Thursday, July 3, 2014

State Pension Boards Approve Change

Marsha Shuler
The Advocate

Louisiana’s two largest statewide retirement systems took a step that could reduce their long-term debts and ultimately lower the costs paid for state government retirements.

The Louisiana State Employees Retirement System and the Teachers Retirement System of Louisiana boards voted to reduce their projected annual investment returns from 8 percent to 7.75 percent.

The investment returns are used in the calculation of the rates that government employers contribute toward funding the system.

Any earnings about the 7.75 percent return on the investments made by the pension systems go to paying down the “unfunded accrued liability,” said Legislative Auditor Daryl Purpera. 

More commonly called the UAL, it is the amount of money that has not been set aside to cover the cost of pension benefits promised in the future. The UAL for the four statewide retirement systems now hovers near $19 billion.

State agencies and schools, the employers, are making additional payments to help lower the UAL, but those mandatory payments put a strain on the budgets for other expenses.

The change in interest rates approved by LASERS and Teachers, combined with a recently passed law, could relieve some of the budget pressures caused by the big payments.

“We have a severe problem with underfunding. If we have an opportunity to accelerate repayment of the UAL, we ought to be taking advantage of it,” said Purpera, who chairs the Public Retirement Systems Actuarial Committee.

LASERS Deputy Director Maris LeBlanc said: “Because we expect to earn less, then the more money we make over that is money to put toward the debt.”

The rate reduction under normal circumstances would trigger an increase in state and school systems’ contributions because the systems would count on less earnings from investments.

But the state and schools will end up paying the same or a little less because the reduction will go into effect at the same time as a law which directs more of the pension systems’ excess investment earnings into debt reduction, said Maureen Westgard, executive director of the Teachers system.

The Teachers board voted to lower the expected return because “any impact that would have been felt would be offset,” said Westgard.

“The way we presented it to our board is ‘the planets are aligned for us,’ ” said LASERS Executive Director Cindy Rougeou. “Based on things that happened during the legislative session and what we expect our investment returns will be ... we are expecting to reduce (the state contribution) by 1.5 percent.”

Rougeou said the calculation is based on a 14 percent investment return, “and we expect that’s going to be closer to 18 percent.”

Westgard said Teachers is anticipating a return of more than 17 percent during the fiscal year which ended June 30.

Both systems are chalking up big investment returns today, but the 30-year average return is 8.2 percent for LASERS and 8.54 percent for Teachers.

Westgard and Rougeou said the new 7.75 percent assumption is realistic. Both referred to a new National Association of State Retirement Administrators report which looked at 126 different public pension plans. More than half reduced their investment assumptions since 2008. The average is 7.72 percent — right at the 7.75 percent adopted by Teachers and LASERS.

Lowering the rate will help bring more funds into the system, said Rougeou. “You try to find that perfect balance,” she said. “If you lower the rate more than you need to, you are going to put a burden on current taxpayers they should not have to pay.”

Friday, June 13, 2014

Actuary Puts Pension Plan Savings at $5 Billion

By Marsha Shuler, The Advocate
June 13, 2014

Recently enacted changes to the retirement system could save taxpayers $5 billion over time because pension debts will be paid off sooner, the Legislature’s actuary reported.

The savings will come from reduced interest payments on the unfunded accrued liabilities of Louisiana’s four statewide retirement systems, according to an analysis by Paul T. Richmond, manager of actuarial services in the Louisiana Legislative Auditor’s Office. An actuary analyzes statistics to calculate risks and costs over time.

“It will save the state of Louisiana about $5 billion from having to make those payments. When it’s billions with a B, that’s nothing to sneeze at,” said state Rep. Joel Robideaux, R-Lafayette, sponsor of the change.

The state and school systems are making extra retirement contributions annually as part of a constitutional mandate to eliminate old debts, putting a substantial drain on budgets. The debts resulted when benefits were granted but dollars were not appropriated to pay for those benefits.

The Teachers Retirement System of Louisiana and the Louisiana State Employees’ Retirement System are nearly $19 billion short of the funds needed to cover long-term promised benefits, called the UAL or unfunded accrued liabilities.

Under the new plan, more of the retirement systems’ excess investment earnings will go toward debt retirement before dollars are put into a special account through which retiree cost-of-living raises, called COLAs, are funded.

The plan permits the state to begin paying down on the principal a lot quicker, Robideaux said. “We are going to start socking it (extra investment earnings) toward that big debt,” Robideaux said.

The result is similar to when an individual is buying a house and makes extra payments. The house is paid off early, and less interest is paid on the borrowing.

“This is huge. This is a big step,” TRSL Executive Director Maureen H. Westgard said.

Debts will be paid off “a good four or five years sooner,” Westgard said, adding that, for the teachers, it’ll mean $3 billion less in interest over a 30-year period.

Westgard said TRSL has an $11.3 billion unfunded accrued liability, and three-fourths of it is tied to the original debt and interest on it. The interest payments are almost half of the original debt, she said.

