LASERS Sustainability Affirmed in Legislative Actuary Report

A new report, Sustainability of the Louisiana State Retirement Systems, was presented by the Legislative Actuary last week at the Public Retirement Systems Actuarial Committee (PRSAC) meeting. The conclusions in the report affirm the sustainability of LASERS. The most important findings include:

• The defined benefit plan administered by LASERS is inexpensive, about half the cost of Social Security;

• The debt payment (Unfunded Accrued Liability), makes up the lion's share of the state's employer contribution to LASERS; which means changing the type of benefit plan we offer would not improve the state's financial situation;
  
• The positive financial status of the LASERS plan, coupled with the difference that legislative reforms are making to reduce the debt payment, indicates there is a high likelihood that the UAL will be paid off early.

For details, view the Legislative Actuary's PowerPoint Presentation from the meeting.

Additional information is found in this report by The Advocate.

Despite debt, state pension plans for workers, teachers in a ‘relatively good financial position,’ analysis finds

Marsha Shuler
The Advocate

Despite a staggering debt, the state’s two largest pension plans — for state employees and teachers — are sustainable and are in a “relatively good financial position,” the Legislature’s retirement financial guru reports.

And the state government retirement systems are still cheaper than the cost of enrolling teachers and state workers in the federal Social Security program, according to the analysis.

About 250,000 people, actively employed and retired, are members of the Louisiana State Employees Retirement System, better known as LASERS, and the Teachers Retirement System of Louisiana, or TRSL.

“The problem with the retirement systems is not the plan design, but rather, it is the fact that ... debts have accumulated in the past that now must be paid,” legislative actuary Paul Richmond said.

Most of the hefty contributions state government makes to the systems are extra payments aimed at eliminating the systems’ combined $19 billion in unfunded accrued liability. UAL is an actuarial term that refers to the difference between the retirement benefits state government promised to pay its employees in the future and the amount of assets presently on hand. The state systems’ massive debt came because past Legislatures and governors did not provide sufficient dollars to cover promised benefits.

Richmond said the contributions to pay off that debt are “generally sustainable” and said there’s a 50-50 chance that LASERS and TRSL will be fully funded by 2029.

“If the UAL is out of the picture, what this says is that the cost of the current benefits for LASERS is 3.5 percent (of pay) and for Teachers 4.2 percent because of the reforms the Legislature has made,” Legislative Auditor Daryl Purpera said. “This is not a very expensive benefit structure. Anything less than 6.2 percent (the cost for Social Security) is really wonderful. It’s very sustainable.”

Louisiana is one of seven states that don’t have employees enrolled in federal Social Security, opting decades ago to instead run its own pension system.

LASERS and TRSL operate traditional defined-benefit plans that determine long-term pension commitments based on a formula that includes the number of years worked and salary earned.

The Legislature, with the pension systems’ support, has made a series of changes in recent years. Changes included increasing the retirement age for new hires; computing the pension benefit based on the final five — instead of three — years of employment; adopting laws to prevent major increases in salaries prior to retirement; and limiting cost-of-living adjustments for retirees.

All those factors played into Richmond’s analysis, which shows decreasing state and local contributions to cover normal costs of the pension systems.

“The reality is the people in the old plan over time will retire and be replaced by new people under new plans that are less costly,” TRSL Executive Director Maureen Westgard said. That is driving down costs year by year, she said.

LASERS Executive Director Cindy Rougeou said Richmond’s report reaffirms that the benefit structure is not the problem. “It’s the financing of the UAL,” Rougeou said. In the case of LASERS, the debt payment was $630 million out of $700 million in contributions.
Gov. Bobby Jindal attempted to extensively overhaul the system, saying it was too costly. He pointed to the escalating pension costs to the state.

“You could not create a benefit structure more economical for the state,” Rougeou said. “The legislative reforms are making a huge difference.”

Voters, decades ago, approved a constitutional amendment requiring the elimination of the UAL by 2029.

Extra payments are appropriated annually toward debt eradication.

