What’s Smart? Spread Out Those Pension Changes

Louisiana’s four major retirement systems need to be fixed, but Gov. Bobby Jindal’s proposed fix is causing heartburn among many of the 50,000 state employees who will be affected. Citizens are also having a difficult time understanding why three of those systems are not included in the mix.

Changes being proposed by Jindal will affect some 40,000 members of the Louisiana State Employees Retirement System and over 8,500 higher education employees who are members of the Teachers Retirement System of Louisiana. Not included are persons 55 or older (born before July 1, 1957), teachers in grades kindergarten through 12, public school workers, hazardous duty employees and judges.

The elephant in the room for the four major retirement systems is their accumulated debt of $18.5 billion that continues to climb. That is how much it would take to pay out promised retirement benefits that have first claim on state revenues.

The debt mushroomed because the systems weren’t adequately funded when they are created, too many liberal pensions have been approved through the years and legislators and governors haven’t paid off some of the debt when they had major budget surpluses.

Jindal made a good case in this space Tuesday that retirement costs have to be brought in line. He said taxpayers are spending nearly $2 billion just this year on state retirement, and contends his plan will save taxpayers over $450 million in the first year and over $1.5 billion over the next five years.

OK, so why not include all four systems in the cure and save even more money? LASERS is responsible for only 35 percent of that debt, which is just under $6.5 billion. The teachers retirement system is responsible for $10.8 billion, but only higher education members of that system are included in the reform effort.

Four major changes for the 50,000 affected employees are on the table. Jindal wants to raise the retirement age to 67, increase employee retirement contributions from 8 to 11 percent, figure pensions based on a person’s five-year rather than threeyear average highest salary and create a cash balance plan for new persons hired after Jan. 1, 2013.

Current state employees are under a defined benefit plan that provides a specific benefit at retirement. The private sector is turning to defined contribution plans that work much like the 401(k) system. The cash balance plan is a blend of the two that we will discuss in detail in a future column.

Legislation using a five-year average for figuring pensions was changed for certain employees by Act 992 of 2010, so it isn’t new. But it only applied to newly hired workers. Affected employees don’t like the 3-percent increase pushed by Jindal, but their biggest complaint centers on raising the retirement age to 67. LASERS employees can now retire at any age with 30 years of service.

Except for those 55 and older, Jindal’s proposed legislation is reaching back to include employees already in LASERS. Retirement officials say that is changing the rules in the middle of the game and not keeping promises made to employees.

State Sen. Ronnie Johns, R-Sulphur, told the GOP Roundtable recently that he got a call from a 53-year-old state employee who said she wanted to retire at 55, but would have to work 14 more years. Johns said the woman who called him could retire early before Oct. 1, the cutoff date. However, she would get a reduced pension based on the 67 retirement age instead of the 55 retirement age.

LASERS released some scenarios that help explain the impact of raising the retirement age to 67 for that woman and others.

Under the current system, an employee who is 54 with 30 years’ service could retire at 60 with 36 years’ service, an average $60,000 annual salary and draw a $54,000 annual pension. The new provisions would reduce that pension to $25,567 at age 60. If that employee retired before Oct. 1 this year, the pension would be $45,000 annually.

As you can see, many employees targeted by Jindal’s retirement reform plan would work longer, pay more into their retirement systems and get smaller pensions.

LASERS officials said, “It is not just the glaring inequity that must be focused on but also the undue harshness of the proposals. The LASERS members targeted are those who are least able to speak up in opposition.”

Sen. Johns and other lawmakers have said retirement reform has become the hot-button issue for the legislative session beginning March 12, and you can see why. Many state employees who are counting on a pension they hope will help them meet the increasingly high cost of living when they retire will see their world turned upside down if Jindal’s retirement reforms are enacted.

Retirement changes have to be made, but they should be shared equally. And they should apply to new hires, which is the usual practice. That definitely isn’t the case here. The 50,000 employees being targeted shouldn’t be the only ones who have to pay for the sins of those governors and legislators who failed over the last 75 years to adequately fund the state’s retirement systems.

Jim Beam, the retired editor of the Lake Charles American Press, has covered people and politics for more than five decades. Contact him at 494-4025 or [email protected].

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