Retirement systems seek cost-of-living increase

By Marsha Shuler, The Advocate

[original article here]

For the first time in at least five years, many retired teachers, state workers and school system employees are in line for an increase in their pension checks.

Louisiana’s four statewide retirement system boards are preparing to seek legislative approval of a general cost-of-living adjustment — likely between 1.5 percent and 2 percent — for tens of thousands of retirees over age 60.

In addition, some older retirees who have the smallest pension checks could be in for a further boost.

The flurry of activity comes as all four statewide systems have registered better-than-expected investment earnings that exceeded benchmarks. The positive earnings picture allowed some money to be put into “employee experience accounts” — savings accounts from which retiree raises are funded.

The cost-of-living adjustments, better known as COLAs, increase the regular benefits checks and must be approved by a two-thirds vote of the Legislature. The next legislative session opens March 10.

The percentage allowed will be exactly the same for all four systems because of requirements set out in state law.

Under a state law, the percentage raise is limited to the lesser of 3 percent or the increase in the Consumer Price Index’s U.S. city average for all urban consumers.

Called the CPI-U, the statistic doesn’t come out until January, but the systems are eyeing the numbers and expecting no more than a 2 percent boost. The same law requires the retiree to have reached age 60 and to have received benefits for at least a year by July 1, 2014, when the increase would go into effect.

“This should be controversial,” said Kevin Kane, director of the Pelican Institute, a conservative New Orleans government policy research group.

Not accounting for how cost-of-living increases would be paid over time, along with other decisions that recur year after year, is part of the reason why the state’s retirement systems are carrying a long-term debt of about $19 billion, he said.

Unless the cost-of-living adjustments are offset, possibly with increased contributions or investment returns, Kane said, the consequences could add to the retirement systems’ “unfunded accrued liability,” the gap in funds the systems have in hand to pay benefits in the future.

That shouldn’t be an issue, says Maris LeBlanc, deputy director of the Louisiana State Employees Retirement System, because the cost-of-living increase is coming from the “experience account.” The Legislature set up the “experience account” to receive the excess when returns on investments come in higher than anticipated. The money specifically goes to paying COLAs after a portion is set aside to help pay down the unfunded accrued liability, LeBlanc said.

“We currently have about $195 million in the experience account, which would be sufficient to grant up to a 2.7 percent COLA,” LASERS Director Cindy Rougeou said.

More than 44,000 state employees retire with an average pension benefit of $22,236, but not all would be eligible for the cost-of-living increase.

The pension system’s last across-the-board adjustment was a 3 percent bump in 2008 for about 33,000 eligible retirees, Rougeou said.

A minimum benefit increase was granted in 2009 for retirees, beneficiaries and survivors receiving less than $1,200 a month. The benefits were increased by $300 a month, or the difference between the retiree’s current benefit and $1,200, whichever was less. Eligibility was limited based on years of service and the years the individual had been retired.

The board for the Teachers Retirement System of Louisiana is discussing a 1.5 percent pension boost for those among its 60,714 retirees who are eligible. “There are still moving pieces of this,” said Executive Director Maureen Westgard. Besides getting the consumer price index number, a special retirement oversight panel must sign off on the numbers used in developing the experience account.

System actuary Shelley Johnson said there is $219.7 million in the account to pay the additional benefit — not enough for a 3 percent boost, which would cost $406 million over time. The recommended 1.5 percent raise would cost $203 million.

Graig Luscombe, executive director of the Louisiana Retired Teachers Association, said the group will also be pushing for a minimum benefit to help retirees whose pension checks are on the low end. One proposal would provide a $300 monthly increase for those getting $1,200 a month, bringing them up to $1,500, he said. Another would provide a $1 bonus for each year of service credit and each year the person has been retired.

Luscombe said there are 1,547 teacher retirees who are between 90 and 99 and who receive annual benefits of $15,880.

“It could be limited to a lesser amount depending on the CPI-U,” Johnson said, referring to the consumer price index.

She said the cost of granting a cost-of-living adjustment has increased in recent years because there are more eligible retirees and they are living longer.

“It’s the best thing I can remember in a long time,” said Louisiana State Police Retirement System Executive Director Irwin L. Felps Jr. The system’s finances are good enough that $10 million to $13 million is available for raises for many of the system’s 1,234 retirees, he said. It would be the first general raise since 2007. The system’s average benefit is $2,700 a month, Felps said, but the median “is a good bit less.”

“You work really hard for a long time for COLAs and have nothing to show for it. Now you feel so much better,” Felps said. “We think there will be a 1.5 percent or 2 percent COLA.”

In addition, Felps said, the State Police pension board is proposing an extra 2 percent for retirees over age 65.

Louisiana School Employees Retirement System Pension Director Charles Bujol said some of the system’s 13,369 retirees have not had a raise in about 10 years. The average retirement benefit is $940 a month.

“Last year we were able to give to the lower-paid in our system a little — about 35 percent of the lower-paid,” said Bujol. “This year we want to try to give something to the rest.”

Bujol said the system has about $30 million that can be accessed. “Right now we are looking at about 1.5 percent,” he said.

Proposed Legislation May Impact Retirement Benefits for Active LASERS Members

Active LASERS Members have asked which bills are being considered in the current legislative session which may impact their future retirement benefits. 

Here are the pertinent bills to watch:

SB 7 (Peacock) Provides for a 60-month final average compensation (FAC) period and a 15 percent anti-spiking rate, each of which would change the compensation number used to calculate benefits.

SB 11 (Guillory) Increases employee contributions by three percent beginning July 1, 2013, provides for a 60-month FAC, and a 15 percent anti-spiking rate. These changes would be used to fund future COLAs of one to two percent, on the first $50,000 of benefits, and payable in odd-numbered years.  Active members would subsidize COLAs for current and future members.

HB 57 (Pearson) Increases employee contributions by two percent to pay the system's unfunded accrued liability (UAL) and provides for a 60-month FAC and 15 percent anti-spiking rate.

HB 61 (Badon) Provides for a "divided benefit" for members whose actual earnings in a calendar month are 30 percent or more above his average monthly earnings for the immediately preceding 12 months.

The LASERS Board of Trustees has gone on record as opposing each of these bills.  As the bills progress through the legislative process, future Member Connections will be sent. Also, check our website daily for updates on bills. 

Bill uses increased retirement payments from state workers to fund cost-of-living adjustments

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.

"I certainly intend to lead an effort to get around it," Guillory said when asked about those restrictions.

Senate Retirement to Discuss COLAs at December 11 Meeting

The Senate Retirement Committee will meet Tuesday, December 11 at 10:00 a.m. in the John J. Hainkel, Jr. Room to continue a study of cost-of-living adjustments (COLAs) for retired members of public retirement systems. 

In previous meetings, Senator Elbert Guillory made a point of saying that false hope should not be given that a COLA was imminent. However, after seeing information provided by LASERS, comparing the LASERS COLAs to those paid by Social Security, he noted that the situation was "not acceptable." The comparative information showed that the value of LASERS benefits with COLAs was considerably lower than the Social Security benefits. Senator Guillory stated that a solid funding approach must be developed and funding cannot be an afterthought.

LASERS will provide information from the December 11 meeting as it becomes available.