Monday, February 13, 2012

Retirement Proposal Would Impact Pensions

The Advocate
By Marsha Shuler
Capitol news bureau
February 12, 2012

“I have to wonder if the administration took into consideration what the mass exodus of employees could mean. It could substantially reduce any savings they expect to realize.” Cindy Rougeou, executive director, Louisiana State Employees Retirement System

The retirement plans of nearly 50,000 state employees would be adversely impacted by Gov. Bobby Jindal’s proposal to increase retirement age to 67 years, according to public pension system calculations.

About 40,000 of the 54,000 active members of the Louisiana State Employees Retirement System and another 8,512 members of the Teachers Retirement System of Louisiana, who work in higher education, would have to work longer or face dramatic losses as the rules under which they were hired would change.

Jindal’s deputy chief of staff Kristy Nichols said the age 67 legislation is but part of a package of bills aimed at cutting retirement system debts and state pension costs while providing a sustainable benefit for employees.

The bills that would make those changes are on the agenda when the Louisiana Legislature convenes March 12 for its regular 2012 session.

An analysis by Louisiana State Employees Retirement System showed that pension checks for some impacted public employees could be reduced by about 50 percent.

Jindal’s proposals would increase the retirement age to 67 for certain public employees. He exempts those who are aged 55 or older as well as employees in hazardous-duty jobs, classroom teachers, public school workers and judges. The proposal also would give the affected employees until October to retire without any change in benefits as a result of the age 67 requirement.

The proposed change is unconstitutional and breaks a contract that employees entered into with the state when they were hired, LASERS executive director Cindy Rougeou said. That Jindal would exempt groups of workers from the changes he proposes underlines the fundamental unfairness of the plans, she said.

“If the administration considers this plan too harsh and burdensome that it exempts people from the bill, then why is it easy to impose it on hardworking public servants, who provide health care, protect our environment and keep our roads and bridges,” Rougeou said.

At least 12,067 of the employees who would fall under Jindal’s plan work for the LSU System at either one of the college campuses or one of the public hospitals, said Charles Zewe, the LSU System’s Vice President for Communications.

Nichols, Jindal’s deputy chief of staff, pointed to an $18.5 billion unfunded accrued liability, called the UAL, of Louisiana’s four statewide retirement systems. The UAL is the difference between the money now available to pay benefits in the future and the promises the state made to its employees about those future benefits. State law requires taxpayers to fulfill those promises. A constitutional amendment requires a large part of the gap to be filled by 2029, and under the repayment schedule, the state makes hefty annual payments.

The administration estimates that increasing the retirement age would result in a $270 million “taxpayer savings” next year as new calculations are made on how much the state would owe over time for pension benefits of current and retired employees.

The administration exempted hazardous-duty employees “who risk their lives every day on behalf of the state and its citizens.” When it comes to teachers and school employees, Nichols said “our (legislative) priority this year in terms of education is getting every child in a classroom where they can learn,” not altering their retirement benefits.

Exempting employees age 55 or older is designed to help employees make the transition, just like the October date where people can retire under current rules, Nichols said.

Jindal said his age 67 plan has the same retirement age as the federal Social Security system.

Louisiana government employees do not participate in Social Security. In the 1950s state government opted out of Social Security. Instead the state developed its own plan for public employees.

For many retirees in the private sector 401(k) plans supplement Social Security benefits. For most state government employees, their state pension is their only income source after retirement. Current rank-and-file LASERS retirees’ average annual pension is $21,000.

Rougeou said LASERS is in the process of putting information on its website to try to answer questions about the proposals and their impact because of the volume of member calls coming in. “People are growing concerned and should be,” Rougeou said.

For instance, Rougeou said, the age change could prompt a slew of resignations before October when employees can retire under existing rules.

“I have to wonder if the administration took into consideration what the mass exodus of employees could mean. It could substantially reduce any savings they expect to realize,” Rougeou said.

Trey Boudreaux, LASERS’ assistant director, said actuarial assumptions are made taking into consideration historical trends in how long employees stay on the job after they hit retirement eligibility.

Those estimates go out the window if employees start leaving in droves, he said. The state starts paying retirement benefits earlier and pays them for a longer period of time, increasing costs, Boudreaux said.

Because pensions rely on complex calculations applied to individual circumstances, the impact of Jindal’s proposals differs for each employee.

LASERS provided general examples of the potential impact on employees.

For instance, an employee age 54 with 30 years of service who plans to retire at age 60 with benefits based on $60,000 final average compensation. A LASERS employee today is eligible to retire at any age with 30 years of service.

Under current provisions, the individual would qualify for a $54,000-a-year benefit as he works to age 60. Under Jindal’s plan, the same individual retiring, as planned, at age 60 would get a $25,567 annual benefit if he stays after the law takes effect.

If people decide to retire prior to age 67, their benefits would be reduced for each month they are away from what would become the normal retirement age, Rougeou said.

The exemption for those over age 55 also translates into a big difference in pension benefits.

For instance, a person born June 30, 1957, with 24 years service who then works until age 61 — at 30 years of employment — would get $45,000 a year in retirement based on a $60,000 final average compensation.

But someone in the same situation born July 1, 1957, and retiring under the new provision would see a reduction in benefit from $45,000 to $23,572 annually.

“This is like not having a corporate pension, then having substantial changes made to your Social Security,” Rougeou said. “That’s why I keep coming back to the harshness and unfairness.”

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