An effort to delay implementing Gov. Bobby Jindal’s 401(k)-type pension plan for new state government hires is one step away from final legislative passage.
The House Retirement Committee on Wednesday approved a Senate-passed resolution suspending the “cash balance” law until July 1, 2014.
The law has been challenged in the Louisiana Supreme Court and an IRS ruling is pending that could prove costly. If the IRS decides Jindal’s plan fails to provide a benefit equal to Social Security, both the state and the employee would have to pay more.
A state Senate panel passed a similar House-passed resolution.
Now, all that’s needed is for either chamber to pass one of the instruments that would suspend the law until 2014. Suspension resolutions cannot be vetoed by the governor.
Also Wednesday, the state House Retirement Committee voted 7-5 to advance legislation rewriting Jindal’s cash balance plan to fix flaws identified since its passage in 2012.
The amended version of the bill makes the pension plan optional for Louisiana judges but makes it mandatory for state employees.
The legislation had stalled in committee previously on a 6-6 tie vote.
Opponents argued that there was no reason to press House Bill 68 during the current legislative session, noting the resolution the panel had just approved would suspend the law for a year. The attempt to fix problems made the legislation worse and made the employee benefit even less equivalent to Social Security, said state Rep. Sam Jones, D-Franklin. “We are in the process of creating more damage,” he said.
Higher education community representatives lined up to tell the committee that the plan as structured would further damage efforts to recruit faculty.
Steven Procopio, chief of state at the state Division of Administration, said the legislation should not be delayed.
He said the existing pension plan for state employees, including those who work on college campuses, is not financially sustainable. The state’s four retirement systems have $18.5 billion in long-term liabilities, which is called the unfunded accrued liability, or UAL.
“We do have a serious UAL issue, retirement issue,” Procopio said. “It’s been put off too long.”
Procopio argued that HB68 could actually delay implementation of “cash balance” longer because of a bill provision that sets the date as six months after the state receives a ruling from the IRS that it is Social Security equivalent.
If the IRS determines it is not, there would be added expense to the state and employee for enrollment in Social Security.
Under the “cash balance” plan employees would contribute 8 percent of their pay toward retirement and the state as employer 4 percent.
Interest earned from investments would be credited to the employee’s retirement account with 1 percent withheld to guard against investment losses. As written there would be a 10 percent cap on investment earnings.
The employee could never lose money because of the reserve fund that would make up the difference.
Cindy Rougeou, executive director at Louisiana State Employees Retirement System, said from an administrative standpoint the bill had a lot of problems.
“Besides the nuts and bolts issues,” Rougeou said, LASERS still opposed the legislation because of the “lack of security” it offers to employees in their retirement.