Cash Balance Plan Passed Unconstitutionally

On Friday, June 28, 2013, the Louisiana Supreme Court unanimously ruled that the Cash Balance Plan enacted in 2012 did not receive the requisite two-thirds vote of the legislature and was therefore unconstitutional. The ruling was in a lawsuit brought by the Retired State Employees Association and upheld the decision of Judge William Morvant of the Nineteenth Judicial District Court. A copy of the opinion of the Court can be viewed here.

The Cash Balance Plan was originally enacted to apply to state employees hired starting July 1, 2013. However, implementation of the plan was suspended to July 1, 2014, during the 2013 legislative session. Given the Supreme Court's ruling, the plan will no longer take effect.

Supreme Court finds ‘cash balance’ retirement plan unconstitutional

Marsha Shuler

The Advocate

June 28, 2013

The Louisiana Supreme Court on Friday struck down Gov. Bobby Jindal’s proposed overhaul of retirement plans for new state employees.

The decision, written by Associate Justice Greg Guidry, found that supporters of Jindal’s revamp needed approval by two-thirds of the Louisiana Legislature. Act 483 of the 2012 Regular Session was passed by a simple majority of legislators.

“We went into this thing thinking it was a very simple decision: Whether it needed a two-thirds vote or did not,” said Frank Jobert, executive director of the Retired State Employees Association, which filed the lawsuit. “It got more complicated along the way but came back to the basic thing that caused us to file suit in the beginning.”

Jobert said he had been on the telephone conveying the news to his board members when he took a break for a news interview. “I’m happy, as you can probably tell,” he said.

Jindal issued a prepared statement saying his administration would work with legislators on the best way to proceed.

“We think the ‘cash balance’ plan is good for the people of Louisiana because it helps get our retirement liabilities under control, protects taxpayers and provides new state employees with a portable retirement account that realizes investment earnings,” Jindal said.

Called “cash balance,” Jindal’s plan was to replace the pensions paid to retired state workers for the rest of their lives with a 401(k)-style plan, in which the retiree receives only the proceeds of investments and contributions made over the years. Jindal’s plan would protect the “cash balance” of state employees from financial losses and could be taken with the employee should the worker leave state employment.

State Senate Retirement Committee Chairman state Sen. Elbert Guillory said Friday’s ruling would trigger new bills in the next legislative session because the state can no longer afford the pension plan it provides workers today.

“We are going to come back with a different plan, a better plan. There’s no question about it,” said Guillory, R-Opelousas. “We have to provide a more reasonable pension plan for incoming employees.”

Initially, the “cash balance” retirement, instead of pensions, was to be offered to new hires starting Monday. But recent a legislative resolution postponed the beginning of the plan for a year.

Louisiana State Employees Retirement System officials declined comment. LASERS had opposed passage of the cash balance plan because it failed to provide a “safety net” for state employees who do not have Social Security to fall back on.

Teachers Retirement System of Louisiana spokeswoman Lisa Honore said the pension system is pleased with the ruling. “The board supported legislation several years ago that required two-thirds passage for legislation with an actuarial cost,” Honore wrote in an email response.

The state constitution requires a two-thirds vote — 70 yes votes from the 105 House members — if a change in the pension law increases costs. A legislative actuary said Jindal’s “cash balance” plan would do so.

But Louisiana House Speaker Chuck Kleckley, R-Lake Charles, ruled that only a majority vote, or 53 representatives, was needed. The bill passed the House on a vote of 68 to 36.

The Retired State Employees Association filed a lawsuit arguing the “cash balance” bill that became Act 483 was passed unconstitutionally. The Jindal administration argued that the legislative actuary’s finding was wrong and that its own actuarial analysis found expenses were such that a two-thirds vote was not required.

Nineteenth Judicial District Judge R. Michael Caldwell, of Baton Rouge, sided with the retiree group.

