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Retirement reform advances compelled by fact, logic

You have to hand it to the obstructers of beneficial change in Louisiana, they don’t go down without throwing everything they can into the fight. But with arguments the quality of which is like bringing a knife to a gun fight, it’s no accident that they lose.

Such was the case with objections to HB 61 by state Rep. Kevin Pearson, which would have state employees hired after this year have their retirement benefits, contributed from their salaries and an employing agency proportion, put into a cash balance plan. This would allow the state to invest money for these plans and essentially have any losses covered by the state. Current employees could opt in. For the employee such a plan may allow for greater periodic payments after retirement and is portable; for the taxpayer-funded employer, it means less future strain on retirement benefit payments that have already lead to a nearly $19 billion gap in unfunded accrued liabilities that will cost the citizenry about $1 billion extra this year alone to cover.

Legislative opponents supporting special interests invested in the current system tried to disparage the reform, without success. In part, this was due to the conceptual weaknesses of their argumentation.

Taking a legalistic approach was state Rep. John Bel Edwards, who argued that the measure, which passed 55-45, needed a two-thirds majority or 70 votes in order to proceed. Apparently, he relied on Art. X Sec. 29(F) of the Constitution, which reads “No such benefit provisions having an actuarial cost shall be enacted unless approved by two-thirds of the elected members of each house of the legislature. Furthermore, no such benefit provision for any member of a state retirement system having an actuarial cost shall be approved by the legislature unless a funding source providing new or additional funds sufficient to pay all such actuarial cost within ten years of the effective date of the benefit provision is identified in such enactment. This Paragraph shall be implemented as provided by law.”

While one could argue because, in its initial operation, the new plan could have an actuarial cost if the state’s investing produced a loss, because it guaranteed a floor of no loss for its participants and therefore would have to make up for it (although no doubt, in percentage terms, at a far lower rate than currently taxpayers must fork out/forgo services for the current UAL), there’s not the certainty this could happen as the Constitution seems to require in this passage for the two-thirds stricture to come into play, reinforced by the fact the Constitution permits actuarial costs for up to 10 years, implying a contingency situation. Nor does current law lend itself to an interpretation that only no possibility of loss does not require the supermajority.

Indeed, under Edwards’ drive-the-Queen-Mary-through-the-hole interpretation, this passage would essentially guarantee any change to require a two-thirds vote, clearly not the intention of its writers and the state’s people who ratified it or else who would have worded it to say all changes needed a two-thirds vote. For example, reviewing Pearson’s HB 1198 that would bring about the merger of the Louisiana School Employees Retirement System into the Teachers Retirement System of Louisiana, one could argue that if TRSL had a lower rate of return in its management than LSERS, or even the remote likelihood prior to the merger, the change that TRSL would manage the money meant then this was a “benefit provision having an actuarial cost.” Logic simply doesn’t sustain Edwards’ interpretation (regardless, he issued the typical veiled threat of the anti-reform crowd’s scorched earth policy of promises of litigation to discourage support of beneficial change.)

Then there’s the lack of critical thinking expressed by ex-school official state Rep. Joe Harrison. He complained that, without having the state also pay into the federal Social Security system (full-time employees currently do not), that the plan lacked some kind of “safety net,” which paying into at one time was part of the bill. This, he said, risked having what happened to some in the private sector who had been at retirement when investment climates soured who then felt compelled to take on another job to make up for investment losses.

Besides the fact that Harrison apparently himself doesn’t understand retirement investing (for example, at retirement putting your saved money into a long-term fixed annuity), this cash balance plan doesn’t allow that kind of circumstance. In it, whatever you have in it, it never goes down (minus a small administration fee in years with more than minimal, no, or negative investment gain).

Finally, there were those who argued the current system, which in essence would perform a little better than how the overall economy tracks given the professional management involved, would provide less in total benefits over time, even with the same amounts of money being invested by both employer (taxpayers) and employee. This constituted an intriguing and no doubt inadvertent admission by them that the present system is overgenerous (as taxpayers supplement extra money beyond investment earnings), and also rests on the notion that, looking at the actual tasks performed and all compensation, that Louisiana state employees generally are not overcompensated relative to their private sector counterparts.

National data demonstrably falsifies that supposition. To reiterate, the typical Louisiana state employee pays 8 percent of salary as deferred compensation into retirement; the typical private sector employee pays 18 percent. The typical Louisiana state employee had a 100 percent employer match to this; the typical private sector employee gets 56 percent from his employer. The typical Louisiana classified state employee enjoys six weeks more of paid vacation time than those in the private sector. The typical Louisiana state employee at retirement gets 75 percent of his health care benefit premiums paid by the state; the typical private sector worker gets zero. And, nationally, state government workers get current salary compensation 10 percent higher than private sector workers doing comparable tasks.

Relative to the vast majority in the private sector who provide the resources to compensate state workers, any argument that declares state workers underpaid in the aggregate obviously cannot be sustained. Thus, even if the proposed plan ended up reducing future retirement benefits as one part of the overall compensation matrix compared to the plan in effect, that serves merely to decrease the compensation advantage the typical Louisiana state employee enjoys over his private sector counterpart doing the same tasks. (One salutary feature of HB 61 is it proposes studying state employee pay issues; let’s hope it produces a thorough, comprehensive review instead of the incomplete, skewed compensation studies ground out currently.)

Fact and logic compel this reform. These not always are recognized or admitted by policy-makers, but in the case of HB 61 conditions allowed them to guide legislators. Let’s hope that continues this session.


Anonymous said...

The comparative facts you assert are questionable in my opinion.

What is the "typical" you refer to? What done this mean (especially since it appears to be the basis of many of the assertions)?

Where does the 18% you say the private sector employee ("typical"?) pays come from? What is your source? Does it include Social Security that entitles them to significant benefits that Louisiana state employees do not enjoy? [Moreover, has it been reduced 2% for the last two years, another benefit Lousiana state employees have not enjoyed?]

Then, there is the absolutely incredible one: "...The typical Louisiana classified state employee enjoys six weeks more of paid vacation time than those in the private sector."

Respectfully, please defend this assertion. I suggest it must be in error.

If you cannot (or will not) fully substantiate assertions such as these, your analysis and conclusions cannot be considered serious, or correct.

Anonymous said...

The prior comment is a reasonable and respectful challenge to you.

A due response is certainly called for.

Anonymous said...

I think so, too.

Where are your sources for these facts on the typical state employee? the typical classified state employee? the "apples-to-apples" private sector employee?

Anonymous said...

They're calling you out, Prof!

My bet is that you will not (or cannot adequately) respond.

Anonymous said...

You win the bet!

Anonymous said...

Yes: Can't probably wins out over won't.

Not a serious blogger.