House Poised to Attack Pension Liabilities with Alternative to Jindal Plan
Key committee clears across the board employee contribution increase for vote
Lawmakers who have argued for increased employee pension contributions to pay down existing debt, instead of for current budgetary expenses, have an active alternative to the plan favored by Gov. Bobby Jindal.
On Wednesday, the House Retirement Committee voted to send Rep. Kevin Pearson’s (R-Slidell) “Retirement State Systems” legislation (HB 530) to the floor for a vote. Pearson’s bill provides 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.
The money from the additional contributions would go toward paying down unfunded accumulated liabilities (UALs). Pearson’s original bill included the state police, but committee members amended their retirement plan out of the final version. They also made an exception for state teachers who are in the Optional Retirement Plan (ORP) – a defined contribution plan for higher education people.
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.
“I think it’s best to include all state workers and not just one select group,” Pearson said. “So long as we have high pension costs that come from unfunded accrued liabilities we can forget about raises, but if we can start dealing with this issue now it can save us in the future. Otherwise, we are talking about costs that our children and grandchildren will have to pay.”
Last week, the House Retirement Committee also voted to send Rep. Kirk Talbot’s (R-River Ridge) HB 479 to the floor for a vote. Talbot’s legislation includes the three percent increase, from eight to 11 percent, in employee contributions for “rank-and-file” state workers that Jindal has proposed.
Government employees not included in the LASERS special sub-plans that offer more generous benefits are considered “rank-and-file.” There are 50,592 rank-and-file LASERS members, out of the 63,491 total. That makes a total payroll for LASERS employers of $2,546,456,790, of which rank-and-file make up $2,113,276,078.
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.
Even so, investment losses still resulted in new debt after 1988; commonly called subsequent debt. HB 530 will apply the extra employee contributions to the subsequent UAL created from market losses in the 2008-2009 period.
During the committee hearing for his bill last week, Rep. Talbot said HB 479 would help alleviate the taxpayer burden. Back in 1987, the total employee contribution ratio for pensions was 40.7 percent, now it is about 27 percent, he explained. The taxpayer share was 60 percent at that time and is now 73 percent, he said. Without his legislation, these percentages would continue to grow in a way that disadvantages taxpayers, Talbot told committee members.
“If we don’t do something, this will be a train wreck,” he said.
Kristy Nichols, Jindal’s deputy chief of staff, also spoke up on behalf of Talbot’s bill.
“The employee share has been static for the past 25 years, while the employer share (taxpayer share) has been growing,” she said.
Moreover, the pension contribution rate for Louisiana LASERS members is quite low in comparison to other states, Nichols observed. In fact, accounting for no Social Security contributions, LASERS members pay the fourteenth lowest rate toward their retirement in the country.
But committee members in both parties were not convinced that Talbot’s bill established the right priorities.
“Frankly, the weakness in your plan is that the money saved goes into the budget, not to pay down the UAL,” said Rep. Hollis Downs (R-Ruston).
“I’m with Downs,” said Rep. Juan LaFonta (D-New Orleans). “We are not normally on the same page that often,” he said – but “I’m concerned about the unfunded accumulated liabilities.”
Rep. Reed Henderson (D-Violet) also expressed misgivings and told Nichols that Jindal’s plan would not result in any fundamental changes.
“We are going to run deficits of billions of dollars over the next five years… but you are going out of office… We just keep kicking this can down the road…”
There was a motion to involuntarily defer (kill) HB 530 – Pearson’s plan – which failed 6 to 4. Afterwards, the committee voted unanimously to pass the bill for vote in the House. On HB 479 – Talbot’s bill — there was a 6 to 4 vote against voluntarily deferring, but afterwards there was a 6 to 4 vote to pass the bill out of committee.