A glitch in the Jindal administration’s new “cash balance” pension law prompted the Teachers Retirement System of Louisiana on Friday to revise upward the required government contribution to fund it.
The new valuation increases the projected employer contribution rate from 22.1 percent to 23.1 percent.
The Louisiana State Employees Retirement System, called LASERS, took a similar action in late January revising the state contribution rate upward over the objection of representatives of Gov. Bobby Jindal.
On Friday, the administration’s representative on the board Steven Procopio did not object the change in valuation that will be submitted to the Public Retirement Systems Actuarial Committee. But, he said, “I’m not 100 percent sold” that there’s a problem.
Maureen Westgard, executive director of Teachers Retirement System of Louisiana, called TRSL, said attorneys reviewing the law found a problem related to when people quit employment and how much money they are entitled to take out.
Westgard said there was a “drafting error,” which can easily be fixed in the 2013 Legislature. But, she said, today the employer contribution rate has to be adjusted upward to be accurate.
The 401(k)-type pension plan, called “cash balance,” is scheduled to begin July 1 for all new state employees, including those in higher education who are members of the Teachers system.
The legality of the “cash balance” plan is being contested in court. A state district court judge ruled that the legislation did not get the constitutionally required two-thirds vote for passage. The Jindal administration is appealing the ruling to the Louisiana Supreme Court.
Under the plan, pension system members had to stay five years in order to get employee and employer contributions plus investment earnings. Otherwise, members could just take out what they contributed. The problem arose because the law did not specify “active” member for those five years. So someone could quit after two years but leave his money in the system and then get the employer share and investment earnings at five years.
“We had to reprice it,” TRSL actuary Shelley Johnson said.
Procopio said the intent of the provision is clear and he wondered why pension attorneys were raising the problem at this point.
“You don’t go to intent unless there’s ambiguity,” TRSL executive counsel Roy Mongrue said. “The term member is not ambiguous.”
The teachers board also voted to request an attorney general’s opinion on how an Option Retirement Plan, or ORP, which some in higher education opt, interacts with the administration’s “cash balance” plan.
On July 1, higher education employees eligible for membership in TRSL will be required to participate in the “cash balance” plan, if they do not elect to participate in the ORP.
Mongrue said the system needs to know what normal cost it should use since “‘cash balance’ becomes the default plan for higher education.”