LSU and some higher education officials want to remove their employees from the state’s largest retirement system, saying they fear escalating costs are eroding the dollars they have available.
Teachers’ Retirement System of Louisiana administrators worry that losing what would amount to about 10 percent of their members could negatively impact the entire system. But the TRSL officials don’t know enough about the plan to make accurate financial projections.
State Sen. Robert Adley filed the legislation for lawmakers to consider when the Legislature convenes April 13. Senate Bill 18 would give Louisiana higher education boards permission to pay off the long-term liabilities associated with their employees and then exit the system.
The boards could sell revenue bonds to raise enough money to pay off the long-term debt at a lower cost than what the higher education institutions today are paying the Teachers’ Retirement System toward their employees’ pensions.
“Our goal is to do something about the financial payment, which is starting to crowd out the money we are trying to put against the education mission,” said Jason Droddy, LSU’s director of external affairs. LSU has long sought autonomy to handle its own financial affairs — from tuition and fee hikes to procurement.
Colleges and universities are having to come up with more and more money each year to pay their portion of the retirement system’s nearly $12 billion unfunded accrued liability. Known as the UAL, the term refers to how much money would be necessary in the future to pay off the retirement promises made to teachers and other public school employees. The payments are increasing annually as the state is trying to catch up on the old liabilities created when governors and legislators granted pension benefits without setting aside the money to pay for them.
In all, higher education contributed $303 million to cover normal employer contribution costs and UAL in the last fiscal year, according to the retirement system’s records.
LSU alone is responsible for about $150 million in contributions annually — $124 million going toward the pension system’s unfunded accrued liability, Droddy said.
“Nobody has ever looked at paying off the UAL,” said Adley, R-Benton. “If they (higher education) can pay off their debt, that’s 10 percent of that debt gone.”
Adley’s “shell” legislation does not provide a lot of details on the mechanics of how higher education employees would pull out of the state retirement system or what happens to the pensions of employees and retirees.
Maureen Westgard, executive director of Teachers’ Retirement System, said she suspects the aim is privatization. “I’m concerned about something this big and it being so undefined,” Westgard said, particularly because retirement issues are complex.
The proposition needs a lot of debate and study instead of being “fast tracked” through the Legislature, Teachers Retirement System board member Jerry Baudin said. “This deal is so big, so complex. This is a two- to three-year thing. It has so many tentacles,” said Baudin during a recent board discussion of Adley’s bill.
Baudin, a former longtime vice chancellor of finance at LSU, said he’s been getting calls from retirees as well as active faculty members with seniority who are getting wind of the proposal. “They are concerned that they are going to be pulled out and thrown into some system LSU is going to run.”
“This is going to fester,” Baudin predicted.
The Teachers Retirement System has 164,708 active and retiree members, of which 16,155 — or about 10 percent — are in higher education. The higher education members, however, represent about 25 percent of salary, money on which pensions are based because they make more than schoolteachers.
Adley said he’s still meeting with Senate staff and the legislative actuary on details of the legislation. The legislation had to be advertised and prefiled earlier than other bills because it aims to change state retirement system law. Those changes require more analysis on financial and other impacts on the system — all of which takes time.
Employees and employers would have to agree to move into a new system, Adley said. In addition, the legislation is “permissive” for the Board of Regents, LSU, Southern, the University of Louisiana System, and the Louisiana Community and Technical College System, Adley said.
“No one is forced to do anything,” Adley said. “Most people in the system would love to get out of the system and get some kind of annuity or cash.”
LSU’s Droddy compared what is proposed to refinancing a house in a way to get a level payment.
Droddy said the university does not yet have a clear understanding of its retirement liability. “Is it $500 million, $600 million, $1 billion?” Droddy asked. “You have to find out whether you can financially make it work. If the financing seems to be something within the realm of possibility, we could start to develop something so everybody would know what the design would be” for future retirement offerings.
“We would not be hasty in this,” Droddy said. “We are at step one of 500 steps.”
“The TRSL board is very concerned about what will happen to the current faculty and the current retirees,” Baudin said. “Active and retirees they don’t want to leave, obviously, the teacher system now and get into a system where there is no assurance there is going to be money to pay them.”
Jim Napper, executive counsel for the state treasurer and a member of the Teachers’ Retirement System, said changes affecting active and retiree members could be the subject of litigation, which “is going to cost a whole lot of money.” He said any change, if done, should affect only new hires.