A bill to overhaul Louisiana’s pension system that would raise the current retirement age and add elements of a defined contribution plan has passed the State Senate’s retirement committee.
The bill, sponsored by state Sen. Barrow Peacock (R), is supported by the Louisiana State Employees Retirement System (LASERS), and would apply to pension participants hired on or after Jan. 1, 2020. Meanwhile, rank-and-file members hired on or after July 1, 2006, would be given a window to join the new plan for prospective service. The bill would also raise the retirement age to 65 from the current 60 or 62.
LASERS said its research shows that the current plan will not provide retirement security for the vast majority of these new hires, and that only 5% of members in the current plan for new hires will stay in the system long enough to receive an unreduced retirement benefit. It also said it expects 70% will leave state service before retirement eligibility and therefore receive only a refund of their employee contributions.
“Employers are finding it very typical for this new generation to try different jobs rather than stay with the same employer for their entire career,” said LASERS in a release. “By reducing the risk of creating future unfunded accrued liability, [the bill] is an important further step in pension reform. It would provide a secure base benefit for employees with the defined benefit component.”
The retirement system said the proposed legislation includes a defined benefit component with an income replacement ratio comparable to Social Security, and a defined contribution component of which at least 75% must be annuitized to a lifetime monthly benefit on retirement.
The defined benefit component’s formula would be the final average compensation multiplied by the number of years of service multiplied by 1.5%. Member contribution would be 8% of pay with 4% applied to the defined benefit component, and 4% applied to the defined contribution component. Employers would pay an actuarially determined percent of payroll to the defined benefit component, including payment toward the existing unfunded accrued liability, and 3% of payroll of those in the plan to the defined contribution component.
The new pension plan would be mandatory for new hires after Jan. 1, 2020, but would not apply to judges or members in hazardous duty positions. LASERS members hired between July1, 2006 and Dec. 31, 2019, would have the option of joining the plan for future service, while maintaining their current retirement eligibility.
The proposal includes cost-of-living adjustments as retirees would receive a 2% raise every other year after they are retired at least one year, and are at least age 65. However, the system would have to be at least 65% funded for the increases to take effect.
Although the bill has the support of LASERS, it is opposed by the state’s AFL-CIO affiliate.
“We’re looking at an instrument that provides a lower benefit at a higher cost and raises the retirement age,” said Louis Reine, president of the Louisiana AFL-CIO, according to the Associated Press. “Gee, wonder why we’re against it?”
The bill passed the committee along party lines as four Republicans voted for it, while the lone Democrat on the panel voted against the measure. The bill now makes its way to the state’s Senate Finance Committee for review.