Inside Report: Retirees eye debate over COLA’s link to pensions

More than 100,000 retired state employees, teachers, school employees and State Police find themselves in the middle of a political squeeze play.

A 1.5 percent increase in their pension checks — the first in six years for most — got tied to a revamp of the system that grants cost-of-living adjustments.

The changes being proposed would limit both the frequency and amount of future COLA increases.

Lawmakers have made it plain: Either accept the COLA system change, or there will be no 1.5 percent bump, the equivalent of an average $29 a month increase for most.

It’s not as if the legislative debate over COLAs, and how they are funded, was not anticipated.

In fact, the leaders of the largest agencies handling government retirees — Louisiana State Employees Retirement System and the Teachers Retirement System of Louisiana — had long predicted COLAs would be the big retirement topic of the year.

COLAs are funded through special “experience accounts” into which are deposited pension system investment gains above a certain specified amount.

The trigger is different, depending on which of the four statewide retirement systems is involved. The Legislature established the accounts not so long ago.

But pension system debts exceed $19 billion, and some legislators want to change the rules.

The liability is largely because of past administrations and Legislatures providing pension benefits without adequately funding them and escalating interest on that debt.

State Rep. Joel Robideaux, R-Lafayette, and other legislators familiar with retirement plans are pushing legislation that would require more of the systems’ investment earnings to go into reduction of their unfunded accrued liability, the money needed to meet pension commitments over time.

The legislation also would link the maximum cost-of-living adjustment that could be awarded to the financial health of each of the government retirement systems.

As each becomes better funded, the potential for COLAs above 1.5 percent increases to a maximum of 3 percent. A system would have to be at least 85 percent funded to get the highest amount.

As the push is occurring, the Public Affairs Research Council of Louisiana issued a report encouraging the Legislature to take the opportunity “to make larger and needed changes” in the process.

“The Experience Account takes funds that otherwise would be used to reduce the debt of the retirement system and applies them toward permanent benefit increases,” wrote PAR’s Stephen Procopia. “This method is particularly troublesome for Louisiana’s systems that have only about 60 percent of the funds needed to meet their liabilities, one of the most severe liability shortfalls in the nation.”

PAR reurged a 2005 recommendation: Abolish the experience accounts. It further stated, “Planned COLAs for existing retirees should be funded through employer contributions, while planned COLAs for active employees should be funded by both employer and employee contributions.”

So far, the state employee and teachers retirement systems have not taken positions on the proposed changes. The retirement systems were not blindsided by the Robideaux bill. Officials of each were involved in negotiations over provisions in advance of the bill filing and got some concessions. They are hoping for more concessions.

Meanwhile, state employee and teacher retiree groups’ top priority is the COLA for their members whose only income is their pension checks.

Legislators have not wanted to appropriate funds for cost-of-living increases so, instead, they tapped some “excess” investment earnings.

That decision, as PAR noted, runs counter to efforts to improve the systems’ debt — a debt in large part from past Legislatures and administrations’s failing to properly fund the benefits they approved.

Now, legislators want to modify the plan so more dollars go toward debt reduction and cost-of-living increases become harder to come by.

And the retirees are caught in the middle wishing and hoping for what PAR called “a realistic, affordable, predictable and carefully defined COLA policy.”

Marsha Shuler covers state retirement issues for The Advocate Capitol news bureau. Her email address is mshuler@theadvocate.com