Reform needed to stop annual $1 billion taxpayer drain

At least someone’s trying with serious ideas. State Sen. Elbert Guillory announced his intent to file several pieces of legislation for next year to overhaul the state’s ailing pension funds, aimed that the two that have the large majority of members, the Louisiana State Employees Retirement System and the Teachers Retirement System of Louisiana, and they are needed.

Last year, Guillory helped to spearhead efforts at reform, designed to rein in the lucrative retirement benefits regime promised by the state disproportionately generous to what employees contribute. The problem has created a situation where each fund could pay off only a little more than half of its future obligations with present funding mechanisms and predicted investment performance. This has created increasingly massive unfunded accrued liabilities that the state constitutionally must pay off by 2029.

In order to do so, since 1989 the state has had continually to increase its extra portion paid in beyond what the system was designed to do. For example, for fiscal year 2012 TRSL paid in an additional 17.73 percent for employees under its largest of four plans, above its 5.97 rate while employees paid in 8 percent. Assuming this figure across all state plans (it varies and TRSL’s regular plan’s is lower than most; for some of the smaller ones, the figure was in the 30-40 percent range), and using average salaries and fulltime equivalent employment numbers and estimated full-time equivalent number of teachers and their salaries, this means an estimate of the extra that taxpayers had to contribute to meet the generous payouts was $1.045 billion in that year, or four percent of the entire budget and enough to have restored funding for health care and higher education to 2008 levels.

It’s clearly an unsustainable model to have a system where the equivalent of one-quarter or more again of employee pay goes into pension systems, where of that taxpayers pick up three times or more of than to employees for their own pensions. Thus, Guillory wants to reintroduce much of what he and allies such as the Gov. Bobby Jindal Administration failed to get passed last time, including an increase in employee contributions of three percent (making it 11 percent contributed for the majority of employees) and computing final benefits over a five- instead of three-year average.

But to sweeten the pot to overcome resistance that doomed the reforms previously, Guillory has added new elements. First, he wants to have the lion’s share of increased revenues into the system go into paying down the UAL. Second, what remains would be used to fund small but guaranteed pay raises every other year for current employees and to provide resources for periodic cost-of-living increases for retirees. Third, he would have tapped into other revenue-raising sources, such as from settlements and interest off of unclaimed state money.

The usual suspects trying to make taxpayers cough up more than their fair share regarding pensions reacted to these cautiously. The head of the group that claims it represents the interests of retirees responded positively to the COLA part but wondered if state employees, many of whom have not seen a raise of pay in grade for up to four years, should have to increase their personal contributions by the three percent. Given that state employees already generally are overcompensated compared to those in the private sector whose jobs perform the same kinds of tasks, that should not be a concern.

But Maureen Westgard, the executive director of TRSL, appeared to veer into mendacity with her reaction, when she said about the contribution increase “Employees would be paying more than what they are getting in return.” TRSL’s most recent edition of its own handbook, in crowing about the generosity of its benefits, states that for a “57-year-old single teacher [that] retires after 30 years of working with an average [annual] salary of $28,800,” in order to receive monthly $1,800 retirement pay that this hypothetical person would enjoy a “TRSL benefit the teacher paid $50,000 for is worth more than $335,000!” in the real world.

Never mind that this retirement age is two-and-a-half years earlier than one can draw upon an individual retirement account in the real world, or roughly nine years earlier than Social Security payouts begin. Nor mind the fact that it’s based upon, in many instances, a work year of nine months and actually is less than two-thirds the average public school teacher salary (about $49,000) in the state, which is above the median household income in Louisiana, meaning the differential paid in is even greater in terms of the actual annuity value. (Now is it obvious why the UAL is so large?) Regardless, at an average contribution rate of 7.73 percent over those 30 years (because the rate was only 7 percent before 1989), an extra 3 percent on top of that would have changed that $50,000 to $69,405; in what conceivable way is that figure greater than $335,000-plus?

Guillory’s ideas are worth serious consideration. Whether this strategy to split retirees and current employees by promising COLAs, to have greater potential promise of pay raises in exchange for added contributions, and steering all money raised to retirement benefits matters succeeds, the UAL ticking time bomb must be addressed. And it is unfair, if not immoral, to expect taxpayers and/or individuals affected by a strategy of denying state services to foot the entire burden.