Friday, 13 April 2012 12:52
Louisiana's retirement system needs reform
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louisiana capitolThe legislative session began with hordes of teachers descending upon the State Capitol to oppose Governor Jindal’s aggressive education reform package.  The dust had barely settled after those two historic bills were passed, a new battle began brewing over the administration’s efforts to reform the state’s retirement system. 

 

This week, after nearly 10 hours of debate, the House Retirement Committee moved three retirement reform bills to the floor.  The first is a cost-saving measure that merges the Louisiana School Employees' Retirement System (LSERS) into the Teachers' Retirement System of Louisiana (TRSL) to streamline administrative costs and overhead. The second will simply add the state commissioner of administration or his designee to the boards of three retirement systems.  And the final bill proposes the creation of a progressive, portable hybrid 'cash-balance' pension plan for new state workers, giving them more flexibility and freedom in their careers.

As these bills head to the House floor for consideration, two of the most controversial retirement bills are still waiting in the wings. Next week, the Senate Retirement Committee is expected to take up a measure that would increase the contribution rate of rank and file state employees from its current level of 8 percent to 11 percent.  They will also debate a proposal to increase the retirement age of state employees to 67. 

Since they were first announced, these proposals have come under intense public pressure and scrutiny.   Many union members and current state employees have spoken out against the measures.   Several weeks ago, the legislative auditor also issued a report suggesting parts of the reform package could be challenged in court as being unconstitutional because they may ‘impair or diminish’ the retirement benefits for potential retirees.    

In response, lawmakers and the governor’s staff have been working to fend off a constitutional challenge and create more politically palatable proposals for a weary Legislature that just tackled education reform.  One of the bills is being amended to ensure the 3 percent increase in the employee contribution rate is dedicated directly to the unfunded accrued liability (UAL), rather than going into the state general fund.  Additionally, the proposal to increase the retirement age for state workers is being reworked to increase its chances for passage. 

Even if the governor were successful in passing his entire package in its original form, the taxpayers are still faced with a hefty retirement debt.  The UAL for the four state systems has grown from $5.6 billion in 2001 to over $18.5 billion today. Next year taxpayers will finally begin paying on a portion of the debt principal that was amortized over a 40-year period back in 1989.

As it stands right now, the employer contribution rate, covered by taxpayers, for the rank and file employees of the Louisiana State Employees Retirement System is over 28 percent.  The employer contribution rate for all of the four systems has continually grown over the last decade with one of the highest, State Police, reaching over 55 percent.  The UAL is a growing problem that must be addressed. 

These reform measures are moving Louisiana along the correct path in solving its own retirement debt debacle.  The continued increase in employer contributions are diverting much needed taxpayer funds away from critical services like education and healthcare, not to mention economic development needs such as roads and infrastructure. 

This session has been marked by some of the longest hearings and floor debates this state has seen in decades.  That’s because the administration is taking on some major issues, and robust debate is a healthy and necessary part of the process.  Let’s hope the majority of our lawmakers still have enough strength and political will left in them to see this through.  The state’s current retirement system is badly broken and must be fixed.

 

by Dan Juneau, President and CEO of Louisiana Association of Business and Industry

by Dan Juneau, President and CEO of Louisiana Association of Business and IndustryBrian Landry, Director of LABI’s Small Business Council, contributed to this column.


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