Editor’s note: House Speaker Chuck Kleckley (R-Lake Charles) has refused a request by Rep. John Bel Edwards (D-Amite) for an investigation into the $55,000 per year pension increase sneaked onto an unrelated Senate bill during the final day of the recent legislative session. State Treasurer John Kennedy, however, thinks such an investigation is not only appropriate but necessary.
By State Treasurer John Kennedy
Unless you just parachuted in from Mars, you’ve probably seen media reports about the retirement bill recently passed by the Legislature and signed by the Governor (Act 859) that boosts the retirement benefits for a small number (allegedly two) of Louisiana State Police Troopers. The benefits-boosting provision, again according to media reports, was added to an unrelated bill on the last day of the legislative session by a six-person conference committee that did not meet publicly. All six of the conferees say they did not sponsor the amendment.
It’s important we get the facts about what happened, how and why for two reasons. First, fairness. Whether you are a prince or a pauper, a king or a pawn, our retirement laws should apply equally to everyone. Second, cost. Louisiana’s four state retirement systems have a $19 billion deficit (called an unfunded accrued liability, or UAL, in accounting terms), which according to Standard & Poor’s is the sixth worst in America. That means the present and projected future assets of the systems are $19 billion less than the retirement payments promised by law and guaranteed by taxpayers and the state constitution. The Louisiana State Police Retirement System (LSPRS) has a $323 million UAL.
I sit on the Board of Trustees of the LSPRS as State Treasurer. My fellow board members and I take seriously our fiduciary obligation to protect the system’s assets for the 933 active state troopers, 893 retired troopers and 341 troopers’ survivors. We have directed our legal counsel to investigate the facts surrounding the passage and signing of Act 859 and report back to us within the month. We have asked for the answers to the following nonexclusive questions:
- How many people will Act 859 benefit?
- Who are the people who will benefit, so they can be invited to speak to the LSPRS Board to explain their side of the story?
- What is the cost of Act 859 to the retirement system and its members?
- Is it true that the actuarial note discussing the cost of Act 859 was added three days after the bill passed and, if so, why?
- What would it cost to give the same retirement benefit increase to all troopers and their dependents who are similarly situated?
- Who sponsored the benefits-boosting amendment, so they can be invited to speak to the LSPRS Board to explain why they offered it?
- Does the amendment satisfy the legal requirement of proper notice for a retirement benefits bill?
- Does the amendment meet the legal requirement of “germaneness”(relevance) to the amended bill?
- Does the amendment violate the state constitutional prohibition (art. I, §23)against the Legislature passing a law that impairs the obligation of contracts?
- Does the amendment satisfy the state constitutional requirement (art. I, §3) of equal protection of the laws?
- Does the process by which the amendment was adopted violate the Legislature’s internal rules?
- What are the Board’s legal options?
Let’s get the facts. I do not believe the LSPRS Board of Trustees will tolerate preferential treatment to the detriment of other active and retired troopers and their families, if indeed that is what is found to have happened.
Louisiana Voice 
John Kennedy is one of the only good guys in Baton Rouge.
I agree, and fortunately he has gravitas and gets attention when he states his opinion and asks questions. He is one of the very few people (only he and John Bel Edwards come immediately to mind) who is willing to acknowledge the existence of the black hole that is our state’s structural budget imbalance and its real magnitude.
I have to agree. His presentation both to the LSPRB and thereafter with reporters’ questions was superb! I’m not sure anyone really realizes the sheer magnitude of this one act in terms of just how much of an impact it has on the LSP retirement system fund assets. The FINAL impact, assuming a 30-year life expectancy of Col Edmondson (or his surviving spouse), using a 7% rate of return for fund assets, of a $55,000/year INCREASE in his retirement benefit is $5,195,343.25. What that means is that, by the time LSP is finished paying the INCREASE in his pension from this one act, the LSP balance of fund assets will be $5,195,343.25 lower than if the clandestine act had never transpired. Not exactly a way to reduce a $323 UAL. THAT is why Treasurer Kennedy stressed so strongly why rating agencies are concerned with this type of thing!! I have updated the webpage that will chronicle this whole episode to reflect that full impact: http://www.auctioneer-la.org/Kennedy_LSP.htm. Col Edmondson said on The Jim Engster show “this will all blow over in a week or two.” To use some bad grammar, ain’t gonna happen, Colonel!!
Again [see my response to your post on another thread], and with all due respect, I do not consider the $5.2 million impact to be a valid way of looking at this.
I’m not defending anything about this situation, and I am not an actuary. However, I estimate the present value of payments of $55,000 per year for 30 years to be approximately $730,000. I estimate the balance of Col. Edmonson’s DROP account to be $500,000. As I understand the Actuarial Note attached to the Act, that balance reverted to the retirement system’s investment account on July 1. Therefore, it was necessary to cover $230,000 of Col. Edmonson’s new benefit via another means.
