Wednesday, August 25, 2010
Written by Jeremy Alford
If you’re paying into a state retirement system and reaching for that brass ring, it may take longer to grasp if a national policy trend continues creeping into Louisiana.
What were the nation’s lawmakers doing in terms of addressing retirement debt 10 years ago? Well, we know in 2000 that slightly more than half of all U.S. states had pension systems that were in the black, in government speak at least. It’s difficult to explain concisely what was going on in elected minds back then, but we know that by 2006 only a half dozen states had fully funded pension systems. Two years later, the only states that still had bragging rights were Florida, New York, Washington and Wisconsin.
We know all of this because the Pew Center on the States, a self-sustainable nonprofit with a proven track record of public interest advocacy, released a report earlier this year showing a $1 trillion gap between the $2 trillion states had put aside by the end of the 2008 fiscal year for their pension systems and the $3 trillion that was actually needed.
As for Louisiana, it’s a mess. The Pew Center study describes Louisiana’s management of its long-term pension liability as a “cause for serious concern.” The state’s total unfunded accrued liability (basically retirement debt) at the end of the 2008 fiscal year was $11 billion, but this year it exceeded $17 billion — that’s roughly twice the payroll of every public pension plan member in Louisiana.
Ron Lieber, a financial columnist for The New York Times, penned a piece earlier this month about the mounting costs of public pensions. He describes a “class war” that’s ready to burst its bubble; it’s a lot like the doomsday scenario that some elected officials in Louisiana have been predicting here for some time. On one side are public retirees who have their taxpayer-funded brass rings. On the other side are private sector workers who are watching their own investments and portfolios tank — and could soon be asked to pony up more cash to help keep public pension plans afloat for future state workers.
At the very least, taxpayers should know that dollars that could be going toward education, health care and roads are being used to support a system that’s allergic to reform. State Rep. Kevin J. Pearson, R-Slidell, chairman of the House Retirement Committee, says people are often surprised to hear how much taxpayer money is actually going toward retiring certain state workers. Like some State Police employees and troopers, who collectively perform a dangerous job. “We’re paying 50 percent right now.
So if they’re making $60,000, were paying $30,000 each year,” says Pearson. As a way to head off the mayhem, possibly, some states are being proactive. According to the National Conference of State Legislatures, there were at least 10 states this year that passed laws requiring newly hired public employees to work longer for their brass rings. Just as many also adopted penalties for bowing out early or eliminated early retirement programs altogether. Mississippi recently increased the number of years of service needed to obtain a pension, and its lawmakers are already moving to up the minimum age as well.
Pearson and others argue that the Louisiana Legislature took a few proactive steps of its own this year. While lawmakers rejected a plan by House Speaker Jim Tucker, R-Algiers, to place future employees in defined-benefit option plans similar to the 401(k) plans that rule the roost in the private sector, contribution rates were increased for some without the promise of more benefits.
For example, in the School Employees Retirement System, the contribution rate will increase from 7.5 percent of a member’s salary to 8 percent. The rate for judges was boosted from 11.5 percent to 13 percent, and future State Police retirement members are seeing their rates hiked to 9.5 percent from 8.5 percent. Another bill that takes effect next year will push the retirement age up to 60 for many new state employees with at least five years of service or after 20 years with reduced benefits.
But was it enough? Will lawmakers need to take another bite at the policy apple? If you consider the national trend, Louisiana probably will keep tinkering with retirement laws in an effort to deal with its unfunded accrued liability. There is the political will. In March, Illinois jacked up its retirement age from 60 to 67. “All of this will have to be revisited, hopefully as soon as next year,” says Pearson. “We’ve been dealing with the state systems for a while, but I don’t see any of the parish and municipal and firefighter systems coming to the table. That’s where this needs to go next.”
State Sen. Butch Gautreaux, D-Morgan City, chairman of the Senate Retirement Committee, says he’s watching what’s going on with Social Security and questions whether Louisiana can avoid increasing retirement ages. He notes that for the first time in 20 years, Social Security is doling out more in benefits than it’s collecting from payrolls.
As it stands, certain individuals can get early benefits at 62, but the tap doesn’t flow freely until age 67 — and many lawmakers are pining for a bigger number. Based on the findings of the Senate Special Committee on Aging, nearly 23 percent of Social Security’s financial gap would be closed if the minimum age of eligibility were increased to 68 and a third would be buried if the age were 70. Right now there’s even a presidential study commission working up a number of its own recommendations — on this, the 75th anniversary of Social Security.
Moving forward, the Legislature should take note, Gautreaux adds, and consider more legislation increasing age limits and years of service. Even if it is politically unpopular. “Social Security is going to change, and there’s nothing we can do about it,” Gautreaux says. “People are living longer and working longer. We need to recognize that in Louisiana.”Jeremy Alford can be reached at