Inside Report for Feb. 9, 2012
By Marsha Shuler
Capitol News Bureau
February 09, 2012
Critics say Gov. Bobby Jindal’s recent proposals for dramatic state pension system changes are fraught with problems — constitutional and otherwise.
Ask top officials of the Louisiana State Employees’ Retirement System, which covers some 54,000 active state workers targeted by Jindal’s proposals.
Jindal wants employees to contribute more, work longer, for fewer pension dollars — ostensibly to reduce retirement system debts, “keep our promise to state workers” and “save taxpayer dollars.”
But a LASERS analysis concludes that it is far from what it’s billed on a number of fronts.
Among Jindal’s proposals are those to increase state employee retirement contributions by 3 percent, increase retirement age to 67 and compute pension benefits based on the average pay over the final five years instead of current three.
“The proposals are being touted as measures to attain and maintain the actuarial soundness of the pension systems. Yet funds that would be raised, for example the increase in employee contributions, are not being used to reduce pension debt but are instead being funneled into the state general fund,” LASERS executives wrote.
The system’s liabilities largely stem from governors and legislatures approving retirement benefits but not funding them. Louisiana voters approved a constitutional amendment in the late 1980s requiring the state to erase that original debt by 2029.
LASERS officials said Jindal is seeking a “payroll tax” because employees would be asked to help cover the retirement system’s unfunded accrued liability which they had nothing to do with creating.
LASERS got support for that position from former House Speaker Jim Tucker, R-Terrytown, who last year said the proposed contribution increase was a tax requiring a two-thirds vote.
Administration lawyer Elizabeth Murrill countered that employee retirement contributions are “deferred compensation” and therefore the payment is neither a fee nor a tax.
Tucker’s tax position led the administration to drop the proposed legislation.
Jindal has consistently said he would veto any tax proposal that hits his desk. Jindal’s plans to change the retirement age and method of calculating current employee benefits run into constitutional problems, according to LASERS.
“Many of those employees already have ‘vested’ rights in their retirement benefits. To change provisions such as those targeted would violate the constitutional restriction against impairing existing benefits,” the LASERS memo states.
It continues, “Employees who are not yet vested have contractual rights to their benefits. The Louisiana Constitution provides that membership in the retirement system is a contractual relationship between the employee and the employer.”
LASERS argues that the retirement benefits of current employees are part of the package of compensation they were promised when hired and any change to that package would be “breaking the promise made to those employees.”
Just read the Louisiana Constitution, which specifically protects accrued benefits from being diminished or impaired, retirement system officials said. The state constitution also protects “the contractual nature of the relationship between the state and its employees as pertains to membership in the retirement system,” they add.
“We also recognize the federal constitution’s prohibition against the impairment of contractual obligations and the passage of ex post facto laws.”
Jindal estimates that his legislative retirement package will result in $450 million in taxpayer savings next year.
LASERS is warning that Jindal shouldn’t count on using any of those dollars to help him balance the state budget because there will be court challenges if the administration is successful.
“Proposing changes that are unconstitutional attains only protracted litigation” and doesn’t result in a sound pension system, LASERS Executive Director Cindy Rougeou said.
Marsha Shuler covers state government retirement issues for The Advocate’s Capitol news bureau. Her email address is email@example.com.