State employees who were blindsided by Gov. Jindal’s announcement last week of proposed sweeping changes to the state’s retirement system have only themselves to blame; they simply haven’t been paying attention.
It’s been a long time coming and while the jury is still out on what will and what won’t be approved in the upcoming legislative session or what is or is not fair to longtime state employees is irrelevant at this point. There is a much larger problem to be addressed: a problem of nearly $6.5 billion in unfunded liabilities for the state employee retirement system, to be precise.
This is an issue that has been punted repeatedly by legislators past and present who were unwilling to make a hard decision and now change is no longer on the far horizon: it is upon us and it is inevitable.
As far back as 1989 a constitutional amendment was passed by the legislature and approved by voters to amortize the state’s unfunded accrued liability (UAL) payoff over 40 years on a level payment plan (adjusted for inflation and payroll growth projections).
That amendment, however, had one fatal flaw: it allowed the legislature to change the payment schedule by statute. One may as well have turned a fox loose in the henhouse or a child in a candy store.
The latter may be more appropriate since the legislature has a greater propensity to act like the adolescent when the state coffers are rife with revenue. Lawmakers wasted no time in tinkering with the schedule in order that they might fund local projects in the annual budget. The folks back home, after all, don’t care about what’s going in Baton Rouge as long as they get their community centers and golf courses funded.
Now, as we approach the 2029 deadline imposed by that amendment, the state is staring down the barrel of huge balloon payments.
Whether one likes Jindal or not, the problem with the state’s UAL for the various pensions for employees, teachers, school employees and police is no more his doing than the state’s next governor, whoever that may be.
But neither was the problem caused by state workers who now are being called upon to change their retirement plans in mid-stream to accommodate those legislators who in past years shirked their fiscal responsibilities in order to more easily facilitate their own political careers. It is patently unfair to ask rank and file state employees to pay the penalty for past legislative moral malfeasance.
That’s not to say that Jindal has the right solutions in his proposals; we have no way of knowing that at this point. It’s just that it is now his problem to wrestle with in the upcoming legislative session.
It is not likely that Jindal or his staff conceived of these reforms independently.
The American Legislative Exchange Council (ALEC), a conservative coalition of state legislatures, includes the reform of state pensions as one of its “Tools to Control Costs and Improve Government Efficiency” on its state budget reform web page: http://www.alec.org/publications/state-budget-reform-toolkit/.
Other tools specifically recommended by ALEC include the restructuring of state retiree health care plans, delaying “automatic” pay increases, adopting a state hiring freeze, embracing the expanded use of privatization and competitive contracting, establishing a state privatization and efficiency council and selling state assets.
Any of those sound vaguely familiar?
Several corporate members of ALEC have been identified as major contributors to Jindal’s political campaigns.
Of the 126 bills already pre-filed in the House and Senate as of Tuesday, 84, or fully two-thirds deal in some fashion or another with retirement. The breakdown shows that 36 retirement bills have been filed in the House and 48 in the Senate.
Some of the bills in both chambers are different versions of the same proposals, so some of the duplicate bills will be withdrawn before consideration.
Many of those deal with local clerks of court, assessors, sheriffs and municipal employees but just as many—or more—deal specifically with state employees.
Jindal said for now he is addressing only state employees and not teachers, school employees or state police.
Many of his proposals break long-standing promises made to state employees relative to retirement benefits and eligibility.
HB 53 by Rep. Kevin Pearson (R-Slidell), for example, stipulates that employees hired prior to June 30, 2006 may retire after 10 years and upon attaining age 67. Those hired after June 30, 2006 may retire after five years and attaining age 67.
The present law allows a state worker to retire after 10 years at age 60.
HB 56, also by Pearson, chairman of the House Retirement Committee, would increase employees’ retirement contributions from 7.5 percent to 10.5 percent for those employed on or before June 30, 2006 and from 8 percent to 11 percent for those employed on or after July 1, 2006.
But perhaps the bill that would sting the worst is SB 17 and SB 26, both by freshman Sen. Barrow Peacock (R-Bossier City). Each of those bills would change state pensions from a defined benefit to a defined contribution.
That means that instead of employees being guaranteed a set pension based on the current formula of three-year average salary times 2.5 percent times years of service, employees would contribute a predetermined amount to retirement with no guarantee of benefits. Such a program, which would react to market conditions, is similar to the 401K plan common in the private sector.
One bill, HB 55 by Pearson, would alter the formula for computing retirement from a three-year average salary to a five-year average, thus reducing in theory, at least, the employee’s monthly retirement check.
HB 61, also by Pearson, would require a one-time, lump-sum payment to employees with five or more years’ credit upon retirement. The employee may opt to take the lump sum or leave his account balance with the system and draw an annuity.
Because state employees do not contribute to, nor do they qualify for, social security, their retirement income would hinge solely on the uncertainty of their state retirement.