The Supreme Court wrote that the Louisiana legislative auditor is required by law to provide the actuarial note on any proposed retirement measures and that the auditor’s findings determine whether the two-thirds vote applies. Justice Guidry wrote that the legislative auditor’s note found an increase, therefore a two-thirds vote was required.

“Because it was stipulated that a two-thirds vote was not obtained in the House, the district court correctly found that Act 483 was enacted in violation” of the constitution, Guidry wrote.

“The Supreme Court is saying the rule of law is alive and well in Louisiana, even if it’s ignored by the governor and the speaker,” said state Rep. John Bel Edwards, D-Amite, who challenged Kleckley’s “majority” vote decision on the House floor. “What it means is that we don’t have a ‘cash balance’ plan now.”

Judge Strikes Down New State Pension Plan

Joe Gyan Jr. 

The Advocate

A Baton Rouge judge on Thursday struck down a 401(k)-type pension plan that was scheduled to take effect July 1 for future state employees.

State District Judge William Morvant, who did not rule on the merits of the so-called “cash balance” plan, agreed with the Retired State Employees Association of Louisiana that the plan did not get a two-thirds vote in the 2012 legislative session, as required by the state Constitution.

Morvant ruled at the conclusion of a daylong bench trial of an RSEA lawsuit against the state and Gov. Bobby Jindal, that Act 483 is “invalid” because it was passed in violation of the Constitution.

The association filed its suit in August.

“We are disappointed in the court’s ruling and we look forward to a successful appeal. We’re confident that the bill was constitutionally passed,” Jindal said in a prepared statement.

“The cash balance plan will help get our debt under control, protect taxpayers and provide new state employees with a portable retirement account that realizes investment earnings,” Jindal added.

House Speaker Chuck Kleckley said in his own prepared statement that he regrets “that the work done by the House and the entire Legislature on behalf of our citizens was ruled unconstitutional today, but that is the nature of our democratic process.”

“We believe we found a better means of providing for retirement for future employees of our state while saving a retirement system from potential failure, and the majority of the Legislature voted for it,” Kleckley said.

He continued,“Because this was a measure for future rather than current employees, we believed then — and still do — that the bill called for a simple majority vote. The judge ruled differently.”

Because a Louisiana law was struck down, the state can appeal the judge’s decision directly to the Louisiana Supreme Court.

“We’re happy, we’re not gloating, for our retirees and future retirees,” RSEA Executive Director Frank Jobert Jr., a retired state employee and plaintiff in the suit, said outside the 19th Judicial District Courthouse.

Jobert, who testified at the trial, said afterward that RSEA’s membership includes 700 current state employees and about 10,000 retired state workers.

“It was a suit about whether the Legislature followed the dictates of the Constitution,” RSEA attorney Robert Klausner said outside the downtown courthouse. “They didn’t follow the rules.”

Klausner argued in court that, even after the Legislature’s own actuary advised that the cash balance plan had a cost attached to it, state lawmakers did not approve the measure by a required two-thirds vote.

A 2010 amendment to the state Constitution required a two-thirds vote of the Legislature, rather than a simple majority vote, for proposed changes to any public retirement system that have actuarial costs.

Louisiana has four state retirement systems: the Louisiana State Employees Retirement System, the Teachers Retirement System of Louisiana, the Louisiana School Employees Retirement System, and the Louisiana State Police Retirement System.

Morvant said the intent and purpose of Act 483 was “a pretty noble one” — to reduce unfunded accrued liability in the state’s retirement plans. But, he said, the Legislature “ignored” its own actuary.

The judge issued his ruling after hearing conflicting testimony from that actuary — Louisiana legislative auditor chief actuary Paul Richmond — and David Driskoll, an actuary with Buck Consultants, which has a contract with the state Division of Administration.

Richmond testified that the cash balance plan was “going to be somewhat more costly” than the current defined benefit plan. Driskoll testified his firm concluded the cash balance plan will result in cost savings to the state.

