Recently enacted changes to the retirement system could save taxpayers $5 billion over time because pension debts will be paid off sooner, the Legislature’s actuary reported.
The savings will come from reduced interest payments on the unfunded accrued liabilities of Louisiana’s four statewide retirement systems, according to an analysis by Paul T. Richmond, manager of actuarial services in the Louisiana Legislative Auditor’s Office. An actuary analyzes statistics to calculate risks and costs over time.
“It will save the state of Louisiana about $5 billion from having to make those payments. When it’s billions with a B, that’s nothing to sneeze at,” said state Rep. Joel Robideaux, R-Lafayette, sponsor of the change.
The state and school systems are making extra retirement contributions annually as part of a constitutional mandate to eliminate old debts, putting a substantial drain on budgets. The debts resulted when benefits were granted but dollars were not appropriated to pay for those benefits.
The Teachers Retirement System of Louisiana and the Louisiana State Employees’ Retirement System are nearly $19 billion short of the funds needed to cover long-term promised benefits, called the UAL or unfunded accrued liabilities.
Under the new plan , more of the retirement systems’ excess investment earnings will go toward debt retirement before dollars are put into a special account through which retiree cost-of-living raises, called COLAs, are funded.
The plan permits the state to begin paying down on the principal a lot quicker, Robideaux said. “We are going to start socking it (extra investment earnings) toward that big debt,” Robideaux said.
The result is similar to when an individual is buying a house and makes extra payments. The house is paid off early, and less interest is paid on the borrowing.
“This is huge. This is a big step,” TRSL Executive Director Maureen H. Westgard said.
Debts will be paid off “a good four or five years sooner,” Westgard said, adding that, for the teachers, it’ll mean $3 billion less in interest over a 30-year period.
Westgard said TRSL has an $11.3 billion unfunded accrued liability, and three-fourths of it is tied to the original debt and interest on it. The interest payments are almost half of the original debt, she said.
At LASERS, there will be $2 billion in interest savings.
“Anytime we can put more money to reducing the debt, it makes the system in a better position actuarially and financially,” said Maris LeBlanc, LASERS deputy director.
Robideaux said the intent was to get a plan that, in the long term, would save the state a significant amount of money but, just as important, would be able to give retiree cost-of-living adjustments more consistently. “The goal of the legislation was to pay down the debt that’s been out there for a long time that’s been handcuffing us so it won’t be there in the future,” he said.
Public Affairs Research Council of Louisiana President Robert Travis Scott said a good long-term impact for taxpayers are that the debts are paid off sooner, freeing up those tax dollars to pay for health care, education and other state priorities. “It also helps provide a regular and more dependable way for retirees to get COLAs,” he said.