Over objections that statewide retirement benefits would be underfunded, a panel approved recommendations Thursday that would lower the amount government agencies, as employers, would have to contribute to their employees’ pension plans.
Usually Public Retirement Systems’ Actuarial Committee meetings are sleepy affairs. Thursday’s gathering in the State Capitol was anything but.
House Retirement Committee Chairman J. Kevin Pearson, R-Slidell, and Louisiana Legislative Auditor Daryl Purpera, both on the seven-member panel, voted “no” on the annual valuations for seven statewide retirement systems. They argued that the higher “rates of return” outlined in the reports may be good for this year’s budget, it’s not enough to fund the system.
Lawmakers are struggling with ways to balance a state budget that is expected to be about $1 billion short of revenues for the fiscal year that begins July 1. Their only choices are to reduce costs, raise revenues or combination of both.
Legislators use PRSAC’s recommendations to determine how much money to set aside in the state budget to fund pension plans for government workers.
“They’re being overly optimistic about the rate of return,” Purpera said of his colleagues on the committee, “so they don’t have to contribute as much from payroll. But deciding what’s best for the budget isn’t PRSAC’s function. We’re not there to determine government’s ability to pay. We’re supposed to be the control that makes sure the (retirement) systems are funded properly.”
Both Purpera and Pearson argued that overly optimistic valuations of the retirement systems investments and assets in the 1980s and 1990s is what led to a $20 billion-plus shortfall in the amount of money needed to cover retiree benefits in the future, called unfunded accrued liability, for just the largest state retirement systems. About a third of the money the state puts into pensions ends up paying down the UAL, Pearson said.
Paying pension benefits comes before any other government expenditure, meaning if there’s not enough money to cover a retiree’s plan, taxpayers are required to make up the difference.
PRSAC on Thursday recommended approval of valuations of the seven smaller statewide retirement systems for clerks of court, district attorneys, firefighters, municipal employees and police officers, registrar of voters and sheriffs’ deputies.
Officials with some of those systems and Gary S. Curran, the actuary on the panel who wrote the reports, argued the valuations accurately reflect how the system’s investments are doing and how sound the systems are. In several cases, Curran’s reports recommended modest decreases.
But those decreases were too modest, Pearson said.
For instance, the recommendation for the Firefighters’ Retirement System was 7.4 percent, down from 7.5 percent last year, Pearson said, adding “that hardly moves the needle on firefighters’ contribution.”
Pearson said a survey of the eight largest actuarial services looking at investment portfolios similar to those in statewide plans came up with an average 6.5 percent rate of return. “Not a one found 7.5 percent,” he added.
He attempted to stall the committee’s approval of the recommendations by asking that the committee and systems study some of the alternative valuations, then resubmit later this year. But state law requires PRSAC to make its recommendations by the end of February. Legislators need enough time to include the recommendations, which determine how much state agencies need to contribute, in the state’s annual budget.
“It sounds like this committee doesn’t have a choice but to approve,” Purpera said. “It makes me uncomfortable sitting her on this committee if we can only say “yes.’”