Constitutional Amendment Will Pressure Lawmakers to Reform Pensions
Gov. Jindal still has an opportunity to make a name as “someone who downsized government”
Voters can keep the pressure on for meaningful retirement reform legislation by approving a constitutional amendment this fall that would direct lawmakers to use a minimum amount of funds to pay down liabilities, according to a key lawmaker.
Under the proposed amendment, at least 5 percent of “nonrecurring” surplus funds must be used to pay down the unfunded accrued liabilities (UALs) that existed as of June 30, 1988 for the Louisiana State Employees’ Retirement System (LASERS) and the Teachers Retirement System of Louisiana (TRSL).
Although policy divisions within his own party worked against his own legislation, there is now a growing recognition of the need to pay down unfunded accrued liabilities, said Rep. Kevin Pearson (R-Slidell), who sponsored the Retirement State Systems legislation (HB 530).
The bill called for changing the final average compensation (FAC) from three years to five years. This would translate into immediate savings up front that would lower pension payouts and UALs. HB 530 passed the House in a 77-2 vote, but failed in the Senate Retirement Committee.
As it was originally written, Pearson’s bill provided for a one percent across-the-board increase in employee contributions for state workers beginning July 1, 2012, and an additional one percent increase beginning July 1, 2013.
But from the beginning, Pearson’s plan was in direct competition with Gov. Bobby Jindal’s proposal to increase pension contributions from 8 to 11 percent for “rank and file” state workers. Rep. Kirk Talbot’s HB 479 included Jindal’s proposal.
While there is no strict legal definition for the term “rank-and-file,” the term typically applies to those government employees not included in the Louisiana State Employees’ Retirement System (LASERS) special sub plan which offers enhanced benefits. Employees in the sub plan include, among others, judges and other legal offices, some state legislators, corrections officials, wildlife officials, and peace officers in the state police department.
“We all want to see Gov. Jinal re-elected this fall and once that happens I think we will have a stronger hand to move forward on making the changes that need to be made to strengthen our retirement system,” Rep. Pearson said. “We will work in the off session to craft the right plan to address unfunded liabilities; we cannot pass this challenge off to future generations.”
The latest report from the state legislative auditor was released earlier this month on Louisiana’s UAL’s for the four state retirement systems, including the Louisiana State Employees Retirement System (LASERS), the Teachers Retirement System of Louisiana (TRSL), the Louisiana State Police Retirement System (STPOL), and the Louisiana School Employees Retirement System (LASERS).
These four systems have an unfunded liability of over $18 billion. The state’s other post-employment benefits (OPED), for retiree health care and life insurance, are unfunded to the tune of $11.5 billion.
A key turning point for the state came in 1987, when lawmakers passed a constitutional amendment that required the actuarial funding, accounts for actual costs, of state and statewide retirement systems. As part of this new goal, the constitution required policymakers to roll up all of the UAL that existed as of 1988 into one debt and to have it amortized (paid in full) to 2029.
But investment losses still resulted in new debt after 1988; commonly called subsequent debt. Pearson’s HB 530 would have applied the extra employee contributions to the subsequent UAL created from market losses in the 2008-2009 period. The constitutional amendment up for consideration this fall addresses the initial unfunded liabilities.
“There was an unwillingness on the part of part of some state employees to help deal with the investment losses from existing plans and that was a problem in the past [legislative] session,” Pearson said. “But this is everyone’s debt, and we need to come back next year and fix this.”
There was more of a consensus behind the new constitutional amendment, Pearson explained, because it deals with the initial debt, which is the state’s responsibility.
Going forward, Gov. Jindal could strengthen his hand by communicating more effectively with lawmakers who share his convictions, Rep. Jerome “Dee” Richard an Independent from Thibodaux, has suggested.
“Maybe I’m treated a little bit differently because I’m an Independent but I think the governor needs to reach out more to all conservatives and get behind bills early on that fit in perfectly with the themes of his campaign,” Richard said. “He still has a good opportunity to make a strong name for himself as someone who downsized government. Whether we are talking about retirement or a whole range of other issues, we’ve had some good bills.”
If Gov. Jindal is re-elected, the Republican Party is likely to be more united and forceful in its approach toward legislation that will help to alleviate costs to the state over the long term, Rep. Pearson said.
“When you have a legislative session in the same year as an election it can complicate the process and that’s what happened this time around,” he observed. “But the constitutional amendment is a good start and it will keep the retirement issue alive.”