Judge refuses to toss pension suit

Advocate staff photo by ARTHUR D. LAUCK -- Dianne Guillot and Frank Jobert Jr., of the Retired State Employees Association of Louisiana, leave the 19th Judicial District Courthouse after a Monday hearing in the lawsuit challenging the constitutionality of a new pension plan for future state employees.

A Baton Rouge judge refused Monday to throw out a lawsuit challenging the constitutionality of a new pension plan for future state employees.

The Retired State Employees Association of Louisiana filed suit in August, alleging that the law establishing a 401(k)-type pension plan for future state employees did not get a two-thirds vote in the 2012 legislative session, as required by Louisiana’s Constitution.

The Jindal administration had asked state District Judge William Morvant to dismiss the suit, claiming the association and individual plaintiffs did not have legal standing to file the suit.

Morvant disagreed at the conclusion of a hearing Monday and set a Jan. 24 trial date.

“We got over the first hurdle. We live to fight another day,” association executive director Frank Jobert said outside the 19th Judicial District Courthouse.

Incoming association president Dianna Guillot also attended the hearing.

The Jindal administration contends the law was legally approved by the 2012 Legislature.

John Davis, an attorney for the state and the administration, argued in court Monday that those filing the suit are not affected by the change.

“Nothing is being altered for these plaintiffs,” he told Morvant.

Robert Tarcza, an attorney for the Retired State Employees Association, essentially argued the constitutional requirement for a two-thirds vote on legislation that drives up pension system expenses is in place to protect the state and its taxpayers who must cover a lot of the costs.

The Louisiana House did not approve by a two-thirds vote the “cash balance” plan, which its own actuary advised had a cost attached to it, Jobert has said.

“It’s going to have a cost effect on the existing system,” Morvant said.

The new hire plan, scheduled to go into effect in July, would operate similar to a private sector 401(k) except funds would be protected from investment losses.

An employee would contribute 8 percent of pay and the employer — meaning the state — would contribute 4 percent with all but 1 percent of the investment earnings attributed to the account.

The 1 percent would be set aside in a reserve fund as a hedge against investment losses.

The Louisiana State Employees Retirement System opposed the plan, contending it would not provide sufficient retirement income for state employees who have no Social Security safety net.

Jindal has argued the plan would help stem increasing state retirement system financial liabilities while providing a sustainable pension benefit for employees.

State employees today have a “defined benefit” plan that guarantees lifetime benefits at a certain level based on years of service and compensation. Jindal contends that plan is too expensive for the state.

Shannon Bates, press secretary for Jindal, released the following statement Monday evening:

“Today’s ruling was a preliminary procedural matter, and we look forward to a successful defense on the merits in court. We’re confident that the bill was constitutionally passed. The cash balance plan will help get our debt under control, protect taxpayers and provide new state employees with a portable retirement account that realizes investment earnings.”

Comments

1) Comment by agagent - 05/12/2012

No matter what the court rules on this reform defined benefit retirement plans are in trouble across the country. Their solvency has declined by 15% in just one year. Either employee contributions must be increased or the system must be reformed to make it sustainable. Because they are not sustainable governments and businesses are moving away from their defied benefit retirement systems. Some states, like California, cannot pay their obligations to their defied benefits retirement plans.

2) Comment by bettergovt - 04/12/2012

The fact of the matter is that changing the new hire state employees WILL end up costing the state more money. Not because the state contribution will be more but it will turn the current pension into a "closed" system. When that happens the pension system must invest in shorter term less risky investments. That will in turn require the state to contribute more to fund the old system. By far the biggest issue related to the state's pension expenditure is the 40 years between the late 1940s and the late 1980s that the state didnt put in its share. That debt will still have to be paid regardless of what plan the new hires are in. Also don't forget that employees hired under the new system will not get social security so the pay rates for new hires will have to be increased to make up for having so much less retirement benefit than the private sector. Private sector employees get social security plus a 401k. All of these items will cost the state more money which is what the lawsuit is all about. Add in the likelihood that the IRS will take away the state social security exemption and it could be really bad.

3) Comment by DMJ - 04/12/2012

TommyRucker, you seem to be personally invested in the idea that America is doomed. Will you be sadder if you're right....or if you're wrong, I wonder?

4) Comment by yadodge0501 - 04/12/2012

The present State retirement 8% / 4% system is not mathematically sound, that is it doesn't add up. The numbers were "made up". I suspect the Jindal's change was passed properly.

5) Comment by TommyRucker - 04/12/2012

These two people are ACTUALLY putting present state workers' pension plan at risk by resisting a liberal plan for FUTURE state employees/retirees. The private sector can only come up with so much money. The government only TAKES money and redistributes it at best. This is another big step in America's rush to dominating socialism. Jindal has tried to stop it, but many people want it as they are very deeply embedded in it. This rush to socialism might not end until things get really bad and they always get really really bad in a society where socialism is accelerating.

6) Comment by TommyRucker - 04/12/2012

These people are determined to destroy the economy and will do anything to remain on this path to self destruction. This was an effort to help the plan and actually would help present people on the plan as it would better assure that THEY will have pensions in their retirement but if this is thrown out by the courts (and it only affects future employees), it will put a very large burden on tax payers and the present people in the pension plan. If nothing is done, the economy will deteriorate and private property ownership will diminish because fewer people will be able to pay the taxes to support all these government entitlements. The state will then take over the property as has happened in other countries. It probably won't make much difference if these advocates of socialism get there way on the national level as the entire mess will collapse long before it gets down to Louisiana.

7) Comment by janbrady - 04/12/2012

Jeffsadow=Jindal apologist State Workers > Apologists

8) Comment by Pakistani - 04/12/2012

Jindal hand picked Hughes for the Supreme Court, we have to get out and vote against him.

9) Comment by Michael Gary Scott - 04/12/2012

Jindal never did let an unimportant thing like the constitution keep him from selling off the state to his cronies. I am usually against litigation, but we need more suits like this to keep that RINO from completly destroying the state before he moves on to the next job.

10) Comment by jeffsadow - 04/12/2012

Yes, but the LFO makes some rather questionable assumptions to do that, some coming out of thin air. It admits there are way too many variables to come up with anything more than an informed guess. To mention couple of flaws in the analysis, it assumes, without any convincing evidence, that the rate of return on the plan will have to be lower than the current investment strategy (which in reality most years doesn't hit the current 8-8.25 percent factored in) and that a significant proportion of employees will invest retirement funds in a way as to make them "wards of the state." Let's use common sense: if the state's contribution drops by half and it doesn't pay ad infinitum on many retirees, it's going to cost less.

11) Comment by LawyerDan65 - 04/12/2012

The Legislative Fiscal Office concluded that the new plan would actually cost more than the existing system.

12) Comment by Grannee - 04/12/2012

Jindal is a liar. He should stop trying to implement ALEC's plans in Louisiana and pay what's owed to the retirement system. He's probably banking on Hughes winning the election so he can get this loss overturned too.