Louisiana pension reform has been discussed for years, but legislators who have made the plans too expensive and those who administer and benefit from the plans have resisted change. Two email messages from last week that came the same day help explain the problem.
The Louisiana State Employees’ Retirement System (LASERS) said it ended the June 30, 2017, fiscal year with an investment return of 15.8 percent. Pension officials said it ranks as one of the highest in the history of LASERS, increasing its asset value to over $11 billion.
Stephen Waguespack, president of the Louisiana Association of Business and Industry, in his email message talked about pension reform among his 10 suggestions for tax and budget reform. He said the state pension systems assume unrealistic rates of return that threaten their viability for future generations.
Cindy Rougeou, executive director of LASERS, said the 15.8 percent return far exceeded the 7.75 percent expected rate of return. She added the pension plan covers approximately 100,000 members and pays benefits totaling over $1 billion in annual benefits to its retirees.
So what’s the problem?
Not all state plans are as solid as LASERS. And Waguespack said there are too many examples of high-profile government workers stepping down for big pension payments that seem unfair to lower paid workers in both the private and public sectors.
An official with the Pelican Institute for Public Policy in New Orleans last year said Louisiana’s underfunded pension systems cost the state about $1.5 billion in annual interest payments. He said the unfunded liability totals $19 billion and could be much higher.
Private pensions are usually like the 401(k) plans. A person’s retirement benefit equals his account balance, a combination of employee and employer contributions and return on investments. Those plans can be transferred from job to job.
The earlier people set up a 401(k) plan, the better the return on their investments. However, younger workers are reluctant to do so, and there have also been plans that have made poor investments.
An effort last year to create a hybrid state pension system, a combination of defined benefit plans like LASERS with a 401(k), was overwhelmingly rejected. Change is difficult, but both sides of this issue need to keep talking about better solutions.