“We felt very confident that Buck was correct,” Division of Administration Steven Procopio testified, referring to Buck Consultants.

The cash balance plan 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 while the employer, in this case the state, would contribute 4 percent.

All but 1 percent of the investment earnings would go toward an individual’s pension. The 1 percent would be held as a reserve to guard against investment losses.

The defined benefit plan that state employees have today guarantees lifetime benefits at a certain level based on years of service and compensation. Jindal contends that plan is too expensive for the state.

The Louisiana State Employees Retirement System, or LASERS, opposed the cash balance plan, arguing it would not provide sufficient retirement income for state employees who have no Social Security safety net.

LASERS Executive Director Cindy Rougeou testified Thursday it would cost LASERS an estimated $645,000 to implement the cash balance plan.

Jindal has argued that the cash balance plan would help stem increasing state retirement system financial liabilities while providing a sustainable pension benefit for employees.

Cash Balance Plan Ruled Unconstitutional

On Thursday, January 24, 19th Judicial District Court Judge William Morvant ruled Act 483, known as the Cash Balance Plan (CBP), unconstitutional.

Attorneys representing the Retired State Employees Association (RSEA) filed the lawsuit on August 16, 2012 challenging the constitutionality of House Bill 61, which became Act 483 of the 2012 Louisiana Legislative Session. RSEA claimed the law required a two-thirds vote because an actuarial cost was associated with its enactment, based on Article X - Section 29(F) in the Louisiana Constitution. The House of Representatives passed the CBP with a simple majority, lacking the 70 votes of the elected members.

The legislation would have affected future non-hazardous duty state employees of LASERS, post-secondary education members of the Teachers' Retirement System, and would have been optional for certain Louisiana School Employees' Retirement System members. The plan would have taken effect for these new hires on July 1, 2013.

Judge Refuses to Toss Pension Suit

A Baton Rouge judge refused Monday to throw out a lawsuit challenging the constitutionality of a new pension plan for future state employees.

The Retired State Employees Association of Louisiana filed suit in August, alleging that the law establishing a 401(k)-type pension plan for future state employees did not get a two-thirds vote in the 2012 legislative session, as required by Louisiana’s Constitution.

The Jindal administration had asked state District Judge William Morvant to dismiss the suit, claiming the association and individual plaintiffs did not have legal standing to file the suit.

Morvant disagreed at the conclusion of a hearing Monday and set a Jan. 24 trial date.

“We got over the first hurdle. We live to fight another day,” association executive director Frank Jobert said outside the 19th Judicial District Courthouse.

Incoming association president Dianna Guillot also attended the hearing.

The Jindal administration contends the law was legally approved by the 2012 Legislature.

John Davis, an attorney for the state and the administration, argued in court Monday that those filing the suit are not affected by the change.

“Nothing is being altered for these plaintiffs,” he told Morvant.

Robert Tarcza, an attorney for the Retired State Employees Association, essentially argued the constitutional requirement for a two-thirds vote on legislation that drives up pension system expenses is in place to protect the state and its taxpayers who must cover a lot of the costs.

The Louisiana House did not approve by a two-thirds vote the “cash balance” plan, which its own actuary advised had a cost attached to it, Jobert has said.

“It’s going to have a cost effect on the existing system,” Morvant said.

The new hire plan, scheduled to go into effect in July, 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 — meaning the state — would contribute 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 has argued the plan would help stem increasing state retirement system financial liabilities while providing a sustainable pension benefit for employees.

State employees today have a “defined benefit” plan that guarantees lifetime benefits at a certain level based on years of service and compensation. Jindal contends that plan is too expensive for the state.

Shannon Bates, press secretary for Jindal, released the following statement Monday evening:

“Today’s ruling was a preliminary procedural matter, and we look forward to a successful defense on the merits in court. We’re confident that the bill was constitutionally passed. The cash balance plan will help get our debt under control, protect taxpayers and provide new state employees with a portable retirement account that realizes investment earnings.”