A 2014 law is projected to save taxpayers $5 billion over time because pension debts will be paid off sooner. The legislation, sponsored by state Rep. Joel Robideaux, R-Lafayette, puts more retirement system “excess earnings” — those over 7.75 percent — toward debt retirement before dollars go into a special account through which retiree cost-of-living raises are funded.

LASERS and TRSL also reduced their projected annual investment returns from 8 percent to 7.75 percent. All the earnings above that mark go to paying off the debt.

Because the systems expect to earn less, the more money made over the 7.75 percent mark means the more money that can go toward paying off debt and thus end up lowering payments required of the state.

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.”

State Pension Boards Approve Change

Marsha Shuler

The Advocate

Louisiana’s two largest statewide retirement systems took a step that could reduce their long-term debts and ultimately lower the costs paid for state government retirements.

The Louisiana State Employees Retirement System and the Teachers Retirement System of Louisiana boards voted to reduce their projected annual investment returns from 8 percent to 7.75 percent.

The investment returns are used in the calculation of the rates that government employers contribute toward funding the system.

Any earnings about the 7.75 percent return on the investments made by the pension systems go to paying down the “unfunded accrued liability,” said Legislative Auditor Daryl Purpera. 

More commonly called the UAL, it is the amount of money that has not been set aside to cover the cost of pension benefits promised in the future. The UAL for the four statewide retirement systems now hovers near $19 billion.

State agencies and schools, the employers, are making additional payments to help lower the UAL, but those mandatory payments put a strain on the budgets for other expenses.

The change in interest rates approved by LASERS and Teachers, combined with a recently passed law, could relieve some of the budget pressures caused by the big payments.

“We have a severe problem with underfunding. If we have an opportunity to accelerate repayment of the UAL, we ought to be taking advantage of it,” said Purpera, who chairs the Public Retirement Systems Actuarial Committee.

LASERS Deputy Director Maris LeBlanc said: “Because we expect to earn less, then the more money we make over that is money to put toward the debt.”

The rate reduction under normal circumstances would trigger an increase in state and school systems’ contributions because the systems would count on less earnings from investments.

But the state and schools will end up paying the same or a little less because the reduction will go into effect at the same time as a law which directs more of the pension systems’ excess investment earnings into debt reduction, said Maureen Westgard, executive director of the Teachers system.

The Teachers board voted to lower the expected return because “any impact that would have been felt would be offset,” said Westgard.

“The way we presented it to our board is ‘the planets are aligned for us,’ ” said LASERS Executive Director Cindy Rougeou. “Based on things that happened during the legislative session and what we expect our investment returns will be ... we are expecting to reduce (the state contribution) by 1.5 percent.”

Rougeou said the calculation is based on a 14 percent investment return, “and we expect that’s going to be closer to 18 percent.”

Westgard said Teachers is anticipating a return of more than 17 percent during the fiscal year which ended June 30.

Both systems are chalking up big investment returns today, but the 30-year average return is 8.2 percent for LASERS and 8.54 percent for Teachers.

Westgard and Rougeou said the new 7.75 percent assumption is realistic. Both referred to a new National Association of State Retirement Administrators report which looked at 126 different public pension plans. More than half reduced their investment assumptions since 2008. The average is 7.72 percent — right at the 7.75 percent adopted by Teachers and LASERS.

Lowering the rate will help bring more funds into the system, said Rougeou. “You try to find that perfect balance,” she said. “If you lower the rate more than you need to, you are going to put a burden on current taxpayers they should not have to pay.”

Legislative Session Update for April 1

The Senate Retirement Committee met Monday, March 31 and four bills were on the agenda that would impact LASERS if passed:

·   SB 13, by Senator Peacock, advanced favorably. The LASERS Board of Trustees requested the change in the System's actuarial funding method from projected unit credit to entry age normal promoted through this bill. The legislation would also make changes regarding excess earnings to be applied to the Unfunded Accrued Liability (UAL) and the Experience Account; and regarding the payment of cost-of-living adjustments (COLAs).

·      SB 26, sponsored by Senator Guillory, advanced favorably. This bill would provide for the assessment of employer contributions to fund projected non-investment related administrative expenses for each of the state retirement systems. The LASERS Board of Trustees is neutral on this bill.

