Pension debt not the fault of employees

This article is by Marsha Shuler, who covers state government retirement issues for The Advocate’s Capitol news bureau.

Cindy Rougeou, chief of the Louisiana State Employees Retirement System, called LASERS, says she wants to clear up a misperception in some quarters about her pension system’s situation.

State employees are paying more than their share of their future pension benefits, she said. But, “The debt is not the responsibility or the fault of the employees,” Rougeou said.

“The greatest part of the debt came from the failure in decades past for the state to pay its required contributions,” she said.

Rougeou made that point as the Legislature considered legislation that called for state employees to pay more of their payroll checks toward retirement. Gov. Bobby Jindal backed legislation that would have shifted part of the state’s responsibility to employees so dollars could be freed up for other spending in a $25.3 billion operating budget.

In another bill, Louisiana House Retirement Committee Chairman state Rep. Kevin Pearson, R-Slidell, asked state employees to contribute more with those extra dollars going to pay down system debt.

Neither proposal got far.

House Speaker Jim Tucker, R-Terrytown, called the extra payments a “payroll tax.”

The proposals did bring attention to LASERS’ unfunded accrued liability, which is called the “UAL.” The UAL is the amount that would be needed to cover pension benefits earned should the systems have to pay today. It’s about $18 billion for all four state-guaranteed systems. The debt for LASERS, which handles retirement benefits for state government employees, sits at $6.25 billion.

Two-thirds of LASERS’ liability is attributable in one way or the other to the state failing to pay its share of costs, Rougeou said. The other third is largely investment losses tied to the recent recession.

The investment situation is improving, with LASERS recently registering its best fiscal year ever at a 24.3 percent return, which should help reduce the UAL, Rougeou said. It’s the old debt that’s been the albatross.

Steps to tackle the growing UAL began in 1987 with a constitutional amendment requiring the state to pay off existing debt by 2029.

The state is on a payment plan to do that. But the plan is back-loaded with increasing state contributions called for as 2029 nears. Some past governors opted not to keep up with the plan, pushing bigger bills down the road.

In 2009, the payment plan was revised to save $500 million but it’s still not sufficient to pay interest on the amortization of the debt.

Through the years there have been other steps to reduce LASERS’ pension liability, including increases in employee contribution rates, changes in retirement eligibility as well as how pension benefits are calculated.

Two other constitutional amendments won voter approval. One requires new benefits to have a source of funding. Another requires a two-thirds legislative vote for proposals that have a cost to the system.

Another proposed constitutional amendment, sponsored by Pearson, goes to voters Oct. 22 and would require a portion of any state surplus dollars to go to retirement system debt.

“Those are real dollars and that will help reduce it,” Rougeou said.

Under the current constitution, repayment of the UAL is one of the things on which surplus funds can be spent.

But few dollars have gone there and an opportunity was lost. “At one point, there could have been a $5 to every $1 savings,” Rougeou said. The steps taken won’t reduce the UAL overnight. But efforts will get there over time, Rougeou said. “Something in fact is being done,” she said.

And it’s the right way to go about it, Rougeou said, instead of trying to shift some state costs to current employees paying their share.

Retirement System Officials tout benefit of paying down debt

Cindy Rougeou, Executive Director of the Louisiana State Employees' Retirement System says applying a portion of the current surplus to pay down nearly 11 billion in debt accrued from 1936-1988 would put more state dollars to work for taxpayers and that’s good fiscal responsibility.

“We recognize that there’s going to be a critical time coming up very soon where those payments on the debt will be very large, and we have an opportunity to make them more manageable,” says Maureen Westgard, director of the Teachers’ Retirement System of Louisiana.

Rougeou, executive director of the Louisiana State Employees’ Retirement System, says the annual payment is fast approaching $1 billion a year. “We know there will be demands upon lawmakers to use the surplus money for other purposes,” Rougeou says. “However, we believe paying down the IUAL would be a fiscally responsible move and give our state its best return on the dollar.”

With the surplus possibly being the last one during the recession, Gregory Albrecht, the Legislature’s chief economist, says it can become tough to get those dollars when things become tight.

Surplus, or one-time, funds can’t be used to fix “an operating hole” but can be used for capital outlay, building needs and debt. Albrecht says paying down the retirement debt would be fiscally prudent, particularly when every dollar paid would save $4. The allocation is possible, but he says the Legislature and administration have historically applied surpluses to capital outlay.

Based on the current schedule, debt payments will not be enough to cover the 8.25% interest until 2012, so the principal is growing. And Rougeou says addressing the debt would be consistent with Gov. Bobby Jindal’s position of “getting your debt house in order.”

Jindal panel urged to pay down state retirement debt

State lawmakers should apply a chunk of Louisiana's $1 billion budget surplus to paying down debt in the state retirement systems, an advisory group to Gov.-elect Bobby Jindal was told Wednesday.

The advisory council is one of nine groups, each with dozens of members, appointed by Jindal to collect public testimony and make hiring and policy recommendations as his administration prepares to take control of state government Jan. 14. Although the administration has no obligation to act on the fiscal panel's advice, its work will be closely watched as Jindal prepares his first budget after a campaign in which he frequently labeled state spending as "out of control."

Jindal never promised to cut spending, but he frequently criticized the 2007 Legislature for adding more than 1,100 new state jobs without a comprehensive plan. Louisiana already has more state workers per capita than its Southern peers, and the state's budget has grown rapidly in recent years.

But Keaton said the jobs figure is "skewed" by the fact that Louisiana operates a statewide public hospital system. In other states, public hospitals are usually operated at the city or county level, so their workers are not state employees.

Louisiana can save plenty of money in future years if legislators are willing to use part of its budget surpluses to pay down some of the $11 billion in debt that has piled up in the Louisiana State Employees Retirement System and the Teachers Retirement System.

The debt is scheduled to be paid back, with interest, by 2029, but the state can save hundreds of millions of dollars in future interest costs by making early payments on the principal.