Wednesday, March 9, 2011

LASERS Response to Public Pensions: Are the Current National Reports Correct?

On February 14, 2011, Keith Brainard, Director of Research for the National Association of State Retirement Administrators, (NASRA), testified before the U. S. House Judiciary Subcommittee on Courts, Commercial and Administrative Law.1 Mr. Brainard informed the subcommittee that “State and local spending on public pensions is the employers’ annual contribution to the pension trust – not the amount paid out of the trust each year to retirees. The percentage of all state and local government spending on pensions has hovered around three percent during the last decade.”

With respect to LASERS, the percentage is smaller than the national average. For Fiscal Year 2010-2011, the state contribution to LASERS accounts for only 2.2% of the total state budget (Fiscal Year 2010-2011 Total Louisiana Budget – General Appropriations [$27,002,190,991]). In addition, LASERS paid over $860 million in benefits and refunds in Fiscal Year End 2010. Over 90% of LASERS retirees and beneficiaries live in Louisiana, creating a significant positive impact on our state and hometown economies.

LASERS, like all investors, was not immune to the recent market volatility, often referred to as “The Great Recession.” LASERS also experienced and overcame the market downturn following September 11, 2001. At this point, it is important to note that LASERS has an expected actuarial return target of 8.25%.2

The 18.7% Fiscal Year-to-Date market return earned by LASERS places our system among the top 3% of our comparable peers nationally.3 From February 2009, through December 2010, LASERS added approximately $3 billion to our fund. Our market returns have also exceeded the S&P 500 for one, five, and seven years.

In the past year, our contributions, dividends, interest payments and distributions are roughly equal to the amount of benefits we pay. Certain national reports have created needless alarm by declaring that the pension systems will “go broke” in the next decade. This unfortunate conclusion arises from the misplaced assertion that funding and return expectations should be based on the market value of liabilities. Such is neither a realistic nor accurate measure for public pensions.

This is compounded by the error in failing to recognize that for nearly two decades the State of Louisiana, in compliance with a constitutional mandate, has made the requisite employer contribution to the retirement system. (This contribution consists of the “normal cost” of the accruing benefit as well as the debt payment for prior insufficient contributions.)

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