Messing around with retirement benefits can spell doom for a public official. However, Gov. Bobby Jindal has decided the state has no other choice but to reform state retirement systems that are almost $19 billion in debt. The only question seems to be whether the governor is playing fair.
Jindal has received a lot of flak from teacher unions and school boards over his plans for education reform, but that opposition may pale in comparison to the furor he appears to be creating over his retirement reform package. The first day The Advocate of Baton Rouge reported on the governor’s retirement plans it received 68 comments from its readers, which may be a record. And there is certain to be more dissent to come.
The state has four major retirement systems — the Louisiana State Employees Retirement System (LASERS), the Teachers Retirement System of Louisiana (TRSL), the Louisiana State Police Retirement System and the Louisiana School Employees Retirement System.
The governor is concentrating his reform effort on LASERS, the system that serves 54,000 employees. Its debt, which is called the unfunded accrued liability (UAL), totals $6.5 billion. The UAL is the gap between promised benefits and assets on hand. The teachers system has debt totaling $10.8 billion. The debt of the other two systems totals just over $1.2 billion, and it’s understandable why they don’t figure into Jindal’s plans.
The big question is why the teachers system isn’t included in the reform effort since its debt is higher than the other three. Here is what Jindal said about that:
“These reforms won’t affect retirement in K-12 schools since we are going to first focus on making sure that no child is trapped in a failing school,” he said.
Perhaps the governor has caused enough stir in the education ranks that he doesn’t want to be accused of piling on. But state employees have already seen their annual merit raises suspended and rarely get across-the-board increases. Now, they are going to see a major change in how their pensions are calculated.
State workers do get one break. Those who are 55 or older and approaching retirement will be exempted.
Jindal said there are only three options open to reforming retirement systems — raise taxes, ignore the problem or redesign — in this case — the state employee system. He has chosen the latter, and here is what he wants to do:
Calculate benefits using an employee’s average salary over a fiveyear period rather than the current three. Raise the retirement age to 67, which is the Social Security retirement age. Only give cost-of-living adjustments when assets permit. Increase the employee retirement contribution rate to 11 percent, up from the current 8 percent. And create a cash-balance retirement plan for new employees.
The cash-balance system is a blend of defined benefits (a monthly benefit check) and defined contributions (plans similar to the 401k). Employee and state retirement contributions would be invested, and workers could get a lump sum at retirement or could set up an annuity.
Professionals would invest the funds, and employees would be protected from investment losses. Persons leaving the work force before retirement could roll their savings over to an IRA or other account.
Jindal said, “In conclusion, our plan will redesign state pensions, keep our promise to current employees and improve the operations, governance and management of our state retirement systems.”
Cindy Rougeou, executive director of LASERS, agrees the cash-balance plan can be a viable option. But she makes a good point when she says it doesn’t reduce the $19 billion debt. However, the governor said his plan does immediately reduce the debt by $500 million, which he said could grow by $3 billion by the end of the decade if something isn’t done. Jindal adds that his reform plan would save $450 million in the first year and $1.5 billion over its first five years.
Rougeou said she doesn’t understand why retirement reform is based solely on LASERS.
“Singling out rank-and-file members, as is being proposed, raises serious questions of fairness and focuses the proposal on only a small portion of the UAL,” Rougeou said.
Legislators will have a chance to fine tune Jindal’s retirement plan at their spring session beginning March 12, but it’s unlikely they will agree to a drastic overhaul of the governor’s reform proposal. We hope they do take a close look at the fairness of the plan.
Education reform is a different issue from retirement reform. It’s difficult to understand why the teachers retirement system that is in deeper debt than LASERS should be treated differently. If the governor truly wants to reform the state’s retirement systems, what is good for one system should be good for all.
Jim Beam, the retired editor of the Lake Charles American Press, has covered people and politics for more than ÿve decades. Contact him at 494-4025 or [email protected].