Budget 101: Retirement Debt

Jul 5, 2017

Louisiana's budget problems basically boil down to one thing – more money needing to go out than is coming in. When it comes to state retirement systems, that problem has a name: it's called the “UAL”.

“The state is required to pay for the state retirement systems’ normal costs and UAL payments,” states Annie Smith, attorney for Louisiana's House Retirement committee.

UAL stands for “unfunded accrued liability”, which is what the state will owe retirees through their expected lifespans – over and above what the retirement systems have in cash on hand. And that lifespan thing has a name, too. It's called “actuarial soundness”, and it's constitutionally required.

“The actuarial soundness requirement was the result of a constitutional amendment that was enacted in 1988,” Smith explains.

She says the state's four major retirement systems are dealing with two types of UAL.

“The initial unfunded accrued liability, as it existed prior to 1988, is amortized to be paid off in full by 2029. In addition to the IUAL, some systems actually have UAL that’s accrued since 1988.”

The initial UAL was $5.8 billion, and the state took out a loan to cover that, paying it back – with interest – over 40 years. According to an analysis by the Legislative Auditor, issued in May 2011, early payments on that loan didn't even cover the interest that was due, and therefore increased the debt.

“If the Legislature fails to make any IUAL payment for a given fiscal year, the state Treasurer shall pay the amount guaranteed directly from the State General Fund,” Smith tells us. “And that’s a first call on the Treasury.”

But there's also the UAL that has accumulated subsequently over the past nearly 30 years, as retirement systems' investments lost value and cost-cutting measures ending up reducing the numbers of active state workers paying into the systems. Now, according to the Legislative Auditor, the total UAL for all the state retirement systems exceeds $19-billion.