Friday, April 23, 2010

Cindy Rougeou: Switching Louisiana public employees to a DC plan won’t help--Letter: La. pension misinformation cited

I would like to thank The Advocate for its recent editorial recognizing the importance of securing the financial soundness of our public pensions.
The Louisiana State Employees’ Retirement System understands the significance of this matter and continues to stress, to the Legislature and the public, the importance of paying down the unfunded accrued liability, or UAL.
I also appreciate the opportunity to clear up some misinformation that has been published regarding the soundness of the system and the effect of various proposals to reduce the debt.
One very misleading report was recently issued by the Kellogg School of Management. The report raised alarm by erroneously suggesting that the pension system would run out of funds within 10 years. Unfortunately, the author based his projections on investment return rates of approximately 5 percent and ignored completely the amortization payments made to LASERS. In fact, through June 2009, we had a 25-year compounded actuarial return of 8.41 percent. Our current fiscal year market rate of return is 20 percent. The report disregarded our statutes, the Louisiana Constitution and market experience.
A Pew Center report focused on state retirement systems and potential reforms. It affirmed that public pensions work and play an important role in enabling public employers to attract and retain qualified workers. It should be noted that Louisiana took an important step in 1987, constitutionally requiring the financial soundness of state pension systems. The Pew report recognized Louisiana as a top 10 state for paying the actuarially required rate.
In 2009, the Louisiana Legislature revised the debt payment schedule, reducing the UAL by $500 million. Louisiana enacted sweeping reform in 2005 for LASERS new rank-and-file members; the legislation reduced debt, increased employee contributions and minimum retirement age. The legislation also reduced pension costs.
The Advocate editorial cited an opinion by House Speaker Jim Tucker. He has introduced a bill (HB930) that would shift new state employees into a defined contribution plan instead of the current defined benefit plan. According to the editorial, a change from a defined benefit plan to a defined contribution plan is designed “to bring the state in line with the private sector, where IRA-type defined contribution systems are the norm.”
IRA-type plans are a norm in the private sector, but so is Social Security. Too often forgotten is that state employees are not in Social Security. They do not have that form of a defined benefit and are dependent on their LASERS pension.
In summary, the Louisiana State Employees’ Retirement System Board will continue to work with our Legislature on debt reduction and improvements in our pension system reform. The board opposes HB930, seeing no short-term fiscal savings, reduction of debt or definitive long-term savings.

Cindy Rougeou, executive director
Louisiana State Employees’ Retirement System

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