Battle over Louisiana pension funds shaping up

Marsha Shuler

The Advocate

More than $300 million is sitting in state employee and teachers pension system accounts reserved for future cost- of-living raises for retirees.

A state senator wants the 90,000-plus retirees to get an immediate boost in their pension checks. But some of the Louisiana Legislature’s budget committee members are eyeing the dollars to help close a $1.4 billion — and growing — gap between spending and revenues in the state budget.

Cindy Rougeou, Louisiana State Employees Retirement System executive director, said it would not be the first time dollars were “swept” from the retiree cost-of-living accounts. She said it happened in 2009 with dollars going to payments on the systems’ unfunded accrued liability. Commonly called the UAL, the term refers to the amount of money necessary to pay out all promised future benefits. The state contributes extra dollars to pay down the immense debt.

“They are already giving us $63 million fewer dollars in employer contributions this coming year because our investment earnings have been so good,” Rougeou said.

The Teachers Retirement System of Louisiana has $218 million available in the accounts used to pay cost-of-living bumps. The Louisiana State Employees Retirement System has $117 million, which is sufficient to cover a 1.5 percent raise.

The money cannot legally be taken out of pension systems for use in funding other areas of the budget. But the dollars can be used toward reducing the pension systems’ long-term debts, which stand at $19 billion: $12 billion for teachers’ retirements and $7 billion for state government retirees. The payments toward the UAL would reduce the required state contribution. That would free up state dollars for other purposes.

“We have a long way to go. Some people already have designs on the money,” said Retired State Employees Association legislative liaison Frank Jobert. The large stash of cash is already getting the attention of some members of the Legislature’s budget committee who are “wondering if they can get access to it.”

Jobert said retirees want the money reserved for its intended purpose — cost-of-living adjustments to retiree pension checks.

The retiree group will publish the required public notice that legislation will be filed aimed at granting a cost-of-living increase, Jobert said.

Retirees will push for a 1.5 percent cost-of-living increase in the fiscal year that begins July 1 with help from Senate Retirement Committee Chairman Elbert Guillory, R-Opelousas. Retirees got a 1.5 percent adjustment during the current fiscal year. Under a 2014 law, retirees would be eligible for cost-of-living adjustments only every other year, meaning there would not be one in the new fiscal year, which begins July 1.

Neither Guillory nor House Retirement Committee Chairman Kevin Pearson, who are both LASERS board members, attended LASERS’s meeting on Friday.

During an interview later in the day, Guillory said he will file legislation to grant a $50 a month extra payment to retirees or a 1.5 percent cost-of-living raise.

Guillory said the increase would offset the cost of (state) health insurance because those premiums have skyrocketed. “This year is crucial because of those high insurance costs,” Guillory said.

The Jindal administration’s revamp of the state’s Group Benefits insurance program will require members to pay nearly 11 percent more in premiums beginning July 1.

Guillory said he has heard talk of using the cost-of-living or COLA accounts to help balance the budget.

“It’s one of my great concerns. It should be used for the purpose it was set up,” Guillory said. “It’s there to help retirees, not funnel money into the general fund in any way.”

Contacted Friday afternoon, Pearson, R-Slidell, said he has “severe reservations” about the COLA proposal and raiding the fund.

“It’s going to take a lot of will from some to take that money and put it toward the UAL,” Pearson said. “I don’t know that it’s good to make it a regular practice.”

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.

Jindal hopes to fix flaws in pension plan

Retirement groups seek year's delay

By Marsha Shuler

Capitol news bureau

The Jindal administration hopes to fix flaws in the new ''cash balance'' pension plan, while two major retirement systems are trying to get a year's delay in its planned July 1 implementation.

Although Gov. Bobby Jindal opposes any delay, the Louisiana State Employees Retirement System and the Teachers Retirement System of Louisiana have served legal notice that they will ask the Legislature to approve a resolution suspending the law.

Jindal cannot veto such resolutions.

A state district court judge last month ruled that the 401(k)-type plan, known as ''cash balance,'' did not receive the required votes for passage. Administration lawyers have filed for a suspensive appeal in 19th Judicial District Court, while the issue goes to the Louisiana Supreme Court where it will be decided.

''Cash balance,'' which affects new hires, was the only major piece of Jindal's proposed pension system revamp to clear the Louisiana Legislature, during the 2012 session. Other legislation making current members of the LASERS and TRSL work longer for less benefits failed to win passage.

A legal notice has been filed indicating that legislation would be filed in the upcoming 2013 legislative session that addresses the ''cash balance'' plan's administration and operation, membership, contributions and eligibility.

The Governor's Office confirmed the legislation in the legal notice is part of a package for the session that opens April 8.

''We are continuing to meet with legislators, as we plan for the upcoming session, and no final decisions have been made on retirement system legislation to pursue,'' Jindal's Chief of Staff Paul Rainwater wrote in an email statement. He would not agree to answer questions about the issue.

''However, we want to be ready to address any issues that might be raised by the courts,'' Rainwater stated.

If the Louisiana Supreme Court agrees with the lower court's ruling, the administration must go back to the Legislature on its ''cash-balance'' plan, and get a two-thirds vote of approval required by the constitution because it adds to pension costs.

If the administration wins the appeal, the new law still would need some alteration, said Maureen Westgard, the TRSL executive director. Westgard said the pension system has identified at least 13 issues that need to be resolved in how the plan is administered.

Cindy Rougeou, the LASERS executive director, said her board favors a delay in implementation ''due to the significant federal issues that have yet to be resolved'' involving the plan's Internal Revenue Service and Social Security status.

Adverse decisions from the IRS could subject employees' vested contributions and retirement system trust earnings to taxes. In addition, some employees would have to be enrolled in Social Security if the state benefit is not equivalent to Social Security's - adding to state employee and taxpayer costs. The costs would be levied retroactively from the plan's start, said Maris LeBlanc, LASERS deputy director.

TRSL also supports the delay ''given how many complications there are with the court case and Social Security equivalency,'' Westgard said. ''There appears there may be some interest in suspending that (law) ... probably not from the administration.''

House Retirement Committee Chairman Kevin Pearson, R-Slidell, said he doesn't see ''a tremendously active session'' in the pension arena.

''Legislators said 'don't bring another retirement bill back,' '' said Pearson, who sponsored the cash balance plan. He said cash balance clean up legislation is on the table.

Senate Retirement Committee Chairman Elbert Guillory said he's working on legislation that will guarantee cost-of-living raises to retirees but at the same time require an additional contribution by active employees and change how the pension benefit is calculated.

Companion legislation will provide revenue streams that can be used to pay for the COLAs, said Guillory, D-Opelousas.

''I really expect the (employee) contribution to be temporary. I expect and hope we will be able to get enough money, we will not need to ask people to make that extra sacrifice,'' Guillory said.

He said he has four ideas to pitch to Jindal including earmarking 2 percent of all state settlements, and 2 percent of the interest on unclaimed property, proceeds for tickets for driving in the left lane on multi-lane highways and taxes on games at ''racinos,'' a race track with casino gambling games.

LASERS and TRSL also served legal notice they will ask the Legislature to change the calculation method that determines employer payments to ''entry age normal.'' The proposal got nowhere last year.

The pension change could have saved state government about $40 million last year.

In projecting actuarial cost, the normal cost is a lower percentage of salary in early years of service. The normal cost increases annually as each member approaches retirement eligibility.