LASERS Responds to James Varney Piece in Times Picayune

Cindy Rougeou,
LASERS Executive Director

In his opinion piece "Pension Reform Cowardice," Mr. Varney makes so many misstatements and hyperbole; it is difficult to know where to start in response. These errors include, but are not limited to the following: "public employees should be limited to 401(K) plans; Louisiana hasn't adopted sensible reforms; a 2012 law placed new hires in a defined contribution plan but, due to unions, lobbyists, etc., it was repealed; the system is unsustainable; state workers draw handsome pensions which are extraordinarily generous entitlements."

The facts: Act 75 of 2005 enacted sweeping retirement reform, creating a new retirement plan for LASERS rank-and-file new hires, including increased employee contributions, a 5-year average compensation calculation, and required employees work longer before retiring. In 2010, Act 992 created another such plan, which included a new uniform hazardous duty service plan that LASERS had sought for years. Those Acts alone are expected to save LASERS $800 million.

Louisiana's public employees do not participate in the private sector defined benefit plan, Social Security. Placing public workers solely in a 401(K) defined contribution plan could be financially catastrophic for our state. And the 2012 law (the Cash Balance Plan), while not in fact a defined contribution plan, was found by the independent Legislative Auditor to actually cost more than the current retirement plan. It was, in fact, not repealed but found unconstitutional by unanimous vote of the Louisiana Supreme Court because it did not pass with the required two-thirds vote of the legislature.

As to sustainability, the debt owed to LASERS was reduced by about $700 million last year; our five-year market return is 14.3 percent; our 30-year actuarial return exceeds eight percent; we have added $4.6 billion to the fund over a four-year period; and principal and interest are now being paid on the unfunded accrued liability. LASERS was recently recognized as a top ten performing pension system nationally for the decade.

The truth is, since 2005, Louisiana has been on the leading edge of pension reform, passing laws that other states are just now considering. Another fact, LASERS retirees do not draw handsome or extraordinarily generous entitlements. The average annual rank-and-file benefit is about $23,000. The average annual benefit for those rank-and-file retiring in 2013 was about $25,000. And these pensions have been earned by a career of public service. They are certainly not an entitlement and they are certainly not generous.

Cindy Rougeou,

LASERS Executive Director

LASERS Responds to November 8 Report in Times Picayune

The November 9 article in the Times Picayune by Richard Thompson, relative to pension shortfalls, contains both inaccurate and misleading information. The key points LASERS would like to address are as follows:

"For five years leading up to 2010, Louisiana did not pay its full way three times, according to a recent study by Pew Research Center." That statement is, at best, very misleading. In fact, in 1987 our state Constitution was amended to require that the pension system be actuarially sound. Since that time, Louisiana has, in fact, made the required employer contribution, as determined by the system's actuarial valuation. After the fiscal year ends, an actuarial analysis may determine that the state actually should have paid more or less of a contribution, depending on unforeseen changes that may have occurred during that prior year. When, after the fact, it is found that the state should have contributed more than was anticipated, the state has then made the additionally required payment, amortized over a five year period. In short, Louisiana funds 100 percent of the employer contribution rate and is required to do so both statutorily and by the Constitution, which constitutes a strong funding policy.   

Interestingly, a recent PEW report also pointed out that Louisiana is, in fact, one of the top ten states for paying the actuarially required rate.

The Picayune article also states, "Many experts consider a public plan to be healthy if it's at least 80 percent funded."  Actually, in July, the American Academy of Actuaries issued a brief entitled, "The 80% Pension Funding Standard Myth."  The key points of that report are that no single level of funding should be identified as a defining line between a healthy and an unhealthy pension plan. Funded ratios are a point-in-time measurement. And pension plans should have the objective of accumulating assets equal to 100 percent of a relevant pension obligation. 

Fortunately, Louisiana has established a payment plan for the debt that accumulated over decades. We have experienced an expected increasing UAL due to the back-loaded increasing payment schedule. Much like a mortgage, LASERS is finally approaching the point where the payment will be sufficient to start paying on the principle.

In fact, in 10 years, LASERS debt will be reduced by $1.5 billion and in 20 years will be reduced by nearly $4.5 billion.

When referring to pension reform, a couple of key facts are too often overlooked. The cost of the benefits is, in reality, modest. Louisiana is paying less than 7 percent of payroll for these accruing benefits; very comparable to what it would pay if the employees were in Social Security. The largest portion of the employer contribution is for the debt payment.

Significant pension reform has already been passed and implemented. The legislature began making these changes to LASERS benefit structure in 2005. Since that time, laws have been adopted that are expected to save over $800 million. These changes required hires after July 1, 2006 to work longer and pay more. Their benefit formula was changed and their eligibility to retire was restricted.

Keep in mind, state employees do not participate in Social Security. This is a significant factor to note with respect to the Cash Balance Plan that was adopted in the last legislative session. The IRS must determine whether this new plan meets the test for Social Security equivalence. If it does not, then Louisiana will be faced with an additional cost to enroll the affected employees into Social Security.

Cindy Rougeou,

LASERS Executive Director

Click here to read the original Times Picayune article.