Jindal’s Call for Increased Pension Contributions Could Alleviate Future Budget Woes
Rep. Pearson says changes should extend beyond “rank-and-file” workers
Although Gov. Bobby Jindal’s call for increased employee pension contributions has been the subject of criticism from both sides of the aisle, his plan appears quite restrained in comparison to other states. Moreover, state officials claim the plan could generate $24 million in savings in FY 2012 and more in the long run.
As part of the 2011-2012 budget plan he released last week, Jindal is asking for rank-and-file state workers to contribute 11 percent of their salaries to pensions, up from the current eight percent. But lawmakers in both parties have expressed concern that the governor’s proposal will erode the financial standing of state workers.
Sen. John Alario (R-Westwego) notes that the heightened pension contributions would occur in tandem with a freeze recently imposed on state salaries. “I’m just concerned that we have frozen the pay of all the state employees and now we are going to reduce their take home pay,” he observed.
But other lawmakers contend that Jindal has not gone far enough.
Rep. Kevin Pearson (R-Slidell) said in an interview that he would not limit policy changes to the “rank-and-file” workers.
“I’d like to go farther and look at how we can incorporate the state police and the judges,” he suggested. “They have a much better benefit. So I may look to amend the governor’s proposal in some way so this affects everyone and not just one group of workers.”
One possibility is to increase the contributions for all state employees by one and half percent on their first $50,000 and then any salary over $50,000 might include a 3 percent contribution, Pearson explained.
“This way everyone is treated the same on their first $50,000,” he said. “We also have university professors who are in the teachers retirement system and why exclude them if they are state employees?”
Democratic legislators have accused Jindal of attempting to balance the budget at the expense of the state’s most vulnerable constituencies including state workers.
Sen. Karen Carter Peterson, (D-New Orleans), has been particularly vocal. “There’s a blanket statement that we won’t impose additional burdens on corporations or even individuals,” she has said. That’s prohibited.”
However, the proposed 3 percent increase in state employee contributions that lawmakers will debate in the upcoming legislative session is not out of proportion with what other states are now experiencing.
In Wisconsin, the budget reforms Republican Gov. Scott Walker has implemented calls for most state employees to contribute 5.8 percent of their salaries to pensions. They previously did not contribute anything. In New Jersey, Republican Gov. Chris Christie has proposed bringing up the contribution rates for the various state employee pensions to a uniform rate of 8.5 percent. Right now, some are as low as 3 percent.
Even so, Eileen Norcross, the lead researcher on the State and Local Policy Project with the Mercatus Center at George Mason University, warns that the increases in Wisconsin and N.J. “are too modest relative to what they are going to need,” she said.
“One way to look at this is that Louisiana is doing what other states are currently avoiding,” Norcross observed. “The only way to ensure workers get their pensions is to make sure these systems are well-funded and managed. The reforms must include an accurate accounting of the liability, a model of how much should be set aside each year to fund it, and this will include measures such as increasing contributions.”
When evaluating Jindal’s plan, it is important to keep mind that Louisiana state workers are not in the Social Security system, David John, a senior fellow with the Heritage Foundation, observed. Furthermore, their current cost for pensions is only a few tenths of a percent above the employee portion of the payroll tax that private sector workers pay, he noted.
“The rise to 11 percent is not unreasonable if it is compared to the combination of Social Security payroll tax levels plus any pension contributions that workers in the private sector pay,” he said. “I do see from a manager’s viewpoint that increasing this contribution during a freeze on raises will result in reducing state employees’ take home pay and thus could cause incentive problems, but that is not a reason to avoid this change.”