Bill Summary – FastDemocracy

Fiscal Note
                                        Fiscal Services Division
HF 797 – 411 Retirement System 2 (LSB2778HV)
Staff Contact: Jennifer Acton (515.281.7846) jennifer.acton@legis.iowa.gov
Fiscal Note Version – New
Description
House File 797 concerns certain benefits under the Municipal Fire and Police Retirement
System of Iowa (MFPRSI), established under Iowa Code chapter 411. The Bill expands the
number of disabilities eligible for an accidental disability benefit and allowing retirees who are
receiving an ordinary benefit and within five years of retirement to apply for an accidental
disability benefit.
Background
Effective July 1, 1992, 87 local fire and police retirement systems in 49 cities were consolidated
into a single statewide system, commonly referred to as the 411 System. The MFPRSI is
governed by a nine-member Board of Trustees and four legislative members as required by
Iowa Code section 411.36. The voting members of the Board include two fire and two police
representatives, four city representatives, and a private citizen.
Based on the July 1, 2020, actuarial valuation, the MFPRSI covers approximately 4,084 active
members, 1,141 disabled members, 3,049 retired members and beneficiaries, and 375 vested,
terminated members. The current funded ratio is 79.93%. The current actuarial accrued liability
is $3.390 billion, the actuarial value of assets is $2.710 billion, and the unfunded actuarial
liability is $680.3 million.
For FY 2022, members’ estimated annual contributions at the current rate of 9.40% total $30.8
million, and the cities’ estimated contributions at 26.18% total $85.8 million. Total covered
payroll is $327.9 million. The average annual compensation for an active member is $80,282.
The table below shows the annual employer and employee contribution rates for FY 2018 to FY
2022.
                                   Annual Contribution Rates
                                         FY 2018 FY 2019 FY 2020 FY 2021 FY 2022
     Employer Contribution Rate           25.68% 26.02% 24.41% 25.31% 26.18%
     Employee Contribution Rate            9.40%   9.40%   9.40%   9.40%   9.40%
     Total                                35.08% 35.42% 33.81% 34.71% 35.58%
Per Iowa Code section 411.8, the member contribution rate will be increased for any statutory
changes, if the increase cannot be absorbed within the current contribution rates, to a maximum
of 11.35%. Costs would then be applied 60/40 between the employer and employee.
The MFPRSI provides for both an ordinary and accidental disability for a member in good
standing with the System. From 2002 through 2020, the MFPRSI reported one member in good
standing who would have been affected by HF 797 if it had been in effect at that time. The
medical board determines whether a member is medically able to perform the member’s
respective duties as a fire fighter or a police officer. If the member is determined to be unable to
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perform the member’s duties, the MFPRSI decides whether the member is eligible for an
ordinary or accidental disability. The compensation for an ordinary disability is 50.0% of the
average final compensation, whereas the compensation for accidental disability is 60.0% of the
average final compensation.
Cities are responsible for the payment of all medical costs related to MFPRSI claims under Iowa
Code section 411.15. Cities cannot use workers’ compensation to cover short-term indemnity
or medical cost exposure. Iowa Code section 85.1(4) states that workers’ compensation does
not apply to “persons entitled to benefits pursuant to Iowa Code chapters 410 and 411.”
Assumptions
• Expanding the number of disabilities eligible for an accidental disability benefit and allowing
   retirees who are receiving an ordinary disability benefit and within five years of retirement to
   apply for an accidental disability benefit will reduce the funded ratio of the Municipal Fire and
   Police Retirement Fund by 0.10%, from 79.93% to 79.83%.
• Based on the most recent actuarial valuation report as of July 1, 2020, no increase in costs
   can be absorbed within the existing contribution rates for FY 2022. The FY 2022 employee
   contribution rate would need to increase from 9.40% to 9.55%, an increase of 0.15%.
   • The total contribution rate impact of Sections 2 to 5 of the Bill will be an increase of
      0.15% to the members’ contribution rate. The provisions creating the impact include:
        • Allowing current ordinary disability retirees within five years of retirement to apply for
            an accidental disability benefit will affect the total contribution rate by 0.08%.
        • Permitting future ordinary disabilities to be treated as accidental disabilities due to
            the elimination of the definite time and place requirement and greater than day-to-
            day stress standard for mental injuries will affect the total contribution rate by 0.07%.
• All other actuarial assumptions going forward are assumed to be met.
• The MFPRSI may see an increase in administrative costs related to medical exams.
• Cities may see increased medical and administrative costs for all injuries and diseases
   related to employment, regardless of the type of benefit received from the System.
• There are approximately seven ordinary disability retirements per year. The estimate
   assumes there will be no overall increase in disability incidents; however, all future
   disabilities would qualify for accidental disabilities.
• Eliminating the link between medical costs and 411 accidental disabilities, requiring medical
   cost coverage for cumulative injuries, and eliminating the greater than day-to-day stress
   standard for mental injuries may result in additional medical costs being covered by city
   employers.
Fiscal Impact
House File 797 is estimated to increase administrative costs for the MFPRSI by $50,000 to
$100,000 annually due to increased medical exams. Any increased administrative costs for the
MFPRSI will be paid from the Fire and Police Retirement Fund.
The unfunded actuarial accrued liability of the Municipal Fire and Police Retirement Fund is
estimated to increase in FY 2022 by approximately $4.3 million, and the funded ratio would
decrease from 79.93% to 79.83%.
The FY 2022 cost for increasing the members’ contribution rate from 9.40% to 9.55% is
approximately $492,000, or $120 per employee. In subsequent fiscal years, this cost may
increase based on covered payroll.
Cities under the MFPRSI are required to provide hospital, nursing, and medical attention for
members of the police and fire departments. The fiscal impact of HF 797 on cities for additional
medical costs cannot be determined at this time but may be significant.
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Sources
Municipal Fire and Police Retirement System of Iowa Actuarial Valuation Report
Municipal Fire and Police Retirement System of Iowa
League of Cities
                                                                        /s/ Holly M. Lyons
                                                                          March 10, 2021
Doc ID 12162656265
The fiscal note for this Bill was prepared pursuant to Joint Rule 17 and the Iowa Code. Data used in
developing this fiscal note is available from the Fiscal Services Division of the Legislative Services
Agency upon request.
                                            www.legis.iowa.gov
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Statutes affected: 
Introduced: 411.1, 411.6, 400.18, 411.15, 411.15A
Reprinted: 411.1, 411.6, 400.18, 411.15