SB 7 is a start toward retirement fund fiscal sanity

The Public Affairs Research Council often comes across as a nagging grandmother because it keeps harping on the same things -- because the state doesn't act on so many of its usually-sensible prescriptions. So if you’ve read this before, don’t tune it out – because as of now, the problem is worth $12 billion.

It’s most recent report again highlights the fact that, as of now, the state’s 13 retirement systems have $37 billion in liabilities but only $25 billion funded. A constitutional amendment passed in 1989 was supposed to solve the problem but did not mandate a schedule on which payments towards the proper level of funding would be made. As such, as the target date of 2029 approaches payments get increasingly onerous: last year, the payment was $560 million (three years of this and I-49 easily could have been finished without even spending any federal dollars) – and it was all interest without any reduction of the short principal.

PAR makes several suggestions but two are particularly noteworthy:

Consolidating administration (the four state systems initially and ultimately all systems) and creating a consolidated system board with public members in the majority

Creating a new, less costly defined benefit pension plan for new state employees and educational personnel that would encourage longer career service

And it emphasizes the latter by noting:

Liberal eligibility requirements encourage early retirement and result in the use of DROP programs and rehiring of retirees to keep people on the job. Efforts to create a rational new system for future employees have floundered.

Since it is a foundation and not an advocacy group it cannot lobby specific legislation, but surely SB 7 would meet with its and others who support these measures approval. State Sen. Walter Boasso’s bill would exactly discourage early retirement, reduce financial incentives to do so, and bring some rationality to the two largest funds, the Teachers State Retirement of Louisiana and Louisiana State Employees’ Retirement System.

Predictably the TRSL opposes the bill because it changes the governing structure and argues that an overly-generous retirement system is compensation for “low” pay. Simply, the separate systems, one for educators, and the other for state employees, are having the same threatened future underfunding problems as several other public employee retirement systems in the state because they are too generous. The current system allows people as young as their early 50's to draw retirement for most at 75% of the average of their highest three years of salary (and then many of these people go right back to work full-time elsewhere). You could be in your early 60's and draw 100 percent. I don't know of many, if any, pension systems in the private sector that are so generous.

The bill would clamp down on future employees only. It would raise slightly the contribution level and essentially force everybody at least to work until 60 for full vesting in the system (leaving earlier would cause a refund of contributions compounded at a low rate of return). It also will probably slightly lower the level at which benefits are computed by spreading out the average over five years. This will put the systems on more solid ground.

But perhaps the major reason why the TRSL has come out against the bill is that it drastically changes the governance of it. Instead of a board selected mainly by the members/retirees, the majority on the new board (which would combine both TRSL and LASERS) will be comprised of elected officials or their designees and nominees from the for-profit and non-for-profit sectors, taking control out of the hands of the organizations.

Because of the huge stash in the funds these two boards administer, and their inherent inefficiencies and past records in managing them, it's probably best that there be more popular oversight of them. While there may some trepidation at giving politicians a small increase in representation on the board, the fact that over a third of the new board will be of investment professionals more than offsets this concern. This is a necessary reform to ensure solvency of the funds and increasing the chances of professional management of them.

This bill will deal with the problem now, and reduce the future liabilities of state taxpayers. At least it’s a start and deserves passage.