Capitol News Bureau
August 11, 2012
August 11, 2012
The Jindal administration plans to launch a new state employee retirement plan next year with or without a federal determination of potential tax or Social Security consequences.
Commissioner of Administration Paul Rainwater said there is no reason to delay implementation of the 401(k)-type plan for employees hired on or after July 1, 2013.
Adverse decisions from the Internal Revenue Service could subject employees’ vested contributions and retirement system trust earnings to taxes. In addition, some employees would have to be enrolled in Social Security if the state benefit is not equivalent — adding to state employee and taxpayer costs.
“We believe we are going to be OK on this,” Rainwater said in a telephone interview. He said the administration is seeking the IRS and Social Security determinations “out of an abundance of caution.”
Meanwhile, the Louisiana Retired State Employees Association announced Thursday that it will file a lawsuit alleging that the so-called “cash balance” plan did not get the required legislative vote to become law.
Association executive director Frank Jobert said Thursday that the Legislature’s actuary determined that the retirement plan for new hires had a cost attached to it, and therefore, under the Louisiana constitution would require a two-thirds vote of the Legislature.
“Anyway you slice it, it did not get 70 votes,” Jobert said, referring to the two-thirds majority in the House. The measure came up short of the 70 votes on the initial vote as well as when the House gave final passage as it agreed to Senate changes.
At the time, House Speaker Chuck Kleckley, R-Lake Charles, ruled that a simple majority vote would suffice.
“We are not attacking the bill on the merits of the bill, whether it is a good plan or bad plan for our members. It may be defective because it did not pass according to statutory and constitutional requirements,” Jobert said.
The cash balance plan for future nonhazardous-duty employees won approval in the 2012 legislative session. Other Jindal pushed retirement system revamps impacting current state employees, including those working in higher education, were sidelined by legislators.
The new hire plan would operate similar to a private sector 401(k) except funds would be protected from investment losses. An employee would contribute 8 percent of pay and the employer — the state — 4 percent with all but 1 percent of the investment earnings attributed to the account. The 1 percent would be set aside in a reserve fund as a hedge against investment losses.
The Louisiana State Employees Retirement System opposed the plan, contending it would not provide sufficient retirement income for state employees who have no Social Security safety net. Jindal argued that the plan would help stem increasing state retirement system financial liabilities while providing a sustainable pension benefit for employees.
Today’s “defined benefit” plan guarantees lifetime benefits at a certain level based on years of employment and salary.
“As the administrator, LASERS will certainly implement the cash balance plan as directed by the Legislature, unless ordered otherwise by the courts,” LASERS Executive Director Cindy Rougeou said.
But Rougeou said if the plan does not meet the Social Security equivalent test, the state will be required to make contributions to that system, in addition to the cash balance plan for any members determined as not receiving an equivalent benefit.
The LASERS board had asked the administration to expedite a request to Social Security because such decisions take on average six months.
Rainwater said his office will take the lead on the private letter ruling on the Social Security question with assistance on actuarial issues from Buck Consulting. He said that letter should be submitted by the end of 2012.
LASERS and the Teachers Retirement System of Louisiana are taking the lead on IRS submission to determine whether cash balance is a “qualified plan” under its regulations and his office is acting in a support capacity, Rainwater said..
He said the request won’t be filed until late this fiscal year, which ends June 30, or the next fiscal year.
The cash balance plan is scheduled to go into effect July 1. “Response from the IRS takes months, even years and sometimes they never respond,” Rainwater said.
LASERS has a determination letter request pending with the IRS that was filed in 2010, system Deputy Director Maris LeBlanc said.
“The addition of the cash balance plan would be something we would submit in the next filing cycle, which runs from 2/1/2013 through 1/31/2014,” LeBlanc said. “It involves submitting documentation on various aspects of the plan.”
LASERS’ tax counsel prepares the submission, she said.