It’s not exactly back to the drawing board for the next phase of
pension reform in Louisiana, but at least the opportunity to come up with
something better presents itself, all the while recognizing that doing nothing
is not an option.
With only a slight amount of stretching the state Constitution, the
Louisiana Supreme Court last week declared that passage in 2012 of a cash
benefit plan for new hires into state government did not have the requisite
votes, and thereby invalidated the law that was, after an instrument passed in
this year’ session, to take effect a year from now. The Constitution says that
any actuarially change predicted as negative, even if really indeterminable
and largely guesswork, to retirement fund solvency requires a two-thirds
vote of the seated membership for passage in each chamber, and the House fell a
couple short.
Using a bit of creative license –
despite the Constitution’s not specifying that this applied to future plan
members, the Court strung some statutes together and tortured the mix to say
that it somehow did – to wipe the statute away, this eliminated a minor but useful
means by which to defuse the ticking time bomb that is the state’s unfunded
accrued liability, now in the neighborhood
of $20 billion and costing taxpayers an extra $1 billion or so a year to
finance.
The cash balance plan, which would have money invested by employees with
a guarantee of no loss in exchange for lower potential returns that would
improve the situations of some retirees, be less generous for some, but, unless
there was an extended period of losing investment performance would cost
taxpayers less, marginally have would attenuated the growing imbalance caused
by the generosity
of Louisiana’s plans in conjunction with other forms of compensation. But
every year that goes by without it or something like it, unjustifiably more wealth
is transferred from the people to potential future retirees.
Now that the two-thirds requirement has become enshrined in all
instances, perhaps policy-makers should go all the way to a defined
contribution program, where employees have their contributions and the state’s
pooled into a fund on which to draw that they manage, the amount fluctuating by
investment performance, an option only available to a few thousand in higher
education currently. This is opposed to the kind of plan all other state
employees and school district employees have, defined benefit, that sets a
fixed periodic retirement payment amount according to kind of job, salary, and
years worked, which has asked too little for employees to pay and has been too
optimistic in investment gain predictions to support the payments promised and
has driven the mushrooming UAL.
The DC plan essentially would eliminate any negative impact on the UAL,
leaving just the accumulated insolvency of the past to whittle away (which by
the Constitution must be gone by 2029), while a CB plan over an extended
stretch would not have much negative impact and probably none at all, so it
would make more sense to go for the former, for the last
attempt at this showed an actuarial gain. But the problem here is that this
bill in 2010 went nowhere, probably because of the mistaken notion that the vagaries
of the market could make many employees much
worse off than under the current system, if not impoverished.
That’s entirely false, as shown by the several
other states that either have gone completely to having only a DC plan for
new hires, making them optional with a DB plan, or combining the two, and still
reaping savings as compared to a mandatory DB plan. Further, going with a DC
plan can solve for another potential problem with the federal requirement that
state pension plans have a typical benefit at least equal to the commensurate payment
from the pension system it runs also headed to insolvency, Social Security.
There was some doubt that the CB
plan as passed would have done that.
The political situation will have evolved considerably by 2014 from
2010. The UAL will have increased several billion dollars with 2029 four years
closer and state government will have shrunk. Perhaps this will be enough to
convince majorities to abandon the DB plan for new hires on fiscal considerations.
Yet if too many legislators still put special interests ahead of the
citizenry and fail to enact a DC plan, there’s a simpler, if less principled
and elegant solution: discontinue any retirement plan and instead have new
hires enroll into Social Security. Then, the state would be paying only 6.2
percent of salary instead of the typical 8 percent (it often pays higher for
hazardous duty personnel, and it may wish to continue to provide a state plan
for them accordingly), and so would the employee who usually pays the same.
That would mean more net pay for state employees, which makes it difficult
politically to move against. True, this merely shifts difficult decision-making
from the state to federal levels, which affects Louisiana taxpayers equally, but
it’s better than doing nothing.
1 comment:
Blather!!!!!!!!!!!!!!
Your statements about the amount of the UAL are without any factual support or basis. Or, do you think referring to YOURSELF is sufficient factual support????
You are a college professor and know or should know better. What a model you set for your students!!!
The TRUE reason that the costs are now almost a billion dollars a year IS BECAUSE THAT THE WAY THE LEGISLATION SET UP THE AMORTIZATION OF THE DEBT [UAL] IT PRIMARILY CREATED OVER TWENTY YEARS AGO - TOTALLY BACK-LOADED.
You know that or should know that, especially if you are going to try to present yourself as knowledgeable about the subject when you write on it.
Another thing you failed to inform your readers of in this matter: The Governor's "cash balance plan" was so clearly constitutionally flawed that the Supreme Court vote was 7 - 0. Not one vote for it.
Trying to ram this obviously doomed plan down the throats of the retirement systems, as Jindal did, has costs them hundreds of thousands of dollars in futilely having to try to implement it timely. And, there has been no attempt to reimburse them for those costs.
Another part of this you did not know about or did care to share with your readers. To me it sounds kinda like taking the assets of another without reasonable and fair compensation. That, too, is proscribed by both the federal and state constitutions - isn't it, Professor?????
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