Monday, April 30, 2012

State Pension Plan May Be Delayed By Senate Changes

By Marsha Shuler
Capitol news bureau
April 30, 2012

The Senate will be asked to make substantial changes in Gov. Bobby Jindal’s proposed state employee pension system revamp when three key measures come up for a vote this week.

Legislation in the pension package would require employees to contribute more and most to work longer with reduced benefits.

State Senate Retirement Committee chairman Elbert Guillory said amendments will be proposed that would delay implementation of the changes until July 1, 2013, and dedicate any money generated from them to paying off the systems’ long-term liabilities — contrary to Jindal’s initial plan to use the money in the state operating budget.

Amendments also will be offered that would exempt more veteran employees from proposals to increase the retirement age that must be reached in order to get full pension benefits, said Guillory, the Senate’s lead sponsor of the Jindal legislative package for pensions.

A nearly 40 percent increase in employee contributions and changes in how benefits are computed also would be phased in over time under the changes the Senate will be asked to approve, he said.

Guillory said the changes will be proposed “after much negotiation with the Governor’s Office and a lot of individuals in the systems and system representatives.”

“Not everyone is going to be overjoyed by this package but it represents the best ideas from people in the system, the Governor’s Office and from the Senate and the House,” Guillory said. “A lot of work and a lot of thought has gone into it, to shore up the fiscal solidness of the systems and do it in a way that does not hurt employees and their families.”

Jindal’s deputy chief of staff, Kristy Nichols, his point person on the legislation, was unavailable for interview on the potential changes, said Jindal’s communications director Kyle Plotkin. Plotkin released a statement from Nichols on Friday, which in part stated: “We continue to work with legislators.” Nichols’ statement also repeated the governor’s position that increasing pension debt is diverting more and more tax dollars that otherwise could be spent on other services.

The legislation affects in one way or another more than 60,000 state employees. It covers members of the Louisiana State Employees Retirement System, or LASERS, as well as higher education members of the Teachers Retirement System of Louisiana.

Even with the alterations, LASERS executive director Cindy Rougeou said the plan is “still constitutionally problematic.”

“You can’t be just a little bit unconstitutional just like you can’t be a little bit pregnant,” Rougeou said.

The basic constitutional problem lingers: breaking employee contracts with their employer, Rougeou said.

Jindal advocated the pension law changes to help reduce the unfunded accrued liabilities, of the retirement systems and make the systems more sustainable for members. He said the state’s required contributions take money away from other budget needs such as higher education and health care.

The UAL is the difference between system assets and their ability to meet pension obligations promised to their members over time. The Jindal administration says the UAL is about $18.9 billion for Louisiana’s four statewide retirement systems: state employees, teachers, school employees and State Police.

Rougeou said the plan unfairly targets the state employee system with 35 percent of liabilities. She said a well-thought-out plan needs to be formulated that addresses all systems’ finances.

The administration’s proposed $25.5 billion state operations budget for the fiscal year that begins July 1 relied on $318 million in savings from passage of the governor’s retirement proposals, including $120 million in state funds that would be freed up. Jindal wanted initially to reduce state contributions to the retirement systems by making employees pay more.

But that tact did not sit well with legislators or pension systems. Now the three key pension bills will have language to stop money from being taken away from the systems, Guillory said.

“All savings — every single penny — stays in the systems to shore them up,” Guillory said. “We are not going to play a shell game with this ... We are carrying out his (Jindal’s) intention.”

TRSL spokeswoman Lisa Honore said system officials will have to evaluate the amendments once they are introduced.

“Our concern will always be whether the benefits are being diminished without being replaced with something of equal value. We maintain there are constitutional issues if that doesn’t happen,” Honore said.

Guillory laid out the following substantive changes that will be proposed to Jindal’s pension system bills when they come up for a Louisiana Senate vote either Tuesday or Wednesday:
  • Senate Bill 62 would increase employee retirement contributions by nearly 40 percent, from 8 percent to 11 percent of pay for most.
 Instead of immediately increasing employer contributions, the 3 percent would be phased in: 1 percent per year beginning in the 2013-14 fiscal year; 2 percent in 2014-15 and 3 percent in 2015-16.

“It will cause a lot less heartburn,” said Guillory.
  • SB 749, which in its current version would move to a two-step benefit plan that would freeze the benefit an employee had earned as of a certain date; then impose different retirement ages based on the number of years an employee had worked thereafter. If employees retired before that age they would get a reduced benefit.
Jindal set out initially to raise to 67 the retirement age for most employees.

The legislation will keep a provision that allows retirement at any age after 30 years of state employment.

“We are building in some additional protection for people with 20 years as of June 30, 2013,” Guillory said. Guillory said the 20-year employee has certain “vested rights,” according to LASERS.

Rougeou said LASERS agrees with the proposal to remove vested members from the bill. But she said the 20-year change does not cover all employees who have vested rights in LASERS.

Under the proposal, Guillory said the new retirement ages would be altered as follows: for employees with 15 to 20 years, the age would be 59; those with 10-15 years, age 61; those with five to 10 years, age 63; employees employed June 30, 2013, with fewer than five years on that date, age 65; and new hires, age 67.
  • Senate Bill 47 would move to calculation of retirement benefits on final average compensation over five years instead of three years.
 “We expect it to be phased in ... one month at a time over two years,” Guillory said. The five year final average compensation would kick in for people who retire on or after July 1, 2015.

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