Revamping the pension plans for future rank-and-file state workers will better serve the needs of younger employees and lower the state’s debt risk, according to officials with the Louisiana State Employees’ Retirement System.
The Senate Retirement Committee, chaired by Sen. Barrow Peacock, R-Bossier City, is expected to consider Senate Bill 14 on Monday. The legislation, authored by Peacock, is a hybrid retirement plan that would apply to rank-and-file state employees hired on or after Jan. 1, 2020. The monthly pension check wouldn’t make up as much of a portion as the current retirement plan does. A 401(k)-type investment account would be added to the new plan.
{{tncms-inline content="<p><strong>According to a study released by the Pew Research Center, only 5 percent of state workers will work long enough to get their full benefit under the existing plan. Another 70 percent will only receive a refund of their retirement contributions because they didn’t work for the state long enough to receive their benefit.</strong></p>" id="2f54ae4f-2e85-447c-bbcf-a8bd14c89e1f" style-type="quote" title="Pull Quote" type="relcontent"}}
Cindy Rougeou, LASERS executive director, said the existing retirement plan for state workers has been whittled away since 2006. It calls for an 8 percent employee contribution, with workers having to be age 60 or 62 to get full benefits.
“It’s less of a benefit, less eligibilities and you work longer,” she said.
Under the hybrid plan, employees would contribute 4 percent of their pay to the defined benefit component and 4 percent to the defined contribution. The contributions would go into an account and be invested, with the employee’s direction.
The age to receive full guaranteed benefits would increase to 65.
The current retirement plan, Rougeou said, isn’t fair for the younger employees that “tend to move around a lot.” According to a study released by the Pew Research Center, only 5 percent of state workers will work long enough to get their full benefit under the existing plan. Another 70 percent will only receive a refund of their retirement contributions because they didn’t work for the state long enough to receive their benefit.
“What good is that,” Rougeou asked. “That’s not acceptable. That’s broken to me.”
Rank-and-file state workers make up about 90 percent of the state’s retirement system, Rougeou said.
State employees can get more from the defined contribution component the longer they work. The scale includes 50 percent after at least two years of employment; 75 percent after three years; and 100 percent after four years.
Rougeou said younger employees want more of a say in their investments.
“I’m trying to have both a recruitment and retention tool,” she said.
The proposed plan would also reduce the risk of future debt for state employee pension plans, known as Unfunded Accrued Liability. LASERS has a debt of just under $7 billion.
Rougeou said LASERS has seen a “knee-jerk reaction” from some state lawmakers and a national group that outright oppose hybrid plans. She said hybrid plans got a bad reputation after former Gov. Bobby Jindal’s administration pushed a cash-balance pension plan that called for defined contributions with no guaranteed benefits. The state Supreme Court later ruled it unconstitutional.
“That is the biggest obstacle,” Rougeou said of getting the plan through the Legislature.
Rougeou said the fear of hybrid retirement plans is unnecessary.
“As long as you’re providing a sound retirement and this (401(k)) is added on top of that, you’re doing something better for your members than what they have now,” she said. “That’s what I’m trying to achieve here.”
Rougeou said more than a dozen states
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already have hybrid pension plans for state employees.
The downside, Rougeou said, is that the state will see a roughly 1 percent cost increase over the next 25 to 30 years. But she said that will be offset because of “at least a 40 percent reduction in risk of future debt to the state.” The employee is taking the risk of investment decisions with the 401(k)-type component of the plan.
The hybrid plan would not apply to judges or state workers in hazardous duty positions. State employees hired between Jan. 1, 2006 and Dec. 31, 2019 could join the plan for future service and keep their current retirement eligibility.
www.lasersonline.org/lasers-proposes-new-retirement-plan
<strong>According to a study released by the Pew Research Center, only 5 percent of state workers will work long enough to get their full benefit under the existing plan. Another 70 percent will only receive a refund of their retirement contributions because they didn’t work for the state long enough to receive their benefit.</strong>
<strong>Rank-and-file state workers make up about 90 percent of the state’s retirement system.</strong>
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