LSU hospital privatization cuts retirement debt

Published 12:19 pm Wednesday, November 6, 2013

BATON ROUGE (AP) — The layoffs of thousands of LSU workers as part of Gov. Bobby Jindal’s hospital privatization plan put a major dent in the state employee retirement system’s debt, dropping it hundreds of millions of dollars.

Jindal has pushed to turn over the operations of nine LSU hospitals to private companies, saying it will improve health care for the uninsured and save the state money. Seven deals have taken effect, causing the layoffs of 7,751 state employees. Many of those laid off workers have been rehired by the new hospital managers.

Cindy Rougeou, executive director of the Louisiana State Employees’ Retirement System, said cutting state employee rolls drops the future obligations of the system. Seventy-five percent of those who received pink slips weren’t eligible to retire, and many of them have requested a refund of their retirement contributions.

“Those who receive a refund have a positive gain on the system since they will no longer be eligible to receive a future benefit and that is less future benefits to be paid out,” Matthew LaBruyere, an analyst with the Legislative Fiscal Office, wrote in a new update on LASERS.

The Legislature’s financial analysts say the layoffs helped drop LASERS’ unfunded liability — the gap between what the retirement system needs to pay all retirement benefits owed and what money it has on hand — by about $400 million.

“I don’t think anyone really knew how the reduction in the state workforce would affect the retirement system,” Rougeou said this week. “With our recent valuation, what we’ve seen is actually it’s had a positive financial impact on LASERS.”

However, she said the layoffs also will force state agencies to pay larger contribution rates next year for employee retirement, an increase expected to be about 6 percent in the 2014-15 budget year.

The pool of people paying off LASERS retirement debt is now smaller because state government has fewer workers. But the retirement system still has an outstanding $6.4 billion debt to shrink, to pay the retirement benefits it will owe in the future. Agencies will need to pay more per worker to whittle away at the debt.

The unfunded liability was caused by state officials creating the retirement system without adequately paying for it, the Legislature increasing benefits without covering their full costs, investment losses eating away at the dollars saved and other financial problems. Louisiana’s constitution has a long-term payment schedule in place.

LASERS’ strong investment returns over the last year also reduced the debt.

Combined with the layoff effects, the retirement system’s overall unfunded liability dropped $690 million in the fiscal year that ended June 30, a nearly 10 percent drop, according to the Legislative Fiscal Office.