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State retirement system remains broken

By Dan Juneau -   Jun 28, 2012

In the early weeks leading up to the 2012 Legislative Session, state lawmakers were inundated with phone calls and correspondence regarding Governor Jindal’s education reform initiative. But soon, legislators began hearing even stronger reactions regarding reforms being brought by the administration in an attempt to shore up funding for Louisiana’s retirement systems.

Currently, less than half of the state’s overall long-term retirement liabilities of $51.4 billion (pensions and healthcare) are funded. Through a series of initiatives—such as increasing employee contributions, raising the retirement age for some and changing the way the state’s generous retirement benefits are calculated—Governor Jindal sought to modernize Louisiana’s system for providing benefits to public employees. But in the end, the outrage expressed by state employees proved to have more of an impact on many legislators than the notion of fiscal responsibility, and only one significant retirement reform bill survived the treacherous legislative journey.

Under a new law signed by Governor Jindal earlier this month, selected higher education and state employees hired after July 1, 2013, will be offered cash balance pension plans as opposed to the current defined benefit plan.

While the new cash balance system still protects state employees from losing money in the market if investments sour, it moves the state away from its traditional role of providing guaranteed lifetime retirement benefits based on an employee’s compensation and years of service. This is a significant step in the right direction because it should help to reduce future liabilities, but unfortunately this bill will do nothing to lower the current $18.5 billion unfunded accrued liability (UAL).

According to a new report from the Pew Center on the States, Louisiana’s management of its long-term liabilities for pensions and retiree health care is cause for "serious concern." With only 56 percent of its pension benefits funded, Louisiana falls far short of the 80 percent minimum threshold that is recommended by the Government Accountability Office. Nationally, this ranks Louisiana in the bottom five states for funding pension benefits. Only the states of Connecticut, Illinois, Kentucky, and Rhode Island fared worse with less than 55 percent of their pension liabilities funded in 2010.

Clearly, Louisiana is not alone in this battle between growing pensions and the burden they place on state budgets. In fact, only Wisconsin, which attracted national attention for Governor Walker’s fight with the unions over public sector benefits, has funded its pensions at 100 percent. According to the National Conference of State Legislatures, 43 states enacted reforms to reduce unfunded pension liabilities between 2009 and 2011. As was the case in Wisconsin and many other states, the only way to begin immediately whittling down soaring retirement costs is to reduce payments or increase contributions.

During this legislative session, Louisiana lawmakers had many legislative instruments before them to do just that, but they took the easier route and decided to reduce benefits on the employees that can’t write letters or make phone calls—the invisible and faceless future hires. Until the broader public begins to feel the significant impact that the pension system has on the state general fund and the services it provides, the Legislature will likely continue to listen to the voices of the state employee minority and ignore the well-being of the majority of the taxpayers.

 

Brian Landry, Director of LABI’s Small Business Council, contributed to this column.

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