A Baton Rouge judge on Thursday struck down a 401(k)-type pension plan that was scheduled to take effect July 1 for future state employees.
State District Judge William Morvant, who did not rule on the merits of the so-called “cash balance” plan, agreed with the Retired State Employees Association of Louisiana that the plan did not get a two-thirds vote in the 2012 legislative session, as required by the state Constitution.
Morvant ruled at the conclusion of a daylong bench trial of an RSEA lawsuit against the state and Gov. Bobby Jindal, that Act 483 is “invalid” because it was passed in violation of the Constitution.
The association filed its suit in August.
“We are disappointed in the court’s ruling and we look forward to a successful appeal. We’re confident that the bill was constitutionally passed,” Jindal said in a prepared statement.
“The cash balance plan will help get our debt under control, protect taxpayers and provide new state employees with a portable retirement account that realizes investment earnings,” Jindal added.
House Speaker Chuck Kleckley said in his own prepared statement that he regrets “that the work done by the House and the entire Legislature on behalf of our citizens was ruled unconstitutional today, but that is the nature of our democratic process.”
“We believe we found a better means of providing for retirement for future employees of our state while saving a retirement system from potential failure, and the majority of the Legislature voted for it,” Kleckley said.
He continued,“Because this was a measure for future rather than current employees, we believed then — and still do — that the bill called for a simple majority vote. The judge ruled differently.”
Because a Louisiana law was struck down, the state can appeal the judge’s decision directly to the Louisiana Supreme Court.
“We’re happy, we’re not gloating, for our retirees and future retirees,” RSEA Executive Director Frank Jobert Jr., a retired state employee and plaintiff in the suit, said outside the 19th Judicial District Courthouse.
Jobert, who testified at the trial, said afterward that RSEA’s membership includes 700 current state employees and about 10,000 retired state workers.
“It was a suit about whether the Legislature followed the dictates of the Constitution,” RSEA attorney Robert Klausner said outside the downtown courthouse. “They didn’t follow the rules.”
Klausner argued in court that, even after the Legislature’s own actuary advised that the cash balance plan had a cost attached to it, state lawmakers did not approve the measure by a required two-thirds vote.
A 2010 amendment to the state Constitution required a two-thirds vote of the Legislature, rather than a simple majority vote, for proposed changes to any public retirement system that have actuarial costs.
Louisiana has four state retirement systems: the Louisiana State Employees Retirement System, the Teachers Retirement System of Louisiana, the Louisiana School Employees Retirement System, and the Louisiana State Police Retirement System.
Morvant said the intent and purpose of Act 483 was “a pretty noble one” — to reduce unfunded accrued liability in the state’s retirement plans. But, he said, the Legislature “ignored” its own actuary.
The judge issued his ruling after hearing conflicting testimony from that actuary — Louisiana legislative auditor chief actuary Paul Richmond — and David Driskoll, an actuary with Buck Consultants, which has a contract with the state Division of Administration.
Richmond testified that the cash balance plan was “going to be somewhat more costly” than the current defined benefit plan. Driskoll testified his firm concluded the cash balance plan will result in cost savings to the state.
“We felt very confident that Buck was correct,” Division of Administration Steven Procopio testified, referring to Buck Consultants.
The cash balance plan would operate similar to a private-sector 401(k) plan, except funds would be protected from investment losses.
An employee would contribute 8 percent of pay while the employer, in this case the state, would contribute 4 percent.
All but 1 percent of the investment earnings would go toward an individual’s pension. The 1 percent would be held as a reserve to guard against investment losses.
The defined benefit plan that state employees have today guarantees lifetime benefits at a certain level based on years of service and compensation. Jindal contends that plan is too expensive for the state.
The Louisiana State Employees Retirement System, or LASERS, opposed the cash balance plan, arguing it would not provide sufficient retirement income for state employees who have no Social Security safety net.
LASERS Executive Director Cindy Rougeou testified Thursday it would cost LASERS an estimated $645,000 to implement the cash balance plan.
Jindal has argued that the cash balance plan would help stem increasing state retirement system financial liabilities while providing a sustainable pension benefit for employees.