It is Time to Reform Retirement, PAR Says
Enacting public employee retirement reforms now can help prevent funding problems from spinning out of control in the future, the Public Affairs Research Council (PAR) said in an analysis “Public Employee Retirement: A Time for Change” released today. “The state’s 40-year plan to pay off the unfunded accrued liability (UAL) of the pension systems and achieve 100% funding by 2029 is in deep trouble,” said Jim Brandt, PAR president. “Due to a backloaded payment schedule, added benefits and investment losses, the combined UAL has ballooned from $6.1 billion to over $12 billion and will continue to grow for another decade.”
Required annual payments on the UAL of the four state systems alone are projected to rise from $560 million in 2004 to $2.2 billion by 2029. In addition, the average funding level for all systems fell from nearly 89.8% in 2000 to 62.4% in 2003.
Taxpayers contribute $1 billion a year to fund the systems; yet, the retirement policymaking process is haphazard, hasty, often ill-informed and prone to favor special interests. The number of separate systems and their member-dominated boards make administration complicated and costly. The fragmentation results in disparities in benefit plans for different groups of employees and leads to leapfrogging of benefits as one group tries to catch up with or surpass another.
Liberal eligibility requirements encourage early retirement and result in the use of DROP programs and rehiring of retirees to keep people on the job. Efforts to create a rational new system for future employees have floundered.
PAR recommendations include:
- Improving the policy making process by requiring a vetting of pension bills prior to the session and slowing down the amendment process
- Consolidating administration (the four state systems initially and ultimately all systems) and creating a consolidated system board with public members in the majority
- Centralizing pension asset investment in the state treasurer’s office, creating an expert investment advisory board, reducing reliance on outside investment managers, building in-house staff and emphasizing passive management (indexing)
- Making an effort to increase up-front payments on the UAL, or at the very minimum to avoid increasing the UAL
- Creating a new, less costly defined benefit pension plan for new state employees and educational personnel that would encourage longer career service
- Providing an optional defined contribution plan for new hires
“The problem of funding Louisiana’s public employee retirement systems cannot be resolved overnight,” said Brandt. “However, this report offers a plan to deal with those issues that can and must be addressed now.”
A copy of the 12-page report can be obtained from PAR at a cost of $3.00 or it may be accessed on PAR’s Web site www.la-par.org.