·        SB 27 was voluntarily deferred by Senator Walsworth. SB 27, which is supported by the LASERS Board of Trustees, would provide a supplemental benefit increase (amount is to be determined) payable from the Experience Account. 

·   SCR 5, sponsored by Senator Guillory, advanced favorably. This legislation would memorialize Congress to reduce or eliminate the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).

The Senate Finance Committee met Monday, March 31 and voted to advance SB 18. This bill, supported by the LASERS Board of Trustees, would provide a 1.5 percent COLA for eligible retirees, survivors, and beneficiaries.

Please note that meeting schedules are subject to change. Check the LASERS website daily for updates and for detailed information about proposed retirement legislation.

Rougeou Updates Media on LASERS

Baton Rouge Press Club

LASERS Executive Director Cindy Rougeou and Legislative Auditor Daryl Purpera jointly spoke to the Baton Rouge Press Club on Monday, November 4.

Rougeou provided an update on the status of LASERS, including how reforms have improved the System, investment performance, and the impact of the recent layoffs on System health. Purpera focused on the cost of the accruing benefit as compared to Social Security, the employee and employer contribution rate, funding level and progress toward payment of the unfunded accrued liability (UAL), including the funded ratio. Rougeou and Purpera fielded questions from the audience following their presentation.

Watch a clip from the Baton Rouge Press Club presentation (5 minutes). 


The Jim Engster Show

Radio host Jim Engster interviewed Cindy Rougeou on Wednesday, October 30. Rougeou shared the latest information about LASERS, touching on investment performance and the health of the System. She reassured members that the retirement system is solvent and in great shape for the future.

In case you missed the interview, visit the WRKF website here and advance the broadcast to the 41:05 minute mark.  

Annual Actuarial Valuation Reveals Excellent Numbers for LASERS

Over the past fiscal year, LASERS has seen a $723 million increase in the value of its assets and has improved its funded ratio by over four percent.  With a nearly $700 million decrease in the unfunded accrued liability (UAL), or debt owed to LASERS, the State of Louisiana will save millions of dollars in its employer contribution next year.  "This report is excellent news for our System and our State," noted LASERS Executive Director Cindy Rougeou. "The value of our plan is up, the debt is substantially reduced, and the State of Louisiana will save nearly $26 million in payments next year," Rougeou added. The LASERS Board of Trustees adopted the annual LASERS actuarial valuation report for the period ending June 30, 2013, at its September 27 meeting. The annual report was presented by LASERS Actuary Shelley Johnson, who noted that the changes were driven primarily by excellent investment returns and a significant reduction in the size of the state payroll.  Over the past fiscal year, the number of LASERS active members has decreased by over 8,000.  While the amount of money the State must pay the System will be less, the sizeable reduction in the amount of state payroll will cause the employer contribution rate, a percent of payroll, to increase. The valuation includes a statutorily set payment schedule for the UAL reflecting that the debt owed to the System is expected to decrease by more than $2 billion during the 10-year period of 2012-2022, and by $3.5 billion during the 15-year period of 2012-2027. To read the complete LASERS Annual Actuarial Valuation, refer to the Annual Reports page on the LASERS website.

Senate Retirement Committee to Meet Monday, May 13

The Senate Retirement Committee is scheduled to meet Monday, May 13 at 1:00 p.m. Two bills impacting LASERS are on the agenda.

HCR 2 (Harrison) suspends the provisions of the Cash Balance Plan.

SB 17 (E. Guillory) creates the State Retirement Fund and allocates two percent of revenue collections in excess of Fiscal Year 2011-2012 levels to the Fund for payment of the UAL and COLAs. When this bill was originally considered, Senator Guillory deferred it for two weeks to allow time for further discussion on other mechanisms of funding.

The LASERS Board of Trustees supports both HCR 2 and SB 17.

Please note that meeting schedules and agendas are subject to change. Check the LASERS website daily for updates and for detailed information about the proposed legislation which would impact LASERS.

House Retirement Committee Meeting Scheduled for Thursday, May 2

The House Retirement Committee is scheduled to meet Thursday, May 2 upon adjournment. Two bills impacting LASERS are on the agenda.

