Tuesday, May 29, 2012

Pension Bills Greatly Altered in Senate

By Marsha Shuler
Capitol news bureau
May 29, 2012

Gov. Bobby Jindal’s state employee pension revamp has undergone major transformation throughout the course of the legislative session that ends next Monday.

None of the key proposals has won final legislative approval.

“The Senate is very proud of the changes that we have made,” said state Senate Retirement Committee Chairman Elbert Guillory, D-Opelousas.

As state Senate floor leader handling Jindal’s pension proposals, Guillory said that one significant alteration is the shift in direction of the estimated savings from helping to pay down the state’s debt to helping pay down the financial liabilities of the pension systems. Another change is to soften the impact that Jindal’s initial proposals would have on the state’s workforce by increasing pension contribution amounts while requiring employees work longer, he said.

“The competing interests had to be balanced, and in the end we have sent a strong message to our workers that we care,” Guillory said. More than 50,000 state employees would be affected by one or more of the proposals.

None of the changes to the pension bills has made the revamp measures any less unconstitutional, said Cindy Rougeou, executive director for Louisiana State Employee Retirement System, known as LASERS. The contribution increase bill implements a payroll tax on employees because they would be paying more than the costs of their benefit, she said.

Kristy Nichols, Jindal’s deputy chief of staff, said the administration’s pension debt reduction goals are still being met even with the measures in their rewritten shapes. She said she is optimistic that the package will clear remaining legislative hurdles and then overcome court challenges.

One watered-down bill raising state employee retirement age continues to sit in its chamber of origin — pending a Senate vote. The so-called “age 67” bill, Senate Bill 749, now exempts all but the less senior state employees and even for them the age 67 retirement would not apply.

Nichols said the administration is not giving up on any measure.

“We push for our agenda until sine die,” Nichols said, referring to the Latin name for the end of the session.

When Jindal proposed a series of bills affecting the pensions of current, future and retired employees, he pointed to the long-term financial pension system liabilities which are ultimately the state’s obligation.

Jindal’s proposals started out directing “savings” to help balance the proposed $25 billion state budget, with implementation dates during the fiscal year that begins July 1.

As they sit today, the amended legislative versions of the bills would direct any savings to those long-term liabilities that Jindal said precipitated the proposals in the first place and also would delay implementation.

Guillory said the Senate was insistent on the change, recognizing the “looming crisis” associated with the pension systems’ unfunded accrued liability, or UAL.

“I think the governor was certainly within reason to want to get every penny he could to address budget needs right now,” Guillory said. “The Senate felt that the unfunded accrued liability was a looming crisis even greater than the couple of hundred million (budget) crisis.”

Nichols said the administration wholeheartedly supports the change in direction.

Jindal’s aides say Louisiana’s four statewide pension systems have a combined UAL of an estimated $18.9 billion. That means the systems are that short of having the assets to cover promised long-term benefits. State taxpayers are constitutionally required to pay off by 2029 a good chunk of the debt run up by past administrations, which approved benefits without funding them. The repayment plan is back-loaded so more and more state revenues are required each year, which Jindal said is taking money away from health care and education.

The legislation targets LASERS members and higher education members of the Teachers’ Retirement System of Louisiana. Hazardous, or TRSL, duty employees, judges and K-12 teachers are exempted as well as members of two other pension systems: school employees and State Police.

LASERS’ Rougeou called the pension revamp discriminatory, saying the overhaul treats LASERS members unequally. The revamp does not apply to all members of the state’s four systems.

The key pension bills are:
  • Senate Bill 52 would increase the contribution rate by 2 percent of pay from its current 8 percent for most state employees. It would be phased-in a half-percent at a time over four years but only after the employees get a 4 percent or better pay raise. 
Jindal’s original bill would have implemented a 3 percentage point employee contribution increase — from 8 percent of employee pay to 11 percent, for most workers, which could translate to about a 40 percent hike in dollars — starting July 1. Under the Jindal plan, the state would have reduced its contribution by a like amount, then used the freed-up money to help balance the budget.

SB52 has cleared the House Retirement Committee and has not yet been scheduled for House debate.

  • Senate Bill 47 would change the formula on which the computation of pension benefits is determined. The new calculation would use a five-year compensation average, with the change phased in one month at a time beginning July 1, 2013.
Currently, the monthly payments a retiree receives for the rest of his or her life are calculated based on the average of the salary paid over the last three years of their employment. Jindal’s original bill would have made the five year change effective June 30, 2012.
SB47 is scheduled for House floor debate Thursday.
  • House Bill 61 would create a new 401(k)-type retirement plan for new state employees starting July 1, 2013. Under what is called the “cash balance” plan, the employee contributes 8 percent and employer 4 percent. The money is invested with earnings invested with the earnings, except for 1 percent, credited to the member’s account. It differs from a 401(k) plan, which many private employers offer in that the state would guarantee that the employee would not lose the money contributed if investment markets sour.
Jindal’s original plan would have started with new hires as of Jan. 1 and allowed current state employees the option of transferring into the plan. The plan did not provide for survivor or disability benefits, which are in the current version.

HB61 is in House-Senate conference committee to iron out differences.
  • Senate Bill 740 would effectively stop cost-of-living adjustments, or COLAs, in state employee and higher education retiree pension checks for the foreseeable future. The pension systems would have to be 80 percent funded before a COLA could be granted.
Jindal’s original bill said the systems had to be 100 percent funded before the affected retirees could get a COLA.

SB740 is scheduled for House floor debate Thursday.

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