Fri March 14, 2014
State Retirement 101
Figuring out how to pay for retirement plans might not be the most scintillating topic, but it’s a growing issue for Louisiana lawmakers. Here’s why:
Just as with Social Security, active workers pay into the system while retirees take money out. The difference between the pension plan’s cash on hand and how much will be paid out over time is known as the unfunded accrued liability, or UAL. In Louisiana’s state retirement systems, the UALs have grown a lot lately.
Actuary Maureen Westgard tells House Retirement Committee Chairman Kevin Pearson a number of factors have contributed to the growth of UALs.
“One of those that has impacted all the systems has been the updating and upgrading of the mortality tables,” Westgard explains.
“That’s--in essence--saying we kinda were wrong?” Pearson asks. “I mean, people are living longer?”
“The reality is we’re all living longer,” Westgard confirms, “And so that costs the system money.”
In addition, there’s been a recent jump in the numbers of people collecting retirement benefits. Part of that is due to baby-boomers—the largest generation—starting to retire. But state budget problems have played a role in aggravating the problem, too.
“Some systems cut their membership because of budget restraints,” says Charles Pujol with the Louisiana School Employees Retirement System. “That’s been the trend for the last several years.”
Actuary Charles Hall told lawmakers that privatization of former state government functions—like the LSU Hospital System and even the proliferation of charter schools—has reduced the overall numbers of state employees.
“So you have less people paying in?” Representative Sam Jones of Franklin asks for verification. “And of course, that all negatively impacts your bottom line.”
Jones, reading aloud from the report on the Louisiana Teachers’ Retirement System, noted that over 5,000 teachers have retired in the past two years, while the total number still working and paying into the system has dropped by more than 4,000 teachers.
In 2012, at the urging of the Jindal administration, the Legislature passed a package of retirement system reform bills, trying to put a lid on escalating pension costs. Members of one of the plans sued, and last June, the state Supreme Court ruled the reform was unconstitutional because it had not passed with a two-thirds majority vote of the legislature. This session, state lawmakers have filed dozens of bills to re-do those reforms.
The changed plans impact new state workers, and are similar to 401(k) plans in the private sector. They may exacerbate the UAL problem for the traditional plans, as new workers’ pension contributions won’t be added to the traditional pension plan pot. That money will have to be kept separately.