Retirement key in session
The stage is set for government retirement issues to become one of the big debates facing the Louisiana Legislature when it convenes for its regular session in March.
“It’s going to be a really tough session,” said Louisiana House Retirement Committee Chairman Kevin Pearson, R-Slidell.
Costs to pay the pensions of retired public servants grows each year and consumes more tax dollars that could be used to pay other services, he said. “The citizens are going to revolt at some time,” Pearson said.
Gov. Bobby Jindal wants big changes in the taxpayer-guaranteed pensions that cover state agency employees as well as professors and others who work on public college campuses. The public employees affected would pay more; many would work longer and many would get smaller retirement checks, if the bills filed by Jindal’s floor leaders are voted into law later this year.
But several legislators have ideas of their own and some of those conflict with Jindal’s. Those bills also are in the hopper for consideration.
More than 60 percent of the 135 bills that legislators have pre-filed, to date, involve retirement issues. The measures range from purely administrative, such as requiring more training of system board members, to those that would determine the financial well-being of state employees, teachers, municipal employees and others in their retirement years. Not every state worker’s pension would be impacted.
Pearson said one of the big issues facing state taxpayers is the “unfunded accrued liability.” Called the UAL, the liability represents the gap between the money the retirement systems have on hand to pay future benefits and the amount the systems have promised to pay in the future. Though not every employee will retire at once, taxpayers would be required to pay what has been promised.
“There is a reality. There is a problem,” Pearson said.
Louisiana’s four statewide retirement systems – for teachers and employees of state agencies, schools and the State Police – have an estimated combined unfunded accrued liability of $18.5 billion. Paying down that debt, much of it decades old, puts more strain on the state budget each year, Pearson said.
“We all recognize that the unfunded accrued liability presents a danger to all of these retirement systems and the state of Louisiana and we need to do something about it,” said state Senate Retirement Committee Chairman Elbert Guillory, D-Opelousas.
Local governments also are feeling similar pressures as the payments they contribute toward employees retirement benefits continue to rise, said Tom Ed McHugh, executive director of the Louisiana Municipal Association, a Baton Rouge-based group that represents local governments. Parish and municipal government employee pension systems differ from the state’s groups but they face many of the same issues.
Hoping to reduce costs for local governments, Pearson and Guillory are sponsoring bills backed by the Municipal Employees Retirement System, which oversees pension plans for local governments.
Many of the pre-filed bills would make changes similar to what Jindal has in mind for state employees and those working on college campuses. The measures would calculate the amount of benefits paid based on the average pay for the final five years of employment instead of the last three years compensation.
Jindal-backed bills immediately would move to a five-year computation for determining retirement benefits. But measures filed by state Sen. Page Cortez, R-Lafayette, would provide for a phase-in as the system moved its three-year average to the five-year average.
Other proposals would increase the amount of money a government worker pays towards his retirement and increase the retirement age.
Jindal estimates his legislative package could save taxpayers $450 million next year. Most of the estimated savings would come from pushing the retirement age to 67 for many system members and increasing employee contributions by 3 percent. One of the key Jindal proposals would involve moving to a “cash balance” benefits structure from the current “defined benefits” plan.
Both are “defined contribution” systems but, generally, a “defined benefit” plan specifies the amount of retirement benefits provided an employee based on the amount of contributions to the plan plus the gains and losses made to that pool of money, according to the U.S. Department of Labor.
The federal Labor Department says a “cash balance” plan generally operates more like an annuity, in which the employee contributes specific amounts throughout his career but upon retirement can choose a lump sum or is paid a specific amount over a period of time. A “cash balance” system would put the contributions of both employee and employer into an individual account with interest earned credited to it.
Republican state Sen. Barrow Peacock, of Shreveport, filed a proposed constitutional amendment that would move state employees to a defined contribution plan for future employees. The constitution now says the state shall guarantee benefits payable to its employees.
“I come from the private sector. It is better that the state recognize the true contributions year by year,” said Peacock. “They cannot defer the cost. ...It’s obvious the state has not been recognizing the true cost.”
State Sens. Guillory and Gerald Long, R-Winnfield, have filed bills aimed at guaranteeing COLAs, which are the annual cost of living adjustments that increase the monthly benefits paid. Guillory’s bill would ensure COLAs for retired state employees and Long’s measure would do the same for retired teachers.
“It’s absolutely embarrassing how little retired teachers in their 70s or 80s get. They taught at a time when salaries were $15,000 to $20,000 a year. The result is many of our elderly retirees find themselves in a dismal place,” said Long.
State Rep. Kirk Talbot, R-River Ridge, is out to stop what he considers a retirement system abuse — the rehiring of retirees who are able to draw both a pension check and pay.
Cortez and state Rep. Frank Hoffmann, R-Monroe, are among legislators who filed bills that would allow retired teachers and college professors to return to the classroom on a limited basis and not lose any of their pension benefits.
Cortez and Hoffmann want the retirees to be able to earn up to 25 percent of their pension checks without penalty.
“I don’t want them to use it as a way to go back to work and make two checks. If they want to go back and give a little time I don’t think they should have to do it for free,” said Cortez.