The Actuarial note shows $300,000 being shifted from the retirement system’s experience account to be held in its investment account on July 1, 2014. It shows no additional transfers for the remaining 5 years. Notes are simply prepared on forms showing a 5 year basis. I have no idea at all about the other trooper, but if you ignore everything else, consider that the value of $300,000 alone held 30 years at 7% would be $2,283,677.
My calculations are based on estimates, but I think they are at least in the ballpark.
I hope Treasurer Kennedy will have the person who prepared the Actuarial Note fully explain it and that it will become public knowledge so we can all know for sure what the actuary determined and how. This should have already come out.
Yes, he should run for governor.
Kleckley, take note. Your reputation and possibly your political career hang in the balance.
Has anyone heard from our guvnor on this topic or is he under his rock? Are his turd polishers hard at work trying to burnish this gem? One would think with his administration’s “zero tolerance” for fraud that he would be worried about how this looks – especially since he signed it into law. What if this were Obama? Oh my Gawd, all manner of criticism and accusations would be hurled. Surely it’s time for one of BJ’s minions to come forth and dispel the rumors that he is a participant in criminal activities. Can’t wait to see how long his nose grows over this one.
Nah, he’s probably in Iowa or New Hampshire or one of the other early primary states. He may drop by La.for a refueling stop on his way someplace else, but don’t count on it.
Look. Let’s cut straight to the chase. Bobby Jindal is in this thing up to his eyeballs. How do we know? Simple. Try going to the Business Report website and see if they printed ONE WORD about this whole situation (or you can cheat and take my word that they didn’t). Probably the ONLY news medium in this whole State to not cover a word on the situation!! They’ll refrain from publishing anything that may have Jindal complicity in a scandal!! It’s certainly QUITE possible that Gov. Jindal said, “Hey, Mike, look I’m going to take care of you, buddy. I have a legislator who will do whatever I ask (and he does). His name is Neil Riser. You’ve been a GREAT Colonel! We’re going to slide this amendment in, and I’m going to make sure you’re rewarded for your faithful loyalty.” If anything remotely resembling what I just described (which would match Edmondson saying, “I didn’t ask for this,”) transpired, then Edmondson is in a real jam. He can rat out his boss, resulting in his immediate termination, or he can keep accepting torpedo after torpedo launched at him for appearing to make a money grab. If such a scenario is what’s going on, in the words of Sandy Edmonds (Executive Director of the Auctioneer’s Licensing Board and Interior Design Board) who got away with payroll fraud for years by being on vacations, out shopping, taking the kids to summer camp (all while claiming to be on the clock), “Welcome to politics,” Mike!! (listen to the very end of this audio clip: http://youtu.be/1EMGAsivVr4 – note: the 0.35 mark of the audio clip is VERY, VERY interesting!!).
The Business Report was so very concerned about quality control problems at Kleinpeter Dairy that they covered the issue in depth. If only they were as concerned about our dirty governor as they were with the shelf life of milk. Priorities!
McCollister has a column today titled “The Rest Of The Story” talking about how good La’s credit ratings have become since Jindal entered office. Those who worry about our state budget and how funds are used are summarily dismissed. So in a way The Business Report is addressing this issue without directly addressing the issue.
I understand that the investigation has to go through its process, but that being said, I think these guys have been caught red-handed. Act 859 needs to be rescinded pronto and people need to be held accountable. Whoever did this are unfaithful servants, to put it mildly. And possibly criminals? It sounds possible, if not likely, and that means you, little Piyush. Apparently, you stopped flailing your arms for a moment, long enough to sign this corrupt act, before resuming your day job as pathetic attention-seeker, in your delusional quest for the WH. Better watch it, or you might end up in a different kind of public housing than the one you have in mind.
What is the process to rescind a legislative act once it has been signed into law by the governor? Does the LA Supreme Court have to intervene?
