The old saying about kicking the can down the road could apply to something almost every day in the State Capitol. But even lawmakers are beginning to realize that a $19 billion can — the debt owed for state retirement costs — is too big to be ignored, again.
The Legislature is moving toward final passage of a significant reform measure that will tie future cost-of-living increases to the financial health of the state pension systems.
To sweeten that medicine, the bill by Rep. Joel Robideaux, R-Lafayette, and related measures would authorize a 1.25 percent cost-of-living adjustment this year in the four major systems: retired state employees, teachers, school employees and State Police.
The big benefit in savings from the Robideaux bill is over time, but that’s a reasonable way to approach the long-term train wreck of the $19 billion unfunded liability in the systems. The legislation would steer more excess investment earnings into gradual reduction of the systems’ unfunded accrued liability.
The extra excess earnings would be steered away from special accounts that fund cost-of-living adjustments, making it more difficult to provide them for the foreseeable future. Some excess investment earnings would still flow into the COLA accounts but the hurdle would be higher before they did. In addition, the amount of any future COLA would be tied to the funding status of the system.
If a system was 55 to 65 percent funded, the COLA would be limited to 1.5 percent. As the systems’ funded status improved, the amount of potential COLA would rise to a maximum 3 percent when 85 percent funding is achieved.
That is a remarkably high hurdle for the Legislature to embrace, given the politics of pensions. Recipients of state pensions, as individuals, do not receive Social Security benefits, although they may have some benefits from a spouse. But the lack of Social Security coverage makes it more urgent that, over time, the state reduces the liability debt for retirees dependent on the state check.
“This bill does put us on the path of where we need to be with consistent, predictable COLAs (while) at the same time not jeopardizing the funding ratio of the system,” Robideaux said.
We agree with this approach, but the hard fact is that the $19 billion debt is still out there. Sooner or later, more state tax dollars are going to have to be granted to the systems to provide for the future benefits for retirees. The retirement systems’ debt arises because state lawmakers and governors of the past failed to pay enough into the retirement funds.
If Robideaux’s bill is a good kick, there’s still a pretty good size can on the fiscal road.