New Retirement Study Reveals Good News for Louisiana Economy

A 2014 study by the National Institute on Retirement Security (NIRS), Measuring the Economic Impact of DB Pension Expenditures, reveals that benefits paid by state and local pension plans had a total impact of $6.1 billion on Louisiana's economy.

$3.0 billion in direct economic impacts were supported by retirees' initial expenditures, followed by an additional $1.9 billion in indirect impact resulting when these businesses purchased additional goods and services.

For more information about Louisiana, view the NIRS study.

LASERS Investment Return 15.8 Percent for 2013

The Louisiana State Employees' Retirement System (LASERS) realized a 15.8 percent investment return for the period January 1-December 31, 2013. This calendar year-to-date performance is based on LASERS total plan, with a current market value exceeding $10 billion. Over the past five years, LASERS has posted a 13.8 percent return.

LASERS placed in the top 20th percentile or better for long-term rankings in Wilshire's Trust Universe Comparison Service (TUCS) most recent comparison. LASERS 10-year ranking was in the eleventh percentile, maintaining the retirement system's place as one of the nation's top state pension plans. TUCS is the most widely accepted benchmark for the performance of institutional assets and represents the largest database of any peer-comparison service in the industry.

LASERS Executive Director Cindy Rougeou said, "For the past four years, we have experienced positive market returns, which is a reflection of LASERS sound investment strategies. We will continue to manage LASERS investments prudently, functioning as a long-term investor."

LASERS provides a defined benefit pension plan that covers approximately 150,000 members. LASERS pays over $1 billion in annual benefits to retirees and their beneficiaries, providing a strong and reliable economic stimulus for Louisiana. 

LASERS Responds to Baton Rouge Business Report

On February 5, 2013, the Baton Rouge Business Report published an article by Penny Font entitled, “No Escape,” which characterized public pensions as generous and unsustainable, ultimately costing the citizens of Louisiana more tax dollars. In attempting to make its point, the article lumps together anecdotal stories from 13 different public retirement systems, ignoring fundamental distinctions. 

Further, the article relies on reports by the Bureau of Governmental Research, the Pew Center, and Northwestern University, which have previously been analyzed and criticized*  for providing misleading, incomplete, or erroneous information.  Of particular note is a recently released report from the Government Accountability Office (GAO) that categorically rejected conclusions set forth by Northwestern University.  The GAO found:  Referring to the May 15, 2010 report by Joshua Rauh that projected some notably early fund exhaustion dates, "the projected exhaustion dates are ... not realistic estimates of when the funds might actually run out of money." The new GAO report, which is "the most comprehensive government study of public pension plans to date," validates "that the vast majority of plans are adequately funded to meet their current obligations and have adopted systemic and operational reform to ensure their long-term sustainability."

On behalf of LASERS, the retirement system for State employees and elected judges, I would like to call your attention to the following:

• Private sector employees, by law, participate in a defined benefit plan: Social Security.  And as noted in your report, most also have what is known as a defined contribution or 401(k) type plan.
• Public sector employees in Louisiana, by law, do not participate in the Social Security defined benefit plan; nor do they have a 401(k) type plan. Instead, the State of Louisiana decided decades ago that state employees would participate in LASERS.
• Private sector employees contribute 6.2 percent of payroll to Social Security.  LASERS rank-and-file members contribute 7.5 to 8.0 percent of their annual salary toward their retirement benefits.  Judges who are LASERS members contribute 11.5 to 13 percent.
• Private sector employers pay 6.2 percent of payroll to Social Security.  Louisiana will be contributing 6.1 percent of payroll for the accruing benefit of its employees. 
• LASERS members are also taxpayers.
• The average LASERS rank-and-file employee pension is $21,732 per year, which can hardly be described as generous.
• From 1999-2011, Social Security recipients have received 11 cost-of-living adjustments.  Over that same time period, LASERS retirees have received seven such adjustments. 
• LASERS retirees have not received a cost-of-living adjustment (COLA) since 2008-2009, with 22 percent of our retirees receiving payments below the poverty level.
• Pension experts do not “agree that trading a defined benefit plan for a defined contribution plan helps governments remain solvent.”  In fact, experts have recognized that such a swap does nothing to satisfy existing debt of retirement systems. Read the National Institute on Retirement Security report, A Better Bang for the Buck, for this information.

Ms. Font did acknowledge that LASERS realized a 14.3 percent investment return for the calendar year 2012, with a three-year average return of 10 percent.  Losses in tough times like 2008 were across the board for all investors, not a “painfully obvious sign” of lack of investment expertise.  In fact, LASERS has been ranked in the top ten of pension systems nationally for the past decade.  By managing over $3 billion of our fund internally, LASERS will save over $9 million this year; enough to fund the salaries for our entire agency.

The debt owed to LASERS by the State has not “more than tripled . . . largely due to poor investment returns and lawmakers who reduced the debt payment schedule in 1992 and increased benefits in 1993 and 2001.”  Rather, the debt has grown primarily because of a statutorily enacted, back-loaded, payment schedule and the interest that accrues each year on that debt.  But, the legislature has continued to grapple with that debt, making the annual required contributions to it, and modifying the payment schedule in 2010 to realize significant savings.  In the next fiscal year, the payments will finally start paying into the principal.

