A decrease in state employees will increase the amount state government must pay toward pension system costs, the head of the Louisiana State Employees Retirement System said Monday.
The number of active LASERS members declined 6.7 percent from 58,881 to 54,930 during the last state fiscal year that ended June 30, LASERS Executive Director Cindy Rougeou said.
LASERS is one of four statewide retirement systems.
What the state will pay toward current employee benefits won’t change, but the percentage of payroll it is required to pay toward elimination of LASERS debt will increase, Rougeou told the Press Club of Baton Rouge.
What that will mean in dollars and cents is yet to be determined, she said.
No matter how much the state employee payroll goes down, state government is still responsible for making constitutionally-mandated payments to erase $6.45 billion in LASERS unfunded accrued liability, or debt, Rougeou said.
The pension debt is a result of the state — in decades past — not paying enough into the system, interest payments on that debt, approval of benefits without a source of funding and some investment losses.
Employee benefits are fully funded, Rougeou said.
The decrease in LASERS members came as state agency layoffs loomed because of budget cuts.
In addition, Gov. Bobby Jindal, for the second year in a row, eliminated an annual 4 percent pay raise received by most state employees based on their job performance.
Rougeou advocated passage of a proposed constitutional amendment on the Oct. 22 ballot that would dedicate a portion of nonrecurring state surplus money annually to pension debt payoff.
Under Proposal 2, at least 5 percent would have to go to retirement systems debt in fiscal 2013-2014 and the following year.
After that, a minimum of 10 percent of the nonrecurring revenues would go to debt reduction.
Rougeou called the amendment “a reform that will make a difference” in reducing the state-required debt payments, which should be the goal of any proposals put forth.
She criticized recommendations made by Blueprint Louisiana, many of which she said would end up being more-costly to the state, harm employees and do nothing to address system liabilities.
Blueprint is a group of business leaders who lobby for specific government policies.
A top recommendation is that LASERS move to a defined contribution plan for new employees — similar to a 401(K) setup.
“To me, I say, ‘Why? It won’t reduce the debt,’” Rougeou said.
“No one should be required to live on a 401(K) for their entire retirement,” she added.
Rougeou said employees would have no retirement security with a defined benefits plan unless it was coupled with bringing employees into Social Security, for which they are not now eligible.
If that happened, the state would be paying more than it is today in employer contributions “and the debt payment does not go away,” she said.
Today’s defined benefits plan provides “reasonable retirement security at a reasonable cost,” Rougeou said. She said average benefits are $21,000 to $22,000 a year.
Blueprint also suggests a review of benefits offered, such as retirement age, years of service, which Rougeou said continues to be done, and changes made for new employees.
“We have been ahead of the curve,” Rougeou said.
She said Blueprint also suggests that the retirement system lower its expected rate of return on investments from the current 8.25 percent.
“It’s based on the historical returns of LASERS,” said Rougeou.
Lowering the interest rate used in tabulations would increase the debt and “significantly raise the percent of payment the state would have to make to the system,” she said. “If the goal is to free up dollars for other purposes, the lower investment return would have the reverse effect.”