Monday, November 19, 2012

LASERS board asks delay in start of retirement plan

The Louisiana State Employees Retirement System board voted Friday to ask the Legislature to delay the July 1 start of a 401(k)-type pension plan for new state hires.

The board took the action because members voiced concern that federal issues involving the Internal Revenue Service and Social Security status of the “cash balance” plan wouldn’t be resolved before the new law was to take effect, said Maris LeBlanc, deputy director for Louisiana State Employees Retirement System, better known as LASERS.

The “cash balance” plan was the only major part of a multipronged plan to overhaul the state employee retirement system that was approved by legislators earlier this year.

Adverse decisions from the IRS could subject employees’ vested contributions and retirement system trust earnings to taxes, LeBlanc said. In addition, some employees would have to be enrolled in Social Security if the state benefit is not equivalent to Social Security’s — adding to state employee and taxpayer costs, she said. The costs would be levied retroactively from the plan’s start, she said.

The IRS determination period does not begin until February, and it is unclear how long it will take to get an answer, LeBlanc said. The Social Security equivalency letter, which must be sought by the Jindal administration, has not been submitted “to our knowledge,” she said.

The board gave LASERS staff authority to publish notices of intent to file the proposal in the 2013 Legislature as well as to seek a legislative sponsor. Besides changing the July 1 date, LASERS would propose some “cleanup” provisions to eliminate some administrative problems with ultimate implementation, LeBlanc said.

Jindal administration spokesman Michael DiResto said Friday that there is no reason for delay.
“We are confident that the plan meets all IRS requirements,” he said.

DiResto said the governor’s Division of Administration would submit the letter regarding Social Security status to federal officials on Monday and ask for an expedited review.

State House Retirement Committee Chairman Rep. Kevin Pearson, who sponsored the legislation that became the “cash balance” plan, said he is willing to listen to LASERS’ concerns.

“If somebody can tell me we will get some determination by October, I’d say, ‘Let’s wait until October,’” Pearson, R-Slidell, said. “But I’m not into delaying and delaying.”

The “cash balance” plan won approval in the 2012 Legislature as Gov. Bobby Jindal embarked on pension system changes originally designed to impact both current and future employees. Jindal said benefits needed to be altered in order to curb rising state pension costs and reduce the plan’s unfunded liabilities.

Opponents, including LASERS officials, said employees should not be penalized because of past administrations that did not pay their share of costs.

Legislation changing benefits for current employees died.

The new plan for future nonhazardous-duty employees, which won approval would operate similar to a private-sector 401(k) plan, 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 going toward an individual’s pension. The 1 percent would act as a reserve to guard against investment losses.

The Louisiana Retired State Employees Association has filed a lawsuit alleging that the “cash balance” legislation did not get the required vote to become law.

A Nov. 21 status conference is scheduled in the case in 19th Judicial District Court. A hearing date is set for Dec. 3 before 19th Judicial District Judge William A. Morvant, of Baton Rouge.

The legal issue concerns whether the legislation required a two-thirds vote because there was a cost involved. The Legislature’s actuary determined there was a cost. House Speaker Chuck Kleckley, R-Lake Charles, ruled that there was no extra cost and a simple majority vote would do. The House passed the legislation with a majority vote.

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