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Jindal’s Call for Increased Pension Contributions Could Alleviate Future Budget Woes

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Rep. Pearson says changes should extend beyond “rank-and-file” workers

Although Gov. Bobby Jindal’s call for increased employee pension contributions has been the subject of criticism from both sides of the aisle, his plan appears quite restrained in comparison to other states. Moreover,  state officials claim the plan could generate $24 million in savings in FY 2012 and more in the long run.

As part of the 2011-2012 budget plan he released last week, Jindal is asking for rank-and-file state workers to contribute 11 percent of their salaries to pensions, up from the current eight percent. But lawmakers in both parties have expressed concern that the governor’s proposal will erode the financial standing of state workers.

Sen. John Alario (R-Westwego) notes that the heightened pension contributions would occur in tandem with a freeze recently imposed on state salaries. “I’m just concerned that we have frozen the pay of all the state employees and now we are going to reduce their take home pay,” he observed.

But other lawmakers contend that Jindal has not gone far enough.

Rep. Kevin Pearson (R-Slidell) said in an interview that he would not limit policy changes to the “rank-and-file” workers.

“I’d like to go farther and look at how we can incorporate the state police and the judges,” he suggested. “They have a much better benefit. So I may look to amend the governor’s proposal in some way so this affects everyone and not just one group of workers.”

One possibility is to increase the contributions for all state employees by one and half percent on their first $50,000 and then any salary over $50,000 might include a 3 percent contribution, Pearson explained.

“This way everyone is treated the same on their first $50,000,” he said. “We also have university professors who are in the teachers retirement system and why exclude them if they are state employees?”

Democratic legislators have accused Jindal of attempting to balance the budget at the expense of the state’s most vulnerable constituencies including state workers.

Sen. Karen Carter Peterson, (D-New Orleans), has been particularly vocal. “There’s a blanket statement that we won’t impose additional burdens on corporations or even individuals,” she has said. That’s prohibited.”

However, the proposed 3 percent increase in state employee contributions that lawmakers will debate in the upcoming legislative session is not out of proportion with what other states are now experiencing.

In Wisconsin, the budget reforms Republican Gov. Scott Walker has implemented calls for most state employees to contribute 5.8 percent of their salaries to pensions. They previously did not contribute anything. In New Jersey, Republican Gov. Chris Christie has proposed bringing up the contribution rates for the various state employee pensions to a uniform rate of 8.5 percent. Right now, some are as low as 3 percent.

Even so, Eileen Norcross, the lead researcher on the State and Local Policy Project with the Mercatus Center at George Mason University, warns that the increases in Wisconsin and N.J. “are too modest relative to what they are going to need,” she said.

“One way to look at this is that Louisiana is doing what other states are currently avoiding,” Norcross observed. “The only way to ensure workers get their pensions is to make sure these systems are well-funded and managed. The reforms must include an accurate accounting of the liability, a model of how much should be set aside each year to fund it, and this will include measures such as increasing contributions.”

When evaluating Jindal’s plan, it is important to keep mind that Louisiana state workers are not in the Social Security system, David John, a senior fellow with the Heritage Foundation, observed.  Furthermore, their current cost for pensions is only a few tenths of a percent above the employee portion of the payroll tax that private sector workers pay, he noted.

“The rise to 11 percent is not unreasonable if it is compared to the combination of Social Security payroll tax levels plus any pension contributions that workers in the private sector pay,” he said.  “I do see from a manager’s viewpoint that increasing this contribution during a freeze on raises will result in reducing state employees’ take home pay and thus could cause incentive problems, but that is not a reason to avoid this change.”

Kevin Mooney is an investigative reporter with the Pelican Institute for Public Policy. He can be reached at kmooney@pelicaninstitute.org. Follow him on Twitter.

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  • Anonymous

    Very true. We also have to recognize that 11 percent, while higher than many states, is not by any means the highest. In fact, depending upon the fate of legislation in some states this fall, some state workers elsewhere may pay as high as 18 percent.

