Despite LA investment success, UAL time bomb ticks on

So the many Louisiana state retirement funds (there are about 20 although the bulk of them are in four) are doing decently in return on investment during these turbulent market times. That’s great, but that’s not the real issue facing these funds.

This of course is the unfunded accrued liability (UAL) built up over decades, supposed to be dealt with by legislation (mandated by the Constitution) that requires there to be no such thing by 2029. That is, assets held by a fund must be expected through predicted investment returns to equal expected pension demands made on them by that date. That is not the case at all among the four largest funds, although the vast bulk of the $10.5 billion deficit lies in just two, the Louisiana State Employees Retirement Fund (a shade over $4 billion) and the Teachers’ Retirement System of Louisiana (a shade under $6 billion).

Statutorily, the state is to pay it off by a certain amount a year but that is subject to appropriation and so far that has fallen way behind. Currently, less than 70 percent of the two’s combined target annual payment is being hit and, worse, only a little more than half of the UAL is being covered by current payroll, meaning that if these rates continue in the few years preceding 2029 the state may be on the hook for billions of dollars of payments.

To compare, let’s say the state’s investments do great, a 10 percent annual return. In these two funds this year, such a return would have sliced only 20 percent off the UAL – and this is not counting the need for the use of those funds to pay current liabilities. In short, only the most sustained, fantastic investment performance could ever help grow the funds out of trouble.

This is why Gov. Bobby Jindal got the Legislature to go along with him in apportioning $60 million of the latest surplus to pay down UAL (this many years out estimated to reduce it by $240 million). And this is why, with talk of a billion dollar surplus ahead for the next fiscal year, they need to do it again and perhaps on a larger scale.

So it’s not really a matter of the citizenry being able to “rest easy.” By all means are upbeat investment reports welcome. But the state can’t afford to distract itself with them from the ticking time bomb that is the UAL, and should stay very concerned.