On the current payment schedule, in 10 years the debt owed to LASERS will decrease by nearly $1.5 billion.  In 20 years, it is expected to decrease by $4.4 billion.

It is unfortunate that the bold reforms enacted by the legislature since 2005 have been ignored or forgotten by the Business Report.  In fact, these real reforms are expected to reduce pension costs by nearly $700 million. 

The failure by the legislature to adopt recent administration proposals to harshly reduce the benefits of current members of LASERS should not be attributed to fear of losing 500,000 votes, as stated in the article; but, rather, to the recognition that those members received a benefit package as part of their compensation agreement and have contractual and constitutional rights to those benefits. 

These significant legislative changes modify the benefit structure for future employees and therefore, contain costs.  And, contrary to the representation in the article, many of these reforms were recommended in a 2005 report of the Public Affairs Research Council, including:

• Raising the normal retirement age to 60,
• Instituting a sub-plan for hazardous duty employees,
• Instituting a 60-month final average compensation period,
• Building in-house investment expertise,
• Emphasizing passively managed investments, and
• Lowering the 8.25 percent assumed investment return.

LASERS remains committed to achieving strong investment returns and responsibly managing the funds of the more than 100,000 active and retiree members of LASERS. Decisions made that affect the lives and welfare of so many of our citizens should be based on facts.  As such, we appreciate the opportunity to set the record straight.

Cindy Rougeou,

LASERS Executive Director

* For more information on LASERS responses to reports by the Pew Center and Northwestern University, please visit the following links:

§  LASERS Response to Pew Center on the States Report

§  LASERS Responds to November 8 Times Picayune Report

§  LASERS Responds to Rauh Report

§  LASERS Responds to Pension Sustainability Report

§  NASRA Issues Response to Rauh Report

Pension Plan Modification Provide Sustainability: Shifting From Pensions Not Optimal, Can Trigger Unintended Consequences

WASHINGTON, D.C., December 5, 2012 - Faced with financial pressures, 45 states have enacted defined benefit (DB) pension plan reforms since 2008 to achieve affordability, sustainability, and human resource goals rather than switching to 401(k) type defined contribution (DC) accounts. Closing a defined benefit pension plan can cost substantially more than adjusting an existing plan. Additionally, scaling back pensions can have destabilizing economic impacts, erode retirement security, and harm the workforce.

Download the Issue Brief here.

These findings are contained in a new research issue brief, "On the Right Track? Public Pension Reforms in the Wake of the Financial Crisis ," conducted by the National Institute on Retirement Security. It examines key factors that have contributed to private and public employers' pension decisions, and builds upon a 2008 analysis, "Look Before You Leap" documenting costs associated with closing a pension plan.

The research is consistent with recent U.S. Chamber of Commerce findings that many private employers remain committed to pensions as an important part of compensation package plans, and that pensions are an integral part of the national economy while provide retirement security.[1] Today, almost 30,000 single and multiemployer defined benefit plans cover roughly 44 million private sector plan participants. In the public sector, some 20 million participants have a pension benefit.

"The financial crisis has forced private and public sector employers to carefully re-examine all of their costs including funding of pension plans," said Diane Oakley, executive director of NIRS and report co-author. "There isn't a one-size-fits-all solution. So it's not surprising that state governments, like many of their large private sector counterparts, remain committed to DB pensions. States find that modifying existing pensions provides a sustainable solution when they see the steep costs of a wholesale shift to individual DC accounts like 401(k) plans."

"There is a disconnect in the retirement policy debate," remarked Nari Rhee, study co-author and NIRS manager of research. "The data reveal that most individual DC accounts are severely underfunded and can't do the job alone. Yet, these plans are positioned as the retirement solution despite the evidence that Americans are going to fall short in the income needed to pay basic expenses in retirement." Rhee explained, "Our research reveals that policymakers are carefully weighing the implications of a shift, and prudently enacting sustainability changes so they can continue to offer pensions."

In commenting on the report's findings, former Congressman Earl Pomeroy (D-ND) said, "Most states are taking a smart, pragmatic approach. State leaders know that pensions enable Americans to be self-sufficient in retirement while providing employers with a cost-efficient, important workforce management tool that stimulates the economy."

The most common public pension plan modifications that have been implemented are increased employee contributions; reduced DB benefits for new hires including changes to retirement ages; and cost of living adjustment reductions for retirees and existing workers. More specifically, the report finds:

• Distinct business and labor market dynamics and regulatory pressures led to the decline of pensions in the private sector that do not necessarily apply to governments.

• A policy of closing or freezing pensions and switching to DC accounts is not necessarily the best approach for government employers and taxpayers. Recognizing this, states are modifying their pensions to ensure long-term sustainability.

• Freezing or closing DB plans and shifting to DC-only accounts threatens workers' retirement security, with mid-career employees being the hardest hit.

• Because pensions play an important role in public sector compensation, freezing or closing DB plans and shifting to DC accounts may negatively affect the ability of public employers to recruit and retain qualified workers.

The full issue brief is available here.

The National Institute on Retirement Security is a non-profit organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers, and the economy through national research and education programs. Located in Washington, D.C., NIRS has a diverse membership of organizations interested in retirement including financial services firms, employee benefit plans, trade associations, and other retirement service providers. More information is available at www.nirsonline.org.

This post is from the NIRS Organization website. View it in original form here.