    Part of the decision also must occur in context with the unfunded accrued liaiblity the state suffers across its 20 state/statewide pension funds. Most of the $16 billion is in the few largest, which would be affected by this increase (although I’m not sure if TRSL is, guess we’ll have to wait on the legislation). Becasue of the severity of the UAL, increased current payments by employees for their own future pensions will provide welcome taxpayer relief, as they already are footing an extra $690 million a year across all agencies to fund fully the UAL (target date by the Constitution being 2029).

    Finally, recognize that, when including all forms of compensation, for jobs requiring the same skill set LA and state government employees do well in general compared to the private sector. See http://jeffsadow.blogspot.com/2011/03/hike-in-state-employee-retirement.html,

    • Anonymous

      How about stating the complete facts instead of just regurgitating Booby’s kool-aid. The governor’s spin piece likes to make a big point that the state’s contribution rate is 22%, while the employee’s contribution rate is a mere 8%. What boy wonder fails to mention is that of that 22% the state puts up, only 6.9% goes to fund that employee’s individual retirement. Where does the remaining 15.1% go? Well it goes to the UAL.

      What is the UAL, you may ask. The UAL is the retirement systems’ un-accrued liability. That is retirement benefits owed by the state to employees where the state doesn’t have enough money set aside to pay for those benefits.

      Why is there a UAL if the state puts up a portion of the employee’s retirement contribution each year that actuarial determined? That’s because state leaders in the past decided to redirect the money that it should have put up, or did put up, to other more better causes. Can you say pet projects or slush funds?

      So for sake “good policy” reasons, the governor wants state employees to contribute a larger portion of their salary to the retirement system. Not to pay for the costs of that employee’s retirement, put to pay for the state’s miss-management and theft of past state retirement contributions.

      But of course no one wants to talk about this because all of these state workers are just lazy bums and they should pay more…

      • Anonymous

        What the commenter does not wish to admit is the reason that the UAL is so large is that the benefits promised were too large. Compared to the private sector, LA public employees that chose the defined benefit option (an option which itself is a rarity now in the public sector) do much better than those in the private sector who endure only a 56 percent match (about 100 for these LA employees) and must pay 18 percent of their salary. Why should LA employees get so much sweeter of a deal — especially when they get the equivalent of 23-35 days off a year paid (depending on years of service), who work in jobs which, until this and the next budget year, had a 4 percent raise each and every year for the past two decades regardless of real merit (keep in mind that almost all employees get rated eligible for “merit” raises), where the state pays for as much as 75 percent of health benefits at retirement (most private employers pay zilch), and you can retire around 60 (actually before 50 if you are in the right job) at essentially full salary? How many private sector workers would take that (and who are forced to put 7.65 percent into Social Security that pays much less after 65, less after 62) deal? If this isn’t a gravy train, it doesn’t exist.

        That gravy train at the taxpayer expense has to end. If there has been “mismanagement,” it’s mainly because too much was promised for too little real productivity (and the retirement systems have tried to hide that mistake by insisting they will generate returns of, typically, 8.25 percent that are too generous). Selective use of data doesn’t change that.

        • Anonymous

          What you should admit is that the state actuaries set the employee and state contribution rates to fully fund THAT employee’s retirement. If the 8% the employee pays and the 6.9% the state pays are not sufficient, then fire the actuary and get someone who can do an ACCURATE actuarial forecast and have everyone pay the needed amounts.

          The discussion and the point of the governor’s recommendation is that state employees do not contribute enough to their OWN retirement. That is a false and misleading political argument. If the taxpayers think state employees have too many OTHER benefits with regards to leave and pay increases, fine, then change those. If the taxpayers say state employees should have less retirement benefits, fine, let the employees pay the actuarial costs for those benefits. No one is saying that state employees don’t work for the taxpayers and should not be beholding to their wishes. This isn’t Wisconsin after all.

          But don’t use these other arguments to defend the original assertion that state employees are not paying their fair share of their defined retirement and are just greedy for not wanting to do so. You’re just clouding the original discussion. If we can’t agree to look at the facts of what is being presented, then it’s just an agenda being pushed and not effort to solve the real problems.

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