HB 57 (Pearson) increases the employee contribution rate for all members by two percent to pay the system's unfunded accrued liability (UAL). The bill provides for a 60-month final average compensation (FAC) and 15 percent anti-spiking for all LASERS members. The LASERS Board opposes this bill.

HB 68 (Pearson) re-enacts the Cash Balance Plan and makes changes regarding membership, withdrawals, interest, transfers, reciprocals, disability and survivor benefits, reemployment, purchases and dual plan membership.  The LASERS Board opposed the bill in its original form. Though a substitute bill has been submitted, many of LASERS concerns remain. 

Please note that meeting schedules and agendas are subject to change. Check the LASERS website daily for updates and for detailed information about the proposed legislation which would impact LASERS.

Outcome from Monday, April 22 Legislative Meetings

The Senate Retirement Committee met Monday, April 22 and the following action was taken on three bills impacting LASERS.

  

SCR 1 (Cortez) was favorably reported. This bill suspends implementation of the Cash Balance Plan for a year to allow time to obtain the Social Security equivalence ruling. The LASERS Board of Trustees supports this bill.

  

SB 7 (Peacock) failed to advance by a vote of two to four. This bill would have applied a 60-month final average compensation (FAC) to current members of state and statewide retirement systems. Testimony on the bill was provided by LASERS Trustee Judge William Kleinpeter, LASERS Executive Director Cindy Rougeou, and Robert Klausner on behalf of LASERS. The LASERS Board of Trustees opposed this bill.

  

SB 17 (Guillory) was voluntarily deferred for two weeks to allow time for a committee to be constituted to find a mechanism of providing funds to assist in reducing the UAL. This bill creates the State Retirement Fund and allocates two percent of revenue collections in excess of Fiscal Year 2011-2012 levels to the Fund for payment of the UAL and COLAs. The LASERS Board of Trustees supports this bill.

To see a complete list of bills impacting LASERS and their progress, check our website daily. 

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. 

Editorial: Use surplus to paydown state retirement debt

This editorial from the Alexandria Town Talk encourages the use of a projected budget surplus to pay down the debt in the retirement funds for state employees and public school teachers.

Combined, the two retirement systems are underfunded by $11 billion, primarily because the Legislature never ponies up enough money to pay for the benefits it bestows on state retirees. A constitutional amendment passed in 1987 requires that $10 billion of that be paid off by 2029.

The state's projected budget surplus from the 2007-08 fiscal year, which ended June 30, is $815 million. That is non-recurring money -- one-time money that can use used only for one-time expenditures. Paying down debt qualifies.

If the state used, say, $400 million of that one-time money to cut the debt, taxpayers would save more than $920 million in payments between now and 2029.

Pension Executives: Pay down retirement debt now

State leaders should consider using more than two-thirds of the budget surplus to help pay off Louisiana’s $10 billion retirement debt, leaders of two retirement groups said Monday.

Cindy Rougeou, executive director of the Louisiana State Employees Retirement System and Maureen Westgard, her TRSL counterpart, told the Baton Rouge Press Club on Monday that lawmakers should direct as much money as possible to the two systems when they divide an estimated $865 million surplus left over from the fiscal year that ended June 30. They did not offer a specific amount.

The surplus will be recognized officially no earlier than this month's meeting of the Revenue Estimating Conference, which sets the state's revenue forecast. The money would be appropriated no earlier than a possible winter special session and possibly not until the regular session that begins in late April.

Westgard and Rougeou acknowledged the inherent political difficulty of their wishes, as lawmakers often are much more excited about financing road and bridge projects -- easily seen by their constituents -- than about paying down long-term obligations for systems that are not close to being threatened with insolvency.

LASERS currently has $8.4 billion in investment assets, with annual benefits of $750 million paid out to 37,575 retirees. The portfolio's market investments dropped 3.8 percent in value over fiscal 2008 but it has a five-year yield of 10.8 percent, with an actuarial yield of 8.5 percent. The Teachers' Retirement System has an investment
portfolio of $15 billion. More than 61,000 employees draw combined annual benefits of $1.38 billion. The investments lost 5.14 percent in market value, with a five-year yield of 11.35 percent and a 5.15 percent actuarial rate of return.

