Revisions needed for retirement system overhaul

‘Heartburn’ reduced, sponsor says
By Marsha Shuler
Capitol news bureau

May 07, 2012

The state Senate Finance Committee will be asked Monday to significantly revise Gov. Bobby Jindal’s proposed state employee retirement system overhaul, according to the Senate sponsor of the bills.

The proposed rewrite still would require most state employees to contribute more and work longer for reduced benefits but the changes would evoke less “heartburn,” said state Sen. Elbert Guillory, Jindal’s Senate pension floor leader.

Guillory said proposed changes would include:

Reduce from 3 percent to 2 percent the increase in contributions expected from state employees; and spread the implementation over a four-year period — a half-percent at a time.
Phase-in, a month at a time, using the average salary over a five-year period, instead of the current three, to calculate a retiree’s pension benefit.

Add to those groups of employees that would be exempted from changes in retirement age restrictions as well as adopting retirement ages based on years of employment.
Implement all changes on July 1, 2013.

Jindal’s proposals cover more than 60,000 members of the Louisiana State Employees Retirement System and higher education members of the Teachers Retirement System of Louisiana. Judges and hazardous-duty employees would be exempt.

Jindal said the pension law changes are needed to start addressing the long-term liabilities of Louisiana’s four statewide retirement systems, which are creating a drain on the state budget. He said the situation needs to be stabilized for the benefit of the state as well as pension system members.

Jindal’s package primarily targets only one of the systems — LASERS — that the state has underfunded for decades.

The LASERS and TRSL boards oppose the Jindal retirement package, claiming altering pension terms unconstitutionally breaks contracts state government employers made with their public employees.

The Senate Retirement Committee approved the bills in mid-April.

Guillory said the legislation was shipped to Senate Finance so the proposed amendments could be added prior to the bills hitting the Senate floor for debate, which could as early as Wednesday.

Actuarial notes accompanying each of the measures — Senate Bills 47, 52 and 749 — indicate there would be state expense, including legal costs of court challenges.

“We wanted to have a hearing on them. We want the people of Louisiana to be able to see them and read them at least a day or two,” said Guillory, D-Opelousas. Offering the changes on the Senate floor would have been “too confusing,” he said.

As the legislation moves to committee, LASERS released a new analysis by its actuary that concludes that more of its members would be paying more into the system than they would get out in pension benefits. LASERS executive director Cindy Rougeou said that makes the employee contribution increase a “payroll tax.” Last year, former House Speaker Jim Tucker, R-Terrytown, concluded it was a tax and required a two-thirds vote.

Rougeou said not only are legislators constitutionally barred from considering taxes in the current session, but tax measures cannot originate in the Senate. The state constitution requires tax measures to start in the state House.

LASERS actuary Shelley Johnson compared the employee contribution versus the career average cost of the benefit with and without the proposed 3 percent employee contribution increase.

For most LASERS employees — those hired before July 1, 2006 — Johnson found that 67 percent of members would pay more than the career average cost of their benefit. Those employees currently make a 7.5 percent contribution.

Meanwhile, 62 percent of LASERS members hired after July 1, 2006, when retirement benefit rules changed, would pay more than the career average cost of their benefit, Johnson found. Those employees currently make an 8 percent contribution.

Johnson said that means that a majority of employees would be subsidizing other people’s benefits.

“There are more constitutional issues that are presented,” Rougeou said.

Guillory said it is “a stretch” to call the proposition a tax. “We expected a variety of procedural techniques to try to torpedo these bills ... but they would hate it a lot more if we do nothing and the systems crash and burn.”

“This is a free country. People have a right to question the legality, validity of these bills,” Guillory said. “What we are going to do is pass the best possible bills and we will let the judges and the lawyers sort out these legalities.”

Meanwhile, teachers union and retirement officials rejected an overture to include kindergarten through grade 12 teachers into the pension law changes.

A proposal floated in a behind-closed-doors meeting would have increased K-12 teachers contributions by one-quarter of 1 percent, moved to a five-year final average compensation benefits tally, and changed retirement age eligibility, said Mary-Catherine Wray, legislative and political director for the Louisiana Federation of Teachers.

“All along they have told us they don’t intend to put us in these bills and they lied,” Wray said.

Guillory said the offer was made because of potential benefits to the teachers. He said he has no plans to include teachers if they don’t want to be a part.