Retirement systems to seek approval for cost-of-living increases
For the first time in at least five years, many retired teachers, state workers and school system employees are in line for an increase in their pension checks.
Louisiana’s four statewide retirement system boards are preparing to seek legislative approval of a general cost-of-living adjustment — likely between 1.5 percent and 2 percent — for tens of thousands of retirees over age 60.
In addition, some older retirees who have the smallest pension checks could be in for a further boost.
The flurry of activity comes as all four statewide systems have registered better-than-expected investment earnings that exceeded benchmarks. The positive earnings picture allowed some money to be put into “employee experience accounts” — savings accounts from which retiree raises are funded.
The cost-of-living adjustments, better known as COLAs, increase the regular benefits checks and must be approved by a two-thirds vote of the Legislature. The next legislative session opens March 10.
The percentage allowed will be exactly the same for all four systems because of requirements set out in state law.
Under a state law, the percentage raise is limited to the lesser of 3 percent or the increase in the Consumer Price Index’s U.S. city average for all urban consumers.
Called the CPI-U, the statistic doesn’t come out until January, but the systems are eyeing the numbers and expecting no more than a 2 percent boost. The same law requires the retiree to have reached age 60 and to have received benefits for at least a year by July 1, 2014, when the increase would go into effect.
“This should be controversial,” said Kevin Kane, director of the Pelican Institute, a conservative New Orleans government policy research group.
Not accounting for how cost-of-living increases would be paid over time, along with other decisions that recur year after year, is part of the reason why the state’s retirement systems are carrying a long-term debt of about $19 billion, he said.
Unless the cost-of-living adjustments are offset, possibly with increased contributions or investment returns, Kane said, the consequences could add to the retirement systems’ “unfunded accrued liability,” the gap in funds the systems have in hand to pay benefits in the future.
That shouldn’t be an issue, says Maris LeBlanc, deputy director of the Louisiana State Employees Retirement System, because the cost-of-living increase is coming from the “experience account.” The Legislature set up the “experience account” to receive the excess when returns on investments come in higher than anticipated. The money specifically goes to paying COLAs after a portion is set aside to help pay down the unfunded accrued liability, LeBlanc said.
“We currently have about $195 million in the experience account, which would be sufficient to grant up to a 2.7 percent COLA,” LASERS Director Cindy Rougeou said.
More than 44,000 state employees retire with an average pension benefit of $22,236, but not all would be eligible for the cost-of-living increase.
The pension system’s last across-the-board adjustment was a 3 percent bump in 2008 for about 33,000 eligible retirees, Rougeou said.
A minimum benefit increase was granted in 2009 for retirees, beneficiaries and survivors receiving less than $1,200 a month. The benefits were increased by $300 a month, or the difference between the retiree’s current benefit and $1,200, whichever was less. Eligibility was limited based on years of service and the years the individual had been retired.
The board for the Teachers Retirement System of Louisiana is discussing a 1.5 percent pension boost for those among its 60,714 retirees who are eligible. “There are still moving pieces of this,” said Executive Director Maureen Westgard. Besides getting the consumer price index number, a special retirement oversight panel must sign off on the numbers used in developing the experience account.
System actuary Shelley Johnson said there is $219.7 million in the account to pay the additional benefit — not enough for a 3 percent boost, which would cost $406 million over time. The recommended 1.5 percent raise would cost $203 million.
Graig Luscombe, executive director of the Louisiana Retired Teachers Association, said the group will also be pushing for a minimum benefit to help retirees whose pension checks are on the low end. One proposal would provide a $300 monthly increase for those getting $1,200 a month, bringing them up to $1,500, he said. Another would provide a $1 bonus for each year of service credit and each year the person has been retired.
Luscombe said there are 1,547 teacher retirees who are between 90 and 99 and who receive annual benefits of $15,880.
“It could be limited to a lesser amount depending on the CPI-U,” Johnson said, referring to the consumer price index.
She said the cost of granting a cost-of-living adjustment has increased in recent years because there are more eligible retirees and they are living longer.
“It’s the best thing I can remember in a long time,” said Louisiana State Police Retirement System Executive Director Irwin L. Felps Jr. The system’s finances are good enough that $10 million to $13 million is available for raises for many of the system’s 1,234 retirees, he said. It would be the first general raise since 2007. The system’s average benefit is $2,700 a month, Felps said, but the median “is a good bit less.”
“You work really hard for a long time for COLAs and have nothing to show for it. Now you feel so much better,” Felps said. “We think there will be a 1.5 percent or 2 percent COLA.”
In addition, Felps said, the State Police pension board is proposing an extra 2 percent for retirees over age 65.
Louisiana School Employees Retirement System Pension Director Charles Bujol said some of the system’s 13,369 retirees have not had a raise in about 10 years. The average retirement benefit is $940 a month.
“Last year we were able to give to the lower-paid in our system a little — about 35 percent of the lower-paid,” said Bujol. “This year we want to try to give something to the rest.”
Bujol said the system has about $30 million that can be accessed. “Right now we are looking at about 1.5 percent,” he said.