Westgard and Rougeou agreed the numbers suggest that neither system is in danger of falling short on annual benefit obligations, even as more baby boomers retire in coming years. But lawmakers, they said, must protect that solvency and avoid saddling future legislatures with untenable budget constraints as 2029 approaches.

Retirement system heads urge state to start paying off debt

The heads of two of Louisiana's state retirement programs are urging the Legislature to start using budget surpluses to pay down the ballooning debt their systems are amassing.

Cindy Rougeou, executive director of the Louisiana State Employees' Retirement System, and Maureen Westgard, director of the Teachers Retirement System of Louisiana, told the Baton Rouge Press Club today it would be a fiscally sound move to start paying down the debt, which is $10 billion.

By law, the state has to pay off the debt in 2029. State Sen. Butch Gautreaux, D-Morgan City, is pushing a bill that would allocate $600 million of the state's projected $865 million budget surplus to paying down the debt.

Legislators Approve Payment on State Retirement Debt

The Legislature adjourned Friday, ending a six-day special session focused on spending a $1.1 billion surplus left from the 2006-07 fiscal year.

One item approved as part of HB 46 by Representative Jim Fannin was $60 million to help pay off debt incurred to finance liabilities of the state’s largest public retirement systems. The $60 million appropriation was divided with $20 million to LASERS, the remaining $40 million to the Teachers Retirement System.

LASERS Executive Director-Reduce Retirement System Debt

LASERS Executive Director Cindy Rougeou encourages the Louisiana Legislature to make a significant payment on the Unfunded Accrued Liability (UAL), during the Second Special Session of the 2008 Louisiana Legislature in this Letter to the Editor in Saturday’s The Advocate.

The Louisiana Legislature has a historic opportunity to make an investment in its future that will pay dividends for generations to come.

Lawmakers will be asked to make a significant payment on the debt of the state’s largest public retirement systems. This debt is known as the Unfunded Accrued Liability. It is the difference between the projected benefits owed to retirement system members and the money available to pay those benefits.

This year, we are pleased that Gov. Bobby Jindal is proposing to dedicate $70 million of the $1.1 billion state surplus for payments against the retirement systems’ initial UAL. The benefits of making a substantial payment cannot be overstated. For every dollar paid to reduce the initial UAL, Louisiana will save more than $4 in interest payments.

The LASERS Board of Trustees is encouraging lawmakers to take this opportunity to make a meaningful payment toward reducing the retirement system debt. This action will benefit not only the retirement systems and their hardworking public employees, but every Louisiana taxpayer as well. The greater the amount of the appropriation now, the more savings we will all realize down the line.

Article describes unfunded liability as "growing problem"

An article in the Baton Rouge Business Report examines the unfunded accrued liabilities (UALs) of Louisiana's four statewide retirement systems. The UAL is the difference between the benefits that the system owes to its retirees and their beneficiaries and the money available to pay them.

The two largest systems that cover three-quarters of all state employees—the Teachers’ State Retirement System of Louisiana (TRSL) and the Louisiana State Employees’ Retirement System (LASERS)—were established in 1936 and 1946, respectively, and from day one both were underfunded. That’s because existing employees were grandfathered in and guaranteed a pension upon retirement, even though they had never contributed a portion of their earnings.

It might have been good politics, but it wasn’t good business and it set a precedent that fit well with the state’s laissez faire practice of putting off till tomorrow what it can’t pay for today. The debt grew larger over the years, as legislators generously added benefits for one favored group of employees or another—without ever identifying a funding source. In the mid-1980s, legislators realized they had to do something and proposed a constitutional amendment that voters passed in 1987. It requires that the state’s retirement systems be fully funded—but not until 2028, which at the time was 40 years away.

[...]

Officials at the major retirement systems say they’re concerned about the problem and are always trying to find solutions. Without much legislative support, however, that’s easier said than done.

“We can try to make the Legislature and the administration aware of the problem and we do,” says Cynthia Rougeou, executive director of LASERS. “But legally we cannot lobby, so we can only do so much.”