The good news is the bad news is
not as bad as it could be regarding Louisiana’s tremendously underfunded major
state pension funds. Regardless, heeding these systems declarations that
observers should go home for nothing is to be seen encourages a false sense of
security.
The Louisiana Legislative Auditor recently
released an actuary report on the financial health of the two largest of
the state’s many pension systems, the Louisiana State Employees Retirement
System and the Teachers Retirement System of Louisiana. Together, they account for
nearly
$18 billion of the state unfunded accrued liability that constitutionally
must disappear by 2029. The report implied that a corner of sorts was being
turned in the battle to meet this goal, arguing that the present systems’
configurations will allow for increasing ability to pay down this gap between
what they are expected to owe to retirees and what is scheduled to be made available.
The systems cheered on this result,
which has come as a result of several legal changes over the last few years –
ironically, some of these strenuously
opposed by the systems when others previously recommended these prior to
political tides making system opposition untenable. However, left unmentioned
were the two biggest factors that have stabilized matters over the past couple
of years.
One was something never favored by
the systems, reductions in force. During the seven years of Gov. Bobby
Jindal’s tenure, overall state employment has gone from a full
time equivalent of about 93,000 to around 61,000, a decline of about a
third (most state employees are in LASERS but those in higher education are in
TRSL). While in the short run this can exacerbate the UAL as fewer employees
pay in to offset money going out in retirement pay, years before the due date
positive effects will occur as fewer potential retirees and beneficiaries will
exist and this will carry forward in perpetuity.
The other has to do with something
they have no control over, macroeconomic conditions that affect investment performance.
The easy money monetary policy of the federal government has inflated equity
values, around which the system’s investments are built, while the economy
sputters along in the worst recovery in history and worst jobs picture in
nearly four decades due to depressive policies of the Pres. Barack Obama
Administration. Hopefully, the economy someday will catch up to portfolios, but
if it doesn’t eventually the air will escape the balloon, investment
performance will suffer, and as a result the UAL, under control the past few
years, will increase significantly.
Compounding this would be that if
investment returns decreased, the state panel in charge of actuarial matters would
force the systems to lower their expected rates of return. This in turn drives
up the annual cost to compensate for the UAL, although if the economy picks up
steam later and returns rise as a result, this can provide more money in the
future to pay off the UAL increase that happened as a result of the change in
rate in the past. Two such downgrades already have happened in the past few
years.
That’s one reason to be wary of the
systems blowing sunshine up skirts. The other is that, despite the optimistic
tone struck by the systems, the report scarily warns that at the present rate
of extra taxpayer contributions to pay off the UAL by the target date the
chances of succeeding are even money. Considering that just for LASERS and TRSL
in fiscal year 2013 taxpayers had to throw in an extra more than $1.5 billion
(even though most TRSL members are at the local level, since education
performed locally mostly uses state money, state taxpayers also get hit here
along with their footing the bill for college employees), or 6 percent of the
entire state budget, for that portion of the UAL payoff, anyone who thinks
sunny days are ahead on this issue either lives in a fantasy world or shills
for the systems.
Already in the aggregate for LASERS
employees their agencies last fiscal year had to pay 37.4 percent of the value
of their salaries because of the UAL, with over 30 percent of that going to pay
it down (the rest is the statutory base payment required of agencies). Obligations
to TRSL employees are not much less, in the aggregate being 27.7 percent with
over 20 percent of this because of the UAL. Adverse economic performance would
drive these rates much higher.
So by no means are taxpayers out of
the woods in terms of paying fantastically huge sums over the next 13 years and
perhaps in those years to come much higher than now. The systems can try to
distract from the fact all they want, but both are around only 60 percent
funded, with the clock ticking and their continuing resistance to other reforms
such as increasing the employee contribution for jobs
which generally are overcompensated in the first place. Rather than
reassurance, this report should generate continued concern over the rickety
condition of LASERS and TRSL.
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