By Jeff Adelson, The Times Picayune
Two controversial state pension
measures shot down by the Louisiana
Legislature last session are poised to make a comeback, tied
this time to a proposal to offer automatic cost-of-living adjustments for some
state workers after they retire. The two measures, an increase in both the
amount of money employees contribute to their own retirement and the number of
months of salary used to calculate their pension benefits, are part of a
package of proposals put forward by Senate Retirement Committee Chairman Elbert Guillory.
The package also includes an increase in
the amount the state pays toward an employee's retirement and a separate
proposal, still in its early stages, to tap state funds to help pay down the
$18.5 billion the four pension systems need to meet their obligations to state
workers.
In recent years, retirees and their
representatives have begged lawmakers to come up with a system to provide
cost-of-living adjustments for retirees whose pensions, in many cases, have
been significantly devalued due to inflation. While solutions have been
proposed, most of those have consisted of narrowly tailored bills that would
only grant a bump to specific groups of workers.
None of the cost-of-living bills proposed
this year succeeded in passing, in some cases because no one could identify any
money to fund the increases.
"Every year we have retirees on their
hands and knees begging for cost-of-living adjustments," said Guillory,
D-Opelousas, as he presented the bill to the Senate Retirement Committee on
Tuesday.
Though Guillory's bill, the first
legislative proposal to be unveiled prior to April's legislative session,
relies on measures that were defeated last year, there is some sign that using
those mechanisms to fund increased benefits might gain some traction.
Both proposals were part of a retirement
overhaul proposed by Gov. Bobby Jindal at the beginning of this
year's Legislative session. The bills, along with several other retirement
proposals pushed by the administration, were blocked by
legislators, largely over concerns about changing the rules for
those who were already working for the state and making plans based on the
promise of specific benefits. Many also objected to the original versions of
the bills, which would have freed up money for the state's general fund rather
than redirecting the savings back into the retirement systems to pay down the
unfunded accrued liability.
Guillory carried those bills for the
administration in the Senate.
In addition to increasing employee
contributions and extending the time used to calculate benefits, Jindal also
proposed increasing the retirement age for some state workers to 67, merging
two of the state retirement systems and putting most new workers in a
401(k)-style plan known as a "cash balance plan." Of those proposals,
the Legislature only signed off on the cash balance plan, though that law has
been challenged in court as unconstitutional.
Plan calls for employees to pay
more to fund own cost-of-living increases
Currently, cost-of-living adjustments for
retirees are granted when the retirement systems' portfolios outperform their
goals. The excess money goes into "experience accounts" and, when
enough has been set aside, a cost-of-living adjustment is granted.
However, because the systems use a system
that looks at the past five years of returns when considering investment
performance, a time period that includes the "Great Recession," those
accounts have not received any funding since 2008 even though the investments have
outperformed their goals during many of those years.
In contrast, Guillory's bill increases the
amount employees contribute to the pension system by 3 percent of their
salaries to pay for automatic increases to their own benefits every two years.
Additional funding would come from extending the time used to calculate
benefits from 36 months to 60 months, a move that generally will mean years of
lower pay will be averaged in, lowering the final benefit received by retirees.
The bill only applies to workers in the Louisiana
State Employees Retirement System and the Teachers Retirement System of
Louisiana.
The state would kick in an additional 1
percent of each employees salary to help pay for increases for those who have
already retired.
Under the proposal, workers would be
guaranteed a cost-of-living adjustment to their pension payments in every
odd-numbered year. Those increases would be somewhere between 1 percent and 2
percent, depending on inflation. The bill specifies that these increases will
guarantee the retiree retain 80 percent of their purchasing power.
Employees would become eligible for the
adjustment if they are both older than 65 and have been retired from state
service for more than five years.
The bill includes a provision calling on
officials to review the funding at least every five years and look into
reducing the contributions made by employees if they are more than enough to
fund the increases.
Bill met with interest, concern
While last year's proposed pension overhaul
was met with sharp opposition, Guillory's bill seemed to at least pique the
interest of some lawmakers and retiree advocates Tuesday. Still, that interest
was tempered with concern.
RetiredState Employees Association
Executive Director Frank Jobert, who fought against last year's proposals and
has advocated for cost-of-living adjustments, said that he saw "room for
movement on the proposal." Still, he said he worried about the impact the
plan would have on current employees.
"Can employees afford to pay an
additional 3 percent when they haven't seen a pay increase in years?"
Jobert asked.
Another opponent of last year's overhaul,
Rep. Sam Jones, D-Franklin, said that the plan was a good effort but also
worried about the way the proposal would be funded.
The sustainability of the proposal also
weighed on some lawmakers' minds.
"I don't want to make a promise,
especially to these workers who have given so much, and find out it can't be
sustained," Sen. Gerald Long, R-Winnfield, said. Long has proposed several
bills in the past seeking cost-of-living adjustments for some retirees.
The proposal was still being drafted late
Monday night and actuaries had not weighed in on how it would impact the way
the systems are funded. Discussions during the Senate Retirement Committee
meeting suggested the state's contribution to the plan could be in excess of
$180 million, an amount that could be difficult to raise during what is
expected to be a tight budget year.
The governor's office has not yet weighed
in on Guillory's proposals. Asked about the measures Tuesday, Jindal
spokeswoman Shannon Bates said in an email, "We'll review the legislation
once it's filed."
It's not yet clear whether the
administration will present its own set of retirement proposals in the next
year.
"As for plans next session, we aren't
ruling out more reforms that will make our pension system more sustainable and
efficient for taxpayers," Bates said.
Additional funds for retirement
systems to come from state revenues
In addition to the bill dealing with
cost-of-living adjustments, Guillory said he plans to introduce legislation
that would direct a portion of specific state revenues to the retirement
systems.
That bill, which has not yet been drafted,
will single out money the state receives from legal settlements, interest
earned on unclaimed property, license fees and tax and fee revenue that exceeds
the amount brought by the state last year. The bill would take 2 percent of the
money brought in from each of those sources and direct it to the retirement
systems.
Under the proposal, about three-quarters of
that money would go toward paying down the unfunded accrued liability and
one-quarter would be used to reduce the costs of the cost-of-living proposal to
the state and its workers.
Guillory said the proposal to redirect some
of the interest income has been received with "enthusiasm" by those
involved in the process. There has also been interest in the proposal to take
some money from state settlements.
The issue of settlement income could create
problems on its own. Guillory has said he hopes to tap into money that will
flow into state coffers as a result of the Deepwater Horizon oil spill, an
amount projected to total billions of dollars. However, the federal RESTORE Act
requires that money be used to recover from the damage caused by the spill and
state law directs it to the state's Coastal Protection and Restoration
Authority.
