Disingenuous reply tries to obscure poor pension health
Power and privilege fought back when a particularly dismal report shed more light on Louisiana’s overgenerous, underperforming pension systems, illustrating the attitudes behind why the state faces this looming crisis.
The Pew Center on the States, not known for its hyperbole but rather for its quality in research, noted the poor fiscal health of Louisiana’s pensions systems was close to the bottom of the states. With a recommendation that a pension system be 80 percent funded, at 57 percent the state is now about $19 billion short of that mark. The same information was used by supporters of system reform to argue for changes that would have employees pay their fair share for the generosity of their benefits as at this underfunded level taxpayers are pitching in an extra nearly $1 billion a year to offset.
However, this fix was opposed bitterly by the retirement systems and their interest group allies, resulting in deferral of the legislation and kicking the can down the road some more. Reform would reduce the amount of money coming into the fund and with the generous payouts; never forget that agencies and bureaucrats always prefer more resources than fewer both to get and give because more brings more power. Reform also directs unwanted attention to the systems’ subpar investment performances. These two reasons explain why the unfunded accrued liability has doubled in the past dozen years.
But to admit this would be to admit defeat and invite reform to succeed next year, especially since these vested interests have no other solution than to keep sticking their hands into taxpayers’ wallets, so the empire, or at least one of the two largest parts of it the Louisiana State Employees Retirement System, must fight back. It did so with an entirely disingenuous response. It claimed the system had become shored up over the past few years including an increase in employee contribution rates, disputed the Pew assertion that in several recent years the state had not kept up with payments into the system, and crowed that a most recent year return of 28 percent and other recent year returns showed things were on the upswing.
The only reason none of the above technically is a lie is because of the distortion and obfuscation LASERS in the way it presented these assertions. Let’s take them in turn, looking just at LASERS’ data.
First, the system is weakening, not getting better. That metric of funding health has been decreasing steadily over the past decade, falling from 70.2 percent in 2002. It peaked in 2007-08 in the 67 percent range and has plunged since. In tandem, the UAL has steadily increased from forcing the state to increase its contributions over that span from 13 to 22 percent of base salary. And while the taxpayer has had to pay nine percent more, what of that employee rate increase trumpeted by LASERS? Its average is up a whopping .07 percent over that period up to about a third of the state rate at 7.74 percent. These are not signs of vitality, but of failing health.
Second, in maintaining that the state had made all required payments into pensions, the point obscured was because this was constitutionally required it has caused, absent reform, the rapid escalation in taxpayer subsidization, which only was supposed to vary in the 6.5-7.5 percent range over the period. For LASERS, in 2002, the extra UAL portion paid out by the state was almost 100 percent of the statutory amount; by 2011, it had reached nearly 250 percent. Simply put, extravagant promises of the past created a massive transfer of wealth from the citizens to state employees above and beyond, on average, what the services that they had performed to the state would merit them.
Third, showing off one good year of performance and then proclaiming that “examining historical returns, the system has kept pace with expectations” is not lying only if you have exceedingly low expectations to begin with. It certainly is a lie if you count as the “expectations” the expected return built in to calculating the state share, which until recently was 8.25 percent until lowered a quarter of a point. Since 1998, LASERS has returned an annual average of only 4.92 percent. In fact, had it invested everything in the Standard and Poor’s 500 index it would have made an average of 7.55 percent annually over that same period. And this points to the other reason for system failure besides being too generous with pensions: expectations that in reality were too high, creating a con game victimizing taxpayers who were told such a generous system could be supported because of the relatively high rate of return.
Posted by Jeff Sadow at 10:00