Actuary Puts Pension Plan Savings at $5 Billion

By Marsha Shuler, The Advocate
June 13, 2014

Recently enacted changes to the retirement system could save taxpayers $5 billion over time because pension debts will be paid off sooner, the Legislature’s actuary reported.

The savings will come from reduced interest payments on the unfunded accrued liabilities of Louisiana’s four statewide retirement systems, according to an analysis by Paul T. Richmond, manager of actuarial services in the Louisiana Legislative Auditor’s Office. An actuary analyzes statistics to calculate risks and costs over time.

“It will save the state of Louisiana about $5 billion from having to make those payments. When it’s billions with a B, that’s nothing to sneeze at,” said state Rep. Joel Robideaux, R-Lafayette, sponsor of the change.

The state and school systems are making extra retirement contributions annually as part of a constitutional mandate to eliminate old debts, putting a substantial drain on budgets. The debts resulted when benefits were granted but dollars were not appropriated to pay for those benefits.

The Teachers Retirement System of Louisiana and the Louisiana State Employees’ Retirement System are nearly $19 billion short of the funds needed to cover long-term promised benefits, called the UAL or unfunded accrued liabilities.

Under the new plan, more of the retirement systems’ excess investment earnings will go toward debt retirement before dollars are put into a special account through which retiree cost-of-living raises, called COLAs, are funded.

The plan permits the state to begin paying down on the principal a lot quicker, Robideaux said. “We are going to start socking it (extra investment earnings) toward that big debt,” Robideaux said.

The result is similar to when an individual is buying a house and makes extra payments. The house is paid off early, and less interest is paid on the borrowing.

“This is huge. This is a big step,” TRSL Executive Director Maureen H. Westgard said.

Debts will be paid off “a good four or five years sooner,” Westgard said, adding that, for the teachers, it’ll mean $3 billion less in interest over a 30-year period.

Westgard said TRSL has an $11.3 billion unfunded accrued liability, and three-fourths of it is tied to the original debt and interest on it. The interest payments are almost half of the original debt, she said.

At LASERS, there will be $2 billion in interest savings.

“Anytime we can put more money to reducing the debt, it makes the system in a better position actuarially and financially,” said Maris LeBlanc, LASERS deputy director.

Robideaux said the intent was to get a plan that, in the long term, would save the state a significant amount of money but, just as important, would be able to give retiree cost-of-living adjustments more consistently. “The goal of the legislation was to pay down the debt that’s been out there for a long time that’s been handcuffing us so it won’t be there in the future,” he said.

Public Affairs Research Council of Louisiana President Robert Travis Scott said a good long-term impact for taxpayers are that the debts are paid off sooner, freeing up those tax dollars to pay for health care, education and other state priorities. “It also helps provide a regular and more dependable way for retirees to get COLAs,” he said.

COLA Becomes Reality; Update on LASERS Supported Bills

Governor Jindal signed HB 1225 into law yesterday, which was the final hurdle in making the 1.5 percent COLA a reality for eligible state retirees.The bill, sponsored by Representative Robideaux, will change the way in which future COLAs are granted. 

LASERS Executive Director Cindy Rougeou said, "This legislation ensures a much needed COLA for our retirees coupled with billions of dollars in expected savings for our System. This is significant pension reform. On behalf of LASERS I want to thank Representative Robideaux and Senator Guillory who authored the bill and Governor Jindal for making it official."

The Governor also ceremonially signed Act 102 (SB 18) yesterday, the piece of legislation which provides the 1.5 percent COLA for eligible retirees, survivors, and beneficiaries in LASERS. He had officially signed this bill last week. The COLA will go into effect July 1, 2014 for those retirees who are eligible.

SB 13, sponsored by Senator Peacock and supported by the LASERS Board of Trustees, awaits the Governor's signature. This bill will change LASERS actuarial funding method from projected unit credit to entry age normal.

Act 226 (HB 38), which changes the retirement eligibility for new hires only to five years of service at age 62, was signed by Governor Jindal. This bill applies to those hired after July 1, 2015 and excludes Hazardous Duty Service Plan members.

The 2014 Legislative Sessions ends at 6:00 p.m. today. Please check the LASERS website for the final outcome of retirement bills. The next issue of The Beam will feature additional information about significant legislation during this session. 

LASERS Investment Return 14.3%

LASERS fiscal year-to-date investment return is 14.3 percent as of April 30, 2014. Based on this performance, LASERS current total plan value exceeds $10.6 billion. 

LASERS Chief Investment Officer Bobby Beale said, “LASERS five-year and 10-year annualized investment return is 14.4 percent and 8.1 percent respectively. We are pleased to see the plan perform well over these long-term time periods.” 

In the Wilshire’s Trust Universe Comparison Service (TUCS) most recent peer comparison, LASERS ranked in the top 15 percent based on 10-year returns and in the top 14 percent based on seven-year returns. The TUCS comparison is conducted among pension systems with assets exceeding $1 billion and is the most widely accepted benchmark for the performance of institutional assets. 

“LASERS has realized a $1.4 billion increase in our market value over the past two years,” said LASERS Executive Director Cindy Rougeou, “and I am proud to say that our investment team manages approximately one-third of the investments internally, saving over nine million dollars this year alone in fees.” 

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. 

For more information, please contact LASERS Public Information Director Tonja Normand at tnormand@lasersonline.org or 225.922.1131.