Administration Still Looking at "Cash Balance" Revamp

By Marsha Shuler
Capitol news bureau

July 15, 2013

The Jindal administration will confer with legislators before revisiting a 401(k)-type retirement to replace pensions for newly hired state employees.

The retirement revamp, called “cash balance,” recently was struck down by the state’s top court.

“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,” Commissioner of Administration Kristy Nichols said.

But, Nichols said “we are going to work with legislators on the best way to proceed.”

Nichols also said an IRS review to determine if the so-called “cash balance” plan is equivalent to Social Security also will stop. Absent that IRS clearance, the employee and employer would have to pay into Social Security too.

“It is our understanding that the IRS will not consider the request at this time in light of the court ruling,” Nichols said. “We have asked our attorneys to investigate the possibility of an advisory opinion, but it is unlikely for the IRS to issue one.”

Earlier this month, Maureen Westgard, director of Teachers Retirement System of Louisiana, suggested that the state keep its request to the IRS as a proposal. “It would be nice to know in advance ... because it could lead us in other directions,” Westgard said.

The Louisiana Supreme Court ruled late last month that the so-called “cash balance” plan did not get the constitutionally required vote for legislative passage when it was approved in 2012.

The constitution requires a two-thirds vote if retirement proposals are going to add costs, which the legislative actuary said the cash balance plan would do. The legislation got a two-thirds vote in the Senate but came up short in the House.

Louisiana House sponsor of the plan state Rep. Kevin Pearson said the Legislature still needs to
consider some plan which limits the state’s liability for employee pension benefits.

“I still believe something like the ‘cash balance’ is the way to go,” said Pearson, R-Slidell. But he noted the difficulty in getting sufficient House members to embrace it.

State Senate Retirement Committee Chairman Elbert Guillory said there are negotiations taking place that will probably lead to “an improved version of cash balance.”

“It’s wide open. I think there will be a lot of compromise,” said Guillory, R-Opelousas.

The new pension 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 and the employer, which is 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.

Gov. Bobby Jindal has said the change is necessary to provide a sustainable pension plan that reduces state long-term obligations. He noted the growing unfunded liability of the Louisiana State Employees Retirement System and the Teachers Retirement System of Louisiana.

LASERS said the plan would not provide retirement security for employees who do not have the “safety net” of Social Security.