March 15, 2013 06:00 AM

While other state employees continue to clamor for a delay or repeal of the cash balance retirement plan, only judges - so far - have been included in legislation that grants exemptions.



While other state employees continue to clamor for a delay or repeal of the cash balance retirement plan, only judges - so far - have been included in legislation that grants exemptions.

Created in the mold of a 401(k), Louisiana's "cash balance plan" is supposed to protect public employees against market downturns and transition some new hires away from the traditional defined benefit plan in the near future. It was also the lone significant legislation out of Gov. Bobby Jindal's controversial pension reform package to pass last year, but its July implementation remains in doubt for two very important reasons:

Last summer, the Division of Administration sought a determination from the IRS on whether the cash balance plan would provide a benefit equivalent to Social Security and not affect the tax status of the other existing state retirement plans. No answer has been supplied by the IRS yet.

A district court judge ruled in January that the cash balance plan did not receive enough votes for passage during last year's regular session. An appeal has been filed.

Photos by Robin May
Sen. Elbert Guillory

For these reasons, the Louisiana State Employees Retirement System and the Teachers Retirement System of Louisiana have officially asked the Legislature to consider delaying the cash balance plan. Introduced in response were House Concurrent Resolution 2 by Rep. Joe Harrison, R-Napoleonville, and Senate Concurrent Resolution 1 by Sen. Page Cortez, R-Lafayette. The latter would simply suspend the cash balance plan until July 1, 2014, while the former offers the same expiration, or until the IRS delivers its determination, whichever comes first.

But certainly capable of making more noise is a bill from Senate Retirement Chairman Elbert Guillory, D-Opelousas, to back judges out of the cash balance plan that he authored with the Jindal administration in 2012. Phone messages and an email seeking comment from Guillory in early March went unanswered. But sources say that Senate Bill 9 carries some intrigue, especially in terms of which public officials might be added next to the exemption list during debate - and whether a bait-and-switch might be in play to influence judges on unrelated matters, like funding for drug courts and, perhaps, establishing tax courts.

Louisiana is not alone in regard to this kind of policy uncertainty. Jordan Marks, executive director of the National Public Pension Coalition, an advocacy group for public sector employees in Washington, D.C., says Rhode Island's cash balance plan is tied up in the courts as well. His group has been advising states against following the Louisiana model. "Governors who pursue similar legislation should consider not only the legal outcome of this case and the consequences for state employees, but also the significant costs to taxpayers," he says.

Marks adds that the Louisiana plan does not address the issue of unfunded liabilities, or retirement debt; may cost taxpayers more than the current plan; and could "force retirees into poverty, since workers do not receive Social Security." During the 2012 session, House members unsuccessfully pushed an amendment that would have guaranteed retirees Social Security under the cash balance plan.

Jindal describes the cash balance plan as having the best features of the defined benefit and defined contribution plans. He calls it a "game-changer" and predicts it will set the stage for a more sustainable retirement system. Under the cash-balance plan, participants receive an investment account that can never lose value, according to the governor's office. In the good years, the participants share in investment gains; in the bad years, the participants are protected from investment losses.

  Sen. Page Cortez

Taxpayers bear less risk because the retirement benefit is tied to market performance, and the pension system retains 1 percent from investment gains to act as a buffer against investment losses, Jindal says. The cash-balance benefits are also portable, meaning that a participant who withdraws from state service after five years can take the entire account balance.

Still, there are too many lingering questions, says Cortez and others. Cortez points to a court challenge by the Retired State Employees Association, which Judge William A. Morvant of the 19th Judicial District Court sided with and ruled in January that the Legislature did not have enough votes to pass the cash balance plan. The decision is on appeal but could force the plan to be re-routed through this year's regular session, which convenes April 8. As for the IRS determinations, Cortez predicts "it is extremely unlikely that a private letter ruling will be issued prior" to July 1, 2013, which is the effective date of the cash balance plan.

In an early assessment of the cash balance plan, the Baton Rouge-based Public Affairs Research Council issued a report cautioning that the "impact of the cash-balance plan will depend on what takes place in the future with regard to investments and other unknown factors, and so the anticipated advantages of adopting the plan will vary depending on assumptions about those future events."

Under most sets of assumptions, "the cash-balance plan carries less risk than the current system of inflating the unfunded liabilities in the retirement systems," the report stated. It furthered advised decision-makers to design a program to provide employees a fair level of retirement benefits based on realistic expectations, "especially considering the fact that Louisiana's state government workers do not participate in the federal Social Security program and therefore lack that financial cushion in their later years."

Until more concrete forecasts can be offered for outcomes connected to the cash balance plan, Harrison says the Legislature should at least vote to delay its implementation - a thorny topic lawmakers are expected to debate at length this spring. "It bothers me that this plan is all tied up right now. It's kind of disturbing that the state wants to move forward with this in July," Harrison says. "It's time to stop wasting money and do it right."

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