Even as lawmakers struggle with the possibility of deep cuts to state services, the road to a bump in the monthly pension checks for nearly 125,000 state retirees and their survivors — living mostly in the Baton Rouge and New Orleans areas — begins Monday when a Louisiana Senate panel is scheduled to take up a cost of living adjustment bill.
“They’ll get a COLA because there’s enough money, but the funding mechanism means different amounts,” said Senate Retirement Committee Chairman Barrow Peacock, R-Shreveport.
In Peacock’s Senate Bill 2, pensioners over the age of 60, who have been retired for at least a year and are drawing checks from one of the four state systems, would receive, starting July 1, a 1.5 percent increase for state workers and teachers; 1.8 percent bump for public school employees; and 2 percent more for State Police. It calculates out to an average increase of about $30 per month for retirees, but the exact amounts are difficult to determine and depend on many variables.
If approved, it would be the first increase in two years.
The money initially won’t be coming from the state general fund, which pays the costs of government agencies, but out of a fund called the “Experience Account” that collects excess investment dollars. That money can’t legally be used to pay anything but COLAs, though part of it goes to paying down the $20 billion debt of the retirement systems.
There’s no reason to think the legislation will not win approval, as the money already is in the experience accounts and the current situation fits the recently enacted legal criteria for awarding a cost of living adjustment, Peacock said.
Franklin Democratic Rep. Sam Jones, who has his own COLA bill, agreed.
“I thought it was going to be a little bit of a fight but it appears that everyone is on board with it, and you’ve got a governor who’ll sign it,” Jones said.
The head of the House Retirement Committee, Slidell Republican Rep. Kevin Pearson, was out of the country last week and unavailable for an interview. However, he texted that he was “probably OK on a COLA,” but wanted to see additional revamps made.
The increased benefits will cost an estimated $380 million over time, according to fiscal estimates. Those costs will be picked up by the retirement systems, which receives its dollars from the contributions of employees and state agencies plus any gains made from the investment of those monies.
Retirement costs state government about $2 billion a year, but is not a line item in the $25 billion budget. Rather, each agency pays its portion out of its appropriation.
“The most prominent thing going on with pensions in this session, last session, and the next session is the cost of living increases,” said Robert Scott, who heads the Baton Rouge-based government policy research group called the Public Affairs Research Council.
“There will be money (in the experience accounts) and the timing of it might be OK, in terms of every other year. But we don’t have enough inflation to justify it, probably,” Scott said.
Part of the $20 billion debt issue involving the retirement accounts is that COLAs were granted pell-mell over the years. Generally, the additional dollars were tacked onto the debt, which state government didn’t adequately fund. All of this contributed to the unfunded accrued liabilities, or UAL, which is the money needed to fulfill the commitments made to retirees and current members of the retirement systems.
The system was revamped in 2014 to ensure COLAs would continue, but at a pace that was sustainable for state government. It also allowed for some of the monies to go toward helping to pay down the UAL.
Act 399 set criteria that allowed cost of living adjustments every other year, provided enough money was in the experience account and the systems hit predetermined levels of funding.
“The other critical piece you also need is inflation. That’s the whole rationale for a COLA in the first place is that you have an inflationary environment and people need an adjustment to keep up with the extra cost of living,” Scott said.
The Act 399 revamp calculates COLAs, provided the criteria is met, at 2 percent times the retiree’s current benefit or the increase in the CPI-U for the prior calendar year times the benefit — whichever is less.
The Consumer Price Index for All Urban Consumers is the federal calculation for the prices paid for goods and services paid by consumers. Over the past 12 months, the CPI-U increased 1 percent before seasonal adjustment, according to the U.S. Bureau of Labor Statistics in a February report.
Though the cost of food, clothing, shelter and medical care grew, the index was offset by dramatic reductions in the costs for fuel.
Peacock’s SB2 would grant the COLA in accordance to the funding percentages of the various systems “without regard to the consumer price index.”
Jones’ House Bill 33, which has not been scheduled for hearing, would postpone the application of the consumer price index until 2028.
“The TRSL Board is committed to working with legislators to find a balance between the responsible funding of the retirement system and protecting the purchasing power of retiree pension dollars,” said Maureen Westgard, the head of the Teachers’ Retirement System of Louisiana.
The average retired teacher receives about $2,149 per month, so the average COLA increase would be $29.50.
“The average benefit for our rank-and-file members is very modest; and our Board of Trustees supports SB2, which will provide a much-needed COLA. The funds to pay for this COLA are already set aside from excess system investment returns,” said Cindy Rougeou, the executive director of LASERS, the Louisiana State Employees’ Retirement System.
The average LASERS rank-and-file benefit is $24,660 annually. If a 1.5 percent COLA is approved, the average increase per month would be about $27.
But an average increase is a little misleading, said Irwin Felps Jr., who heads the Louisiana State Police Retirement System.
The State Police is set up for retirees over the age of 60 to receive a 2 percent increase and those over the age of 65 to receive 4 percent.
The increase LSPRS retirees see depends a lot on their age, the work they did, how long they’ve been retired and at what benefit. It could range anywhere from about $30, maybe less, to about $100, maybe a little more, Phelps said.
“What we’re talking about is another half-trip to the grocery store,” Rep. Jones said, adding that he understands the need to keep the system sustainable so that it avoids a catastrophic fiscal collapse that could endanger future benefits.
“But this problem was caused by state government, yet 95 percent of the reforms are being paid by the retirees,” Jones said.