police officers in MPERS.
HB 42 attempts to unconstitutionally make MPERS' and police officers' claims subject to the Louisiana Governmental Claims Act. This would make it harder for MPERS to collect contributions by essentially eliminating MPERS' main collection enforcement mechanism, which is to seek a writ of mandamus. This is a streamlined action that should result in the appropriate municipal official(s) being ordered to enroll their police officers and contribute to MPERS. Unfortunately for them, some attorneys have generally not been very successful thus far in defending these claims (although most of them have been settled due to MPERS' generous settlement offer, which has been extended to June 30, 2024).
Possibly as a result, MPERS and your retirement benefit have ended up as targets, all to protect a handful of municipalities who won't enroll their police officers and pay contributions to MPERS. Meanwhile, law-abiding municipalities are paying about 1.46% a year extra to subsidize noncompliant employers. And now they are being asked to pay even more. Is this good policy? The Legislature will ultimately decide, and you are certainly entitled to inform them of your opinion on the matter.
So, if MPERS can't file a writ of mandamus, how will it collect the contributions need to pay YOUR retirement benefit? Through an ordinary action, which is more costly and time consuming, but that's not even the worst part. Even if MPERS obtains a judgment against a municipality, the municipality's governing authority would have to appropriate the funds to pay the judgment.
Let's follow that logic. Municipality doesn't pay MPERS (like when MPERS' largest employer stopped paying MPERS at the beginning of COVID). Under HB 42, generally, the only way MPERS can now collect is by filing suit and obtaining a judgment against the municipality. If MPERS obtains a judgment (after years of appeals), the only way MPERS could collect is to convince the municipality's governing authority (yes, the same municipality that wouldn't pay its own bills and appropriate funds to pay MPERS employer contributions in the first place) to appropriate funds to pay the judgment. Fortunately, given police officers' protected status in Louisiana's Constitution, it would also be unconstitutional. Unfortunately, all laws are presumed to be constitutional, so MPERS will have to sue. Additionally, the bill itself would also cause MPERS to file several lawsuits before it becomes law.
It's very important that you read this Louisiana Supreme Court case, which basically highlights municipal police officers' constitutional rights to benefits. Basically, municipal police officers' rights to retirement (and other) benefits are protected in the Louisiana Constitution. But those rights are arguably being subverted in HB 42.
Guess what happens if MPERS can't collect contributions? Well, it all depends on your situation, but none of it is good (unless you're the employer who won't pay us).
Are you an active MPERS member? If your employer doesn't contribute, one of two things will happen. Either you will not be able to retire (because MPERS will not have received all the contributions to pay your benefits) or you'll be able to retire but will receive a reduced benefit based upon the actual contributions that MPERS received.
Are you an MPERS retiree, optional beneficiary recipient, or survivor? From a cash flow perspective, all of the contributions that MPERS receives go to pay benefits. That generally covers about 70% of the benefits that are paid out each month. The remaining 30% is generally paid from investment earnings (if they are available). Otherwise, MPERS will have to start selling assets sooner than we would like to. If enough employers don't contribute, eventually (and granted, it will take a long time) you run out of assets, especially considering that MPERS has an $887 million unfunded actuarial accrued liability.
But what about your COLAs? HB 42 will decrease them. MPERS can only pay COLAs from the 0.875% that's added to the employer contribution rate, any contributions that go uncollected will result in decreased COLAs for retired police officers, their beneficiaries, and survivors.
HB 42 also would generally change the required venue for all legal actions involving MPERS from East Baton Rouge Parish to the district court of the judicial district in which the employer is located. This would increase legal costs and is likely a response to MPERS filing lawsuits to protect its status as a tax qualified governmental plan (which, among other things, ensures that employer contributions are not taxable to members and earnings/income of the system are not taxed to the system or members) and force municipalities to enroll their police officers and pay their delinquent contributions. Several employers thought that the lawsuits should be heard in their home parish rather than East Baton Rouge. So far, the Louisiana Supreme Court thinks otherwise.
Finally, current state law allows the treasurer, if a debt is certified by the retirement system, to withhold certain funds otherwise owed to a municipality in order to satisfy the municipality's delinquent payments. The bill seeks to eliminate this for MPERS (and no other retirement system) for certain small towns. MPERS would be required to file suit against these delinquent municipalities in order to collect, even if the employer is currently withholding MPERS contributions from police officers' paychecks without forwarding them to MPERS (like at least two are doing now). Not only is this an MPERS plan qualification concern, but presumably also is a matter of theft or misappropriation under state law. It's unclear why or if the Legislature would want to protect these municipalities. But that's the current state of the bill.
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