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Merge LA retirement systems to improve performance

At least some progress has come at the poster child for problems with Louisiana’s retirement systems, the Municipal Police Employees Retirement System, has taken and looks to take other steps to rein in the potential for abuse of retiree and taxpayer dollars. But risk unnecessarily exists unless more drastic changes make their way into law.

As previously noted, MPERS launched questionable investment strategies and compounded with lax oversight controls created a situation that accelerated poor financial performance and allowed siphoning off additional funds to fraud. As a result, retirees from almost all municipal police forces in the state draw lower pensions and taxpayers must pony up more money and/or forgo increased service to compensate.

To date a trio of bills, SB 2 by state Sen. Elbert Guillory, HB 426 by state Rep. Chuck Kleckley and HB 332 by state Rep. Kevin Pearson, seek to address fundamental shortcomings in managing the funds designed for state employees. Kleckley’s bill addresses three of the four major funds by adding state executive branch representation, while Pearson’s alters of the composition of MPERS trustees specifically and Guillory’s addresses the same for the small Registrars of Voters Employees' Retirement System, adding the potential for much more informed and professional management.

Still, it’s not enough at getting at the root of the problem. Part of the breakdown at MPERS came because the trustees, with the exception of ex-oficio members the chairmen of the respective House and Senate Retirement Committees who rarely attended trustees meetings, were all current or retired officers with little background in finance. Adding the executive branch officers can provide more sunshine and opportunities to interject expertise into governance, but appointed representatives still would predominate. At MPERS, it was this majority of trustees that approved implementation of unsound managerial practices in the first place.

But related to the potential for inexpert majorities to make unwise decisions is Louisiana simply has too many separate retirement systems. Besides the four major “state” systems, there are the nine other “statewide” systems (such as MPERS) and then 20 designed for specific local jurisdictions. All having separate boards of trustees and only the four state systems at present with any formal state executive branch presence (under the jurisdiction of the state treasurer), it creates a lot of appointed positions but little guaranteed expertise.

Much better would be to dramatically reduce the number of systems, perhaps even to the minimum of one as practiced in Maine and Hawai’i. It may not have to be even that low, as similar-sized states neighboring Mississippi and Oregon have only four, while larger Wisconsin has just three and much bigger Ohio has six and New York nine.

There seems to be no logical reason to have so many systems separated out as they currently exist in the state, other than decades ago as state and local agencies agreed with the advantages of offering retirement benefits to their employees these systems came into being in piecemeal fashion. Are the investment objectives, given their specific kinds of employment, so different among registrars’ employees, municipal police employees, and employees of most state agencies? Why cannot a single board invest on behalf of all?

Having fewer systems means fewer boards with inexpert trustees and the reduced possibility of their activities escaping oversight. It also increases investment options by having larger pools of assets to put to work and limits the impact that bad investments can make. True reform of the structure of retirement systems in Louisiana would consolidate the many systems into a very few and putting board membership policies into place that would maximize oversight and professional management – making a repeat of what happened at MPERS over the past dozen years much less likely.

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