LASERS seeks to cut state's contributions

By Marsha Shuler, The Advocate
Capitol news bureau
November 29, 2011

The Louisiana State Employees Retirement System wants a change in state law that will reduce state government’s pension system contribution by $40 million.

LASERS Deputy Director Maris LeBlanc said Monday that the system’s board of trustees will ask the Louisiana Legislature to change the calculation method that determines employer payments.

The change — to a method expected to be recommended by the Governmental Accounting Standards Board for certain reports — would end up lowering the percent of payroll that the state would contribute into the system in the fiscal year that begins July 1.

Those payments along with employee contributions cover projected costs of future benefits of some 55,000 current employees.

State law requires LASERS to use a “projected unit credit” for each year the pension benefit accrues for funding purposes. In projecting actuarial costs, the normal cost is a lower percentage of salary in early years of service. The normal cost increases annually as each member approaches retirement eligibility, LeBlanc said.

The proposal would move to what is called an “entry age normal” method under which normal cost is generally level as a percentage of payroll over the pension system member’s career, she said.

That’s the method GASB is expect to move for accounting purposes in measuring the actuarial liability of the system.

LASERS Director Cindy Rougeou said the simple law change would “free up real dollars” that the state could use to help reduce the LASERS unfunded accrued liability or long-term debt.

LASERS has a $6.46 billion system debt. The debt is a result of the state — in decade past — not paying enough into the system, plus interest payments on that debt and approval of benefits without a source of funding. There have also been some investment losses.

LeBlanc said the time is right to make the change because some LASERS pension plans have been closed to new hires. As employees get older state contributions rates would rise under the current system because there are no new employees to average out costs, she said.

“If we switch the method right now, we could cut what the state has to put in,” LeBlanc said.

Instead of paying 28.2 percent of payroll, the state contribution would be 26.6 percent — triggering a $40 million savings, she said.

The system is generally more stable for budgeting purposes if average demographics of the plan change, according to LASERS actuary.

LASERS administers pension plans covering more than 150,000 employees, retirees and their families. The system includes almost 55,000 active employees.