New pension plan proposal for state employees advances

BATON ROUGE — A hybrid pension plan for future state employees cleared its second Senate committee here Tuesday and moves to the full Senate for debate.

Senate Bill 14 by Sen. Barrow Peacock, R-Bossier City, is a combination of a defined benefit plan and a defined contribution plan like a 401(k)-style investment account. It would only affect state employees in the Louisiana State Employees Retirement plan who are hired on or after Jan. 1, 2020.

The new plan would not apply to judges or state workers in hazardous duty positions. However, rank and file members of LASERS hired on or after July 1, 2006, and on or before Jan. 1, 2020, can make an irrevocable election to join the new plan on or before Dec. 31, 2020.

The age to receive full guaranteed benefits would increase to 65 under the proposed plan.

A defined benefit plan is like a company pension plan based on length of service and the salary an employee earned at the time of retirement. Both the employer and employee usually pay into the plan.

A defined contribution plan has employees contributing to their own retirement with the funds being invested and benefits paid out at the time of retirement. Employees can also take the plans with them if they change jobs. They can only take their contributions with them from the defined benefit plan.

Peacock told members of the Senate Finance Committee his proposal is aimed at younger workers who are increasingly leaving state jobs early. 

Under the current defined benefit plan, employees contribute 8 percent of their salary. The employer contributions are determined by actuaries who analyze the financial costs of risks and uncertainty involved.

Those employees can retire at age 60 or 62 if hired after June 30, 2015, depending on their years of service. They are eligible for retirement with five years of service at age 65.

Under the hybrid plan, employees would contribute 4 percent to each of the two pension plans. LASERS currently has 39,000 active members and 48,000 retirees in the system.

In earlier testimony, Cindy Rougeau, executive director of LASERS, said the average annual pay of classified state workers is $44,737. Their average annual retirement pay is only $25,000, she said.

Rougeau said there will be educational aspects to the new plan and qualified investors would be able to assist employees.

Robert Travis Scott, president of the Public Affairs Research Council of Louisiana, said his organization checked nationally with other retirement systems. 

“Reviews for the (proposed) bill were strong,” Scott said. “In many cases, this plan is better than the private sector provides.”

Louis Reine, president of the Louisiana AFL-CIO, spoke against the plan. He said it offers a lower benefit at a higher cost and raises the retirement age. A spokeswoman for the Louisiana Public Pension Coalition said the risk shifts from the employers to the employees and the number of workers in other states opting to join similar plans is extremely low.

Organizations, in addition to PAR, supporting the hybrid plan include the Louisiana Association of Business and Industry, the state branch of the National Federation of Independent Businesses and the Council for a Better Louisiana. Other opponents are the Louisiana Association of Educators, the Louisiana Federation of Teachers and some organized labor unions.

Peacock said the plan doesn’t take effect until 2020 in order to “implement the changes in the right way.”

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