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Cindy Rougeou, LASERS executive director, and Steven Procopio, policy director at the Public Affairs Research Council of Louisiana, after the Senate Retirement Committee on Monday, March 26, 2018, advanced legislation that would create a hybrid retirement plan for some state workers.

An effort to raise the age of retirement and include a 401(k)-style component to the pension plan for many newly hired rank-and-file state workers took its first step Monday when a state Senate panel backed the legislation.

“This is a bill that I believe is a good policy for the state of Louisiana,” said Sen. Barrow Peacock, chairman of the Senate Retirement Committee and sponsor of the measure.

Though 25 pages of sweeping technical language, Senate Bill 14 essentially would require employees hired after Jan. 1, 2020, to contribute 4 percent of their income to their pensions. The other 4 percent contributed by employees would go into a “defined contribution,” which is similar to a 401(k) in that the workers can invest those monies as they like.

Currently, workers contribute 8 percent of their pay into a pension plan. Called “defined benefits,” retired state workers receive a check, based on their earnings and years worked, each month for the rest of their lives.

Some have long advocated that the state should move to a 401(k)-type plan to save the state money. This hybrid plan would mean that pensions would be smaller but that could be made up with the investment component, supporters say. Also, 65 years old would become the new age to receive full benefits, rather than 62.

SB14 would cover new employees in Louisiana State Employees' Retirement System. LASERS has about 39,000 active employees and about 48,000 retirees.

Cindy Rougeou, LASERS executive director, said it would take about 30 years to phase in and have all the state employees on the hybrid plan.

Calling the hybrid a pension for a new generation, Rougeou said it would address the problem of so many workers leaving state employ. They would be allowed to take their contributions, along with any earnings, to new jobs in the private sector. Additionally, cost-of-living adjustments would be paid automatically every other year under the new plan.

Currently COLAs are paid from whatever is left from investment earnings after LASERS pays its obligations. Legislators must approve the COLAs. Under the hybrid plan, cost of living adjustments would be funded from the contributions to the plan and COLAs would be automatic every other year.

Steven Procopio, PAR’s policy director, said the legislation is better for taxpayers, better for short term employees and better for long-term employees.

“We’re fixing the COLA system with this bill,” Procopio said. “I struggle to see how any one can be opposed to this.”

AFL-CIO president Louis Reine countered that opposition is pretty visible.

“I represent the people who this is going to affect," Reine said. “We're looking at an instrument that provides a lower benefit at a higher cost and raises the retirement age. Gee, wonder why we’re against it?”

He pointed to the list of supporters and opponents.

The labor organizations representing teachers and fire fighters all came out against the hybrid plan. Their pensions are not included in the legislation, but they could be made to adopt the concept in the future.

The Retired State Employees Association support the hybrid plan for a public retirement system. Most proponents are from the private business community represented by lobbying groups, such as the Louisiana Association of Business & Industry, the National Federation of Independent Business, and the Baton Rouge Area Chamber of Commerce.

Robert Scott, of the Public Affairs Research Council of Louisiana, testified in favor of the legislation, which is rare for PAR. The Baton Rouge-based government policy research group tends to limits its legislative testimony to providing information on issues.

Scott said the hybrid includes many of the changes PAR has recommended over the years. He points out the Pew Charitable Trusts and other groups that watch retirement issues similarly give a thumbs up to the idea. 

Because the COLAs are paid up front, Scott said the hybrid plan has less risk of adding to the shortfall in the amount of money available now to cover retiree benefits in the future.

The legislation, which the Senate Retirement Committee advanced on a 4-1 vote, now must be reviewed by another panel because it would cost about $9.86 million to implement over the next five years. If SB14 clears the Senate Finance committee, the measure would need the approval of two-thirds of the full Senate before heading to the Louisiana House.

Voting for the measure was Peacock and Sens. Norby Chabert, R-Houma; Gerald Long, R-Natchitoches; and Beth Mizell, R-Franklinton. Sen. Ed Price, D-Gonzales, voted against SB14.

Follow Mark Ballard on Twitter, @MarkBallardCnb.