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Plan To Clear Unfunded Liabilities Passes House Comfortably

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Outcome raises the stakes as Rep. Pearson’s plan competes with Gov. Jindal’s

A retirement reform bill to tighten the way state employee pensions are calculated, with an eye toward paying down unfunded liabilities, passed the House with a bipartisan 77 to 20 vote on Monday.

Rep. Kevin Pearson (R-Slidell), who sponsored the Retirement State Systems legislation (HB 530), said that lawmakers in both parties recognized the need to pay down unfunded accrued liabilities (UALs) now, rather than pass them off to future generations. While employees currently have their pension based on their three highest earning years, Pearson’s plan would lower the average by taking five years into consideration instead of three.

“The House can be very proud of the action that was taken,” Pearson said. “We have both parties working together on a plan that will lower costs over the long-term. If we can address the liability issue now, that means the state’s contributions to retirement will not escalate as they are now projected to do.”

Gov. Jindal has proposed an alternative employee contribution increase from eight percent to 11 percent for “rank-and-file” state workers – those not in the Louisiana State Employees Retirement System’s (LASERS) more generous sub-plans. Jindal’s proposal is within Rep. Kirk Talbot’s HB 479, which passed the House Retirement Committee in a narrow 6 to 4 vote.

However, committee members who questioned Talbot and Kristy Nichols, Jindal’s deputy chief of staff, expressed concern that the governor’s preferred plan did not do enough to address UALs.

The latest report from the state legislative auditor measured Louisiana’s UALs for the state’s four largest retirement systems and found an unfunded liability of over $18 billion. The state’s other post-employment benefits (OPED), for retiree health care and life insurance, are unfunded to the tune of $11.5 billion.

Pearson’s adjustment of the final average compensation (FAC) from three years to five years, would reduce unfunded liabilities immediately.

With five highest paid years of $50,000, $55,000, $60,000, $65,000 and $70,000, the three-year FAC would be $65,000. But the five year FAC would reduce the average to $60,000 and the pensions calculated from this point.

A cut to the generosity of pensions immediately lowers their present value and, assuming insufficient funds set aside, the associated UALs. So Pearson’s idea with this bill is to realize the gain up front, even if it is only a portion of the UAL.

Pearson’s original bill provided for a one percent across-the-board increase in employee contributions for state workers beginning July 1, 2012, and an additional one percent increase beginning July 1, 2013. However, Pearson dropped that from the final version.

The Senate is set to take up HB 530 next week.

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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