Stephen: First, thanks for the tactful and diplomatic way you handled your response to my analysis. Your present value computations mirror mine for the numbers you supply (I had a PV of $682,000 based strictly on the incremental $55,000 increase for 30 years, not five). I had assumed the actuary also used the $55,000 incremental increase Mike supplied because the PV of $55,000 for only FIVE years (not 30) is $225,511 (leaving $75,000 for the other trooper). I hate to sound like Mike now, but if I follow what you’re saying, it certainly does seem more like a “bunch of complicated rules.” If I understand what you’re saying correctly, Mike could have “left well-enough alone” and accept $500,000 up-front today (based on your estimate of his DROP balance) and receive a $79,000 annual benefit. Conversely, though this “bastard amendment,” to coin a phrase I think is PRICELESS by C. B. Forgotston, he can roll the $500,000 into the system and have a $134,000 annual benefit? Is that the way it works? If so, I will most certainly go back and amend the webpage to fit what may now be as “little” as a $182,000 PV ($682,000 – your estimate of $500,000 in DROP account balance). It’s still wrong (and most people would still view even as “little” as $182,000 PV as significant), but it’s sure not the grand lottery I was envisioning it to be. I will admit to not being very informed on DROP, and I did look at the fiscal note, but all we get is a single value without being told how it was computed (hence we both speculated in that regard but you knew to apply the DROP lump-sum where I didn’t). Let me know if I’m interpreting what you relayed correctly and thanks for not saying, “you’re another one of those irresponsible internet bloggers .” I want to have the correct analysis (and I know FV v. PV is not what they’ll put in a fiscal note or what the cost of the amendment is in TODAY’s dollars), but I wanted to emphasize the final cumulative impact (i.e. future value), but I also want it to be accurate, so please help me in that regard. Maybe a quick crash-course of what Mike could receive with no change (both up-front and annual benefit) vs. what he can receive if this amendment holds up (both up-front and annual benefit). If I know that (or your best estimate because I know you have no way to know his DROP account balance), I’ll get the webpage fixed with an accurate analysis because it sure sounds like the present one that I have up is indeed flawed. Thanks again for your diplomacy.
Robert, as I say, my ultimate hope is that Mr. Kennedy will get us all a better answer than calculations we can attempt to make will yield. Actuaries are paid a lot of money to do the calculations that keep retirement systems, insurance companies and other entities in business and they should be able to explain things in ways that people can actually understand as you and I have attempted to do.
You and I are in the same ballpark on the PV of Colonel Edmonson’s additional $55,000 per year retirement benefit.
We don’t know how much is in his DROP account. My estimate assumes he was putting money into the account for 3 years based on his 25 years of service at that time and using $79,000 as his average annual salary over the past 3 years. This total, $226,236, held for the additional 12 years at 7% would become $509,527.
The actuarial note refers to the increase the same way the authors have (as a “longevity benefit”) and says, in part: “The longevity benefit will be equal to the benefit that such a member would have received had he not entered DROP minus the benefit he is current [sic] entitled to (under DROP) minus the actuarial equivalent of his DROP account. The actuarial cost associated with SB 294 will be paid from the Experience Account.”
I calculate the one-time net cost of Colonel Edmonson’s increased benefit, based on my understanding of the above as: $730,000 – $510,000 = $220,000 in round numbers.
Had SB 294 not become law, he would have been eligible for $510,000 in his DROP account plus $2,370,000 [$79K for 30 years]. Under SB 294, he would be eligible for $4,020,000 at $134K per year for 30 years, a gross difference, in today’s dollars, of $1,140,000.
The actuarial note shows a single payment to the retirement system’s benefit account on July 1 of $300,000 to cover the actuarial costs of SB 294. This seems like a small amount of money given the huge amount being paid out unless you consider both troopers had DROP accounts which revert, and if all my other assumptions are correct.
The actuarial note says: “Expenditures for the STPOL Experience Account (State DedsOther [sic]) will increase $300,000 in 2014-15 assuming the actuarial present value cost of SB 294 is transferred from the Experience Account to the Regular Benefit Account on July 1, 2014” Note that the amount of this I calculate as necessary to fund Col. Edmonson’s benefit is $226,236 which is probably high, but is somewhere in the ballpark.
So, there you have the way I came to my conclusions, right or wrong. Again, somebody knows how the $300,000 was actually calculated and whether or not its addition to the retirement system fully funds these increases and they need to tell us in plain terms like I have tried to do above.
One important thing not previously mentioned is the fact this money is coming from the account that, once it reaches a certain threshold is used to provide COLAs to retirees. I have no idea what effect taking this $300,000 out of that account will have on the ability of the retirement system to provide COLAs to its retirees.
Look at my other posts. I am not acting as an apologist for anybody – far from it. I am just trying to come up with the most meaningful numbers I can.
Thanks for this GREAT detail, Stephen!! I’ve updated the webpage to reflect the approximations: http://www.auctioneer-la.org/Kennedy_LSP.htm. It’s probably a bit conservative now (but certainly still nothing to sneeze at for sure). Thanks for the informative and useful insight!!
Thanks, Robert. A lot of numbers are floating around. I am cautiously optimistic John Kennedy will keep the board focused on this and allow us to see the numbers the actuary used.
http://theadvocate.com/news/opinion/9798569-123/james-gill-jindal-gives-edmonson
Gill at his best.