Monday, August 17, 2015

Despite debt, state pension plans for workers, teachers in a ‘relatively good financial position,’ analysis finds

Marsha Shuler
The Advocate

Despite a staggering debt, the state’s two largest pension plans — for state employees and teachers — are sustainable and are in a “relatively good financial position,” the Legislature’s retirement financial guru reports.

And the state government retirement systems are still cheaper than the cost of enrolling teachers and state workers in the federal Social Security program, according to the analysis.

About 250,000 people, actively employed and retired, are members of the Louisiana State Employees Retirement System, better known as LASERS, and the Teachers Retirement System of Louisiana, or TRSL.

“The problem with the retirement systems is not the plan design, but rather, it is the fact that ... debts have accumulated in the past that now must be paid,” legislative actuary Paul Richmond said.

Most of the hefty contributions state government makes to the systems are extra payments aimed at eliminating the systems’ combined $19 billion in unfunded accrued liability. UAL is an actuarial term that refers to the difference between the retirement benefits state government promised to pay its employees in the future and the amount of assets presently on hand. The state systems’ massive debt came because past Legislatures and governors did not provide sufficient dollars to cover promised benefits.

Richmond said the contributions to pay off that debt are “generally sustainable” and said there’s a 50-50 chance that LASERS and TRSL will be fully funded by 2029.

“If the UAL is out of the picture, what this says is that the cost of the current benefits for LASERS is 3.5 percent (of pay) and for Teachers 4.2 percent because of the reforms the Legislature has made,” Legislative Auditor Daryl Purpera said. “This is not a very expensive benefit structure. Anything less than 6.2 percent (the cost for Social Security) is really wonderful. It’s very sustainable.”

Louisiana is one of seven states that don’t have employees enrolled in federal Social Security, opting decades ago to instead run its own pension system.

LASERS and TRSL operate traditional defined-benefit plans that determine long-term pension commitments based on a formula that includes the number of years worked and salary earned.

The Legislature, with the pension systems’ support, has made a series of changes in recent years. Changes included increasing the retirement age for new hires; computing the pension benefit based on the final five — instead of three — years of employment; adopting laws to prevent major increases in salaries prior to retirement; and limiting cost-of-living adjustments for retirees.

All those factors played into Richmond’s analysis, which shows decreasing state and local contributions to cover normal costs of the pension systems.

“The reality is the people in the old plan over time will retire and be replaced by new people under new plans that are less costly,” TRSL Executive Director Maureen Westgard said. That is driving down costs year by year, she said.

LASERS Executive Director Cindy Rougeou said Richmond’s report reaffirms that the benefit structure is not the problem. “It’s the financing of the UAL,” Rougeou said. In the case of LASERS, the debt payment was $630 million out of $700 million in contributions.
Gov. Bobby Jindal attempted to extensively overhaul the system, saying it was too costly. He pointed to the escalating pension costs to the state.

“You could not create a benefit structure more economical for the state,” Rougeou said. “The legislative reforms are making a huge difference.”

Voters, decades ago, approved a constitutional amendment requiring the elimination of the UAL by 2029.

Extra payments are appropriated annually toward debt eradication.

A 2014 law is projected to save taxpayers $5 billion over time because pension debts will be paid off sooner. The legislation, sponsored by state Rep. Joel Robideaux, R-Lafayette, puts more retirement system “excess earnings” — those over 7.75 percent — toward debt retirement before dollars go into a special account through which retiree cost-of-living raises are funded.

LASERS and TRSL also reduced their projected annual investment returns from 8 percent to 7.75 percent. All the earnings above that mark go to paying off the debt.

Because the systems expect to earn less, the more money made over the 7.75 percent mark means the more money that can go toward paying off debt and thus end up lowering payments required of the state.

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