Senate Committee Votes to Scale Back Deferred Retirement Option Plan (DROP) by Robyn Ekings

The Senate Retirement Committee today approved a bill aimed at beginning a phase out of the Deferred Retirement Option Plan(DROP)for members of the Louisiana State Employees' Retirement System (LASERS), the Teachers' Retirement System of Louisiana (TRSL) and the Louisiana School Employess' retirement System (LSERS).

SB 602 by committee Chairman Senator Butch Gautreaux of Morgan City provides that no member of the above systems who has less than ten years of creditable service on July 1, 2010 will be permitted to participate in DROP. The DROP provisions "provide that a participant "freeze" his or her retirement accruals as of the date he or she enters DROP. During participation in DROP, a member continues working and receiving a salary, and the employee's calculated retirement benefit is deposited into a trust fund. Maximum time for participation by an eligible employee is three years."

"No issue is more attention grabbing that this one." Senator Gautreaux told the committee,"people in DROP say they want to get out, they've been cheated." LASERS Executive Director Cindy Rougeou echoed Gautreaux's concern, saying "While DROP is cost neutral, I understand all the calls. Half of the people make the wrong choice (the choice to become part of the program is irrevocable). I tell people when you go into DROP, you're betting against yourself. Your benefit is set once you choose DROP, and if you get a raise after that, it is not counted." The LASERS Board of Trustees took a neutral position on the proposal.

The same panel also heard testimony on a bill by Metairie Senator Conrad Appel that would allow a reemployed LASERS retiree who previously named a prior spouse as beneficiary upon retiring initially to designate his current spouse as a beneficiary for the purposes of any supplemental benefits that accrued after his reemployment.

Actuary Shelley Johnson warned that the final passage of SB 14 "would be a crack in the dam, prompting many, many people to take advantage of the change." LASERS Executive Director Cindy Rougeou added that "there is no way to make this bill revenue neutral." Chairman Gautreaux agreed, saying "The system will get caught up in it, and legal costs will drive up the costs for everybody." Senator Appel voluntarily deferred the measure. The LASERS Board of Trustees opposed this measure.

Editorial: Vote 'yes' on Amendment 3

The editorial board of the Monroe News-Star supports proposed Constitutional Amendment 3 on the October 20th election ballot. The amendment, by state Sen. Walter Boasso, would prohibit the creation of new or enhanced state retirement benefits without the identification of a funding source which will pay for the benefits within ten years.

Proposed Amendment No. 3: Yes.

If voters must amend the Constitution, they should do so on the side of fiscal responsibility. As a state, we've promised a bundle of money in retirement to state employees. Right now, the tab stands at some $12 billion, for many current mandates for state retirement pay were not accompanied by the means to fund those benefits. This amendment require that future benefits must be paired with a funding source and that any debt for increased benefits must be paid in 10 years, not the 30 years in which current debt is being paid. A perfect solution? No. But more prudent than in the past? Yes.

Proposed Amendment 3 also has the endorsement of the Council for a Better Louisiana (CABL), which calls it "an added degree of discipline to help ensure that the politically popular rush to increase employee benefits doesn’t outrun our ability to pay for them."

The Public Affairs Research Council (PAR) has an analysis of all proposed constitutional amendments on the October 20th ballot.