At LASERS, there will be $2 billion in interest savings.

“Anytime we can put more money to reducing the debt, it makes the system in a better position actuarially and financially,” said Maris LeBlanc, LASERS deputy director.

Robideaux said the intent was to get a plan that, in the long term, would save the state a significant amount of money but, just as important, would be able to give retiree cost-of-living adjustments more consistently. “The goal of the legislation was to pay down the debt that’s been out there for a long time that’s been handcuffing us so it won’t be there in the future,” he said.

Public Affairs Research Council of Louisiana President Robert Travis Scott said a good long-term impact for taxpayers are that the debts are paid off sooner, freeing up those tax dollars to pay for health care, education and other state priorities. “It also helps provide a regular and more dependable way for retirees to get COLAs,” he said.

Monday, June 2, 2014

COLA Becomes Reality; Update on LASERS Supported Bills

Governor Jindal signed HB 1225 into law yesterday, which was the final hurdle in making the 1.5 percent COLA a reality for eligible state retirees.The bill, sponsored by Representative Robideaux, will change the way in which future COLAs are granted. 

LASERS Executive Director Cindy Rougeou said, "This legislation ensures a much needed COLA for our retirees coupled with billions of dollars in expected savings for our System. This is significant pension reform. On behalf of LASERS I want to thank Representative Robideaux and Senator Guillory who authored the bill and Governor Jindal for making it official."

The Governor also ceremonially signed Act 102 (SB 18) yesterday, the piece of legislation which provides the 1.5 percent COLA for eligible retirees, survivors, and beneficiaries in LASERS. He had officially signed this bill last week. The COLA will go into effect July 1, 2014 for those retirees who are eligible.

SB 13, sponsored by Senator Peacock and supported by the LASERS Board of Trustees, awaits the Governor's signature. This bill will change LASERS actuarial funding method from projected unit credit to entry age normal.

Act 226 (HB 38), which changes the retirement eligibility for new hires only to five years of service at age 62, was signed by Governor Jindal. This bill applies to those hired after July 1, 2015 and excludes Hazardous Duty Service Plan members.

The 2014 Legislative Sessions ends at 6:00 p.m. today. Please check the LASERS website for the final outcome of retirement bills. The next issue of The Beam will feature additional information about significant legislation during this session. 

Wednesday, May 28, 2014

LASERS Investment Return 14.3%

LASERS fiscal year-to-date investment return is 14.3 percent as of April 30, 2014. Based on this performance, LASERS current total plan value exceeds $10.6 billion. 

LASERS Chief Investment Officer Bobby Beale said, “LASERS five-year and 10-year annualized investment return is 14.4 percent and 8.1 percent respectively. We are pleased to see the plan perform well over these long-term time periods.” 

In the Wilshire’s Trust Universe Comparison Service (TUCS) most recent peer comparison, LASERS ranked in the top 15 percent based on 10-year returns and in the top 14 percent based on seven-year returns. The TUCS comparison is conducted among pension systems with assets exceeding $1 billion and is the most widely accepted benchmark for the performance of institutional assets. 

“LASERS has realized a $1.4 billion increase in our market value over the past two years,” said LASERS Executive Director Cindy Rougeou, “and I am proud to say that our investment team manages approximately one-third of the investments internally, saving over nine million dollars this year alone in fees.” 

LASERS provides a defined benefit pension plan that covers approximately 150,000 members. LASERS pays over $1 billion in annual benefits to retirees and their beneficiaries, providing a strong and reliable economic stimulus for Louisiana. 

For more information, please contact LASERS Public Information Director Tonja Normand at or 225.922.1131. 

Tuesday, May 20, 2014

COLA revamp goes to Jindal

Capitol News Bureau
The Advocate

Cost-of-living benefit increases are on the horizon for more than 100,000 retired state employees, teachers, school employees and State Police.

The Louisiana Senate voted 36-0 on Monday for the final piece of a legislative package that triggers the 1.5 percent benefit increases effective July 1. The vote sent the House-passed measure to Gov. Bobby Jindal’s desk for his promised signature.

Jindal has already signed separate bills granting the cost-of-living adjustments, or COLAs, to retirees of all four statewide retirement system. But the raises could not go into effect without passage of House Bill 1225. The legislation revamped the system through which the benefit increases would be awarded in the future. The Senate provided that vote Monday.

State Sen. Elbert Guillory, R-Opelousas, said the package of bills provided “a much needed” COLA while “reforming” the system to save taxpayer dollars.

HB1225 would divert more of the retirement systems’ excess investment earning toward reducing the systems long-term liabilities which currently sit at $19 billion-plus. The diversion reduces the funds going into special accounts that pay for COLAs.

The state is making large extra payments on the oldest of the systems’ debt, which stems from past administrations and legislatures failing to properly fund benefits granted.

The legislation will allow the state to pay off the oldest debt six year sooner than anticipated and will save $5 billion over the next 30 years by cutting down on interest payments, Guillory said.