The Jindal administration’s proposed revamp of a 401(k)-type pension plan for new state employees ran into trouble Thursday.
The Louisiana House Retirement Committee refused to approve what was billed as “clean up” legislation to fix problems with a law approved by the Legislature last year which is under constitutional challenge.
The measure got locked up in tie 6-6 votes after a top state employee pension official said the revision would actually provide “a lesser benefit” than what is in the law under challenge. The panel declined to pass the bill. Neither was it willing to involuntarily defer the revamp which would have effectively killed the bill.
House Bill 68 sponsor, Retirement Committee Chairman Rep. Kevin Pearson, R-Slidell, then moved to voluntarily defer the measure, which keeps it alive.
The administration rewrite offered in committee would limit the interest employees could earn through the 401(k)-type accounts, delay a planned July 1 implementation and exempt new judges from mandatory participation.
“We wanted to make sure we were ready regardless of what the court ruling may be,” said Stafford Palmieri, a policy advisor to Gov. Bobby Jindal.
Jindal pushed the so-called “cash balance” plan during the 2012 legislative session for state employees, including those in higher education, hired after July 1, 2013.
It was the only major part of a pension revamp package to make it through the legislative process. Jindal said the current pension plan is not financially sustainable for the state and is putting too much financial strain on the state budget.
The Retired State Employees Association of Louisiana filed suit contending the legislation did not get the two-thirds vote required under the state constitution if pension law changes result in a cost. A state district court judge agreed. The issue is on appeal to the Louisiana Supreme Court.
The revised bill offered by Pearson would eliminate the cost attached, which would negate a two-thirds vote.
Cindy Rougeou, executive director of the Louisiana State Employees Retirement System, said the cash-balance plan became cost-neutral “because a lesser benefit is being provided.” The revamp would impose a cap on the interest that an employee could receive from investment of employee and employer contributions.
Rougeou said LASERS continues to oppose the measure because of the “lack of retirement security” for pension system members who have no Social Security to fall back on.
The cash balance plan would operate similar to a private sector 401(k), except funds would be protected from investment losses. An employee would contribute 8 percent of his pay and the employer — the state — 4 percent with all but 1 percent of the investment earnings attributed to the account. The 1 percent would be used as a hedge against investment losses.
Pearson’s revamp would limit the investment earnings to 10 percent where it had previously not been limited. It also would have delayed implementation of the new pension plan until six months after a federal ruling is received on whether it offers an equivalent benefit to Social Security.
If the cash-balance plan doesn’t meet the equivalency test, the employee and employer would have to pay the cost to enrol in Social Security on top of state pension contributions — adding to costs.
The administration is seeking an IRS determination on Social Security equivalency based on last year’s legislation.
If the proposed changes pass, Teachers Retirement System of Louisiana executive director Maureen Westgard said it is “critical” for the administration to refile the request for a ruling with the new benefits structure.
Voting FOR approval of the cash-balance revamp (6): State Reps. Pearson, R-Slidell, Nick Lorusso, R-New Orleans, Barry Ivey, R-Central, Alan Seabaugh, R-Shreveport, Kirk Talbot, R-River Ridge, and Jeff Thompson, R-Shreveport.
Voting AGAINST HB68 (6): State Reps. Frank Hoffman, R-West Monroe; Paul Hollis, R-Covington; Sam Jones, D-Franklin; Jack Montoucet, D-Crowley; Ed Price, D-Gonzales; and Gene Reynolds, D-Minden.