Speakers Highlight Annual RSEA Conference

Former Governor Edwin W. Edwards was the keynote speaker at the fourth annual Retired State Employees’ Association (RSEA) conference in Baton Rouge on October 2. Edwards received two standing ovations from the crowd of nearly 200 retirees as he entertained them with jokes and extolled the value of state employees’ contributions as public servants. Many attendees lined up for autographs and photo opportunities at the end of Governor Edwards’ speech. 

LASERS Deputy Director Maris LeBlanc presented an update to RSEA members on the outcome of the 2012 Legislative Session and shared concerns over the newly passed Cash Balance Plan for new hires, which will become effective July 1, 2013. LeBlanc suggested that retirees visit the LASERS website to learn more about the newly released LASERS valuation report for the fiscal year ending June 30, 2012.

Other speakers included Rep. Sam Jones, Mayor-President Kip Holden, RSEA Executive Director Frank Jobert, and current RSEA President Benny Harris. The RSEA Conference concluded on October 3.

Former Louisiana Governor Edwin Edwards

RSEA President Benny Harris (Left) and Governor Edwards (Right)

LASERS Deputy Director Maris LeBlanc

RSEA Files Lawsuit Challenging Constitutionality of Cash Balance Plan

Attorneys representing the Retired State Employees Association (RSEA) filed a lawsuit Thursday, August 16 in the 19th Judicial District Court in Baton Rouge challenging the constitutionality of House Bill 61, which became Act 483 of the 2012 Louisiana Legislative Session. The act, known as the Cash Balance Plan, affects future non-hazardous duty state employees of LASERS, post-secondary education members of the Teachers' Retirement System, and is optional for certain Louisiana School Employees' Retirement System members. The plan would not take effect for these new hires until July 1, 2013.

  

RSEA and their attorneys, Robert "Bob" Tarcza of New Orleans and Robert "Bob" Klausner of Plantation, Florida, reached the conclusion that Act 483 required a two-thirds vote for passage, rather than a simple majority. The Louisiana Constitution, Article X - Section 29(F), mandates a two-thirds vote when an actuarial cost is associated with enactment of benefit provisions for members of a public retirement system. The Legislative Actuary had determined that the Cash Balance Plan would have an actuarial cost. The bill passed in the Louisiana House of Representatives by a simple majority, but lacked the required 70 votes of the elected members.

The lawsuit is entitled The Retired State Employees Association, Frank L. Jobert, Jr., et al vs. State of Louisiana, Honorable Governor Bobby Jindal and Honorable John Neely Kennedy, State Treasurer.

LASERS will share more information as it becomes available.

2012 Legislative Session Wrap-Up

Have you seen our new video? Executive Director Cindy Rougeou shares the outcome of the 2012 Legislative Session with viewers. 

2012 Legislative Session Over, Impact Minimal to LASERS Actives and Retirees

June 4 marks the end of the 2012 Legislative session and many of the Administration's proposed retirement bills failed to pass. Much of this legislation would have severely impacted LASERS actives and retirees. The most controversial bills to fail are:

SB 47 which would have provided for a 60-month FAC and applied a 15 percent anti-spiking rule for all non-hazardous duty LASERS members

SB 52 would have increased the employee contribution rates for all non-hazardous duty LASERS members by two percent

SB 740 would have separated the experience account into the hazardous duty subaccount and the rank-and-file subaccount and required that the system be 80 percent funded before a COLA could occur

SB 749 which would have increased the minimum retirement eligibility of rank-and-file employees and judges elected after July 1, 2012, to the higher of age 67 or the highest retirement age provided by the Social Security Act.

Future LASERS members will be affected by the passage of HB 61, which provides for a cash balance plan for new hires in non-hazardous duty positions. This new plan will go into effect on July 1, 2013.

Review a complete listing of the legislation that passed or failed affecting LASERS.