Is anything guaranteed?
Is the deal you make with your employer on the day that you’re hired a promise not meant to be broken? Does the place where you work have the right to alter the types of benefits it offers? Does a decision requiring employees—present and future—to bear a greater financial responsibility for those benefits violate some type of employer-employee covenant? Does it make a difference if the employer is a member of the private sector or if it’s the state of Louisiana?
Since the federal government can increase the age requirement—and do so universally—before those paying into the Social Security system are eligible to collect full retirement benefits, does state government have that same right when it comes to its defined-benefit system?
Does it make a difference to any of the questions above if the current benefit system is bankrupting the employer?
Those will be among the key questions state legislators will have to answer as they begin slowly turning their attention from reforming Louisiana’s K-12 public education system to the proposed revamping of state government’s retirement system.
Employees of the private sector variety are all too familiar with the concept that they’re effectively guaranteed nothing when it comes to benefits, especially when that benefit is some type of employer-sponsored retirement program, typically a 401(k). [Defined-benefit plans, like the one enjoyed by state workers, are almost extinct in the private sector.] Many companies during the Great Recession have either reduced corporate matches to an employee’s 401(k) account or eliminated contributions altogether.
As for other benefits, such as health insurance, workers lucky enough to have some type of option are increasingly being required to fund a greater percentage of the cost, often while accepting reduced coverage.
Employees unhappy about such changes face two options: accept them or find another place to work.
Consequently, the domino theory question facing legislators at the state Capitol is whether or not the state of Louisiana, as an employer, has the same effective rights as a private sector company (a question complicated by the state constitution and volumes of state laws).
Gov. Bobby Jindal believes the answer is yes. It’s his view that not only does the state enjoy many of the same basic rights as a private sector employer, but also that he’s got a mandate to make changes to the retirement system in an effort to keep Louisiana’s financial house from collapsing.
Which is why Jindal is proposing a retirement reform package that essentially calls for three primary changes: 1) increasing the amount some 54,000 state workers—many of whom reside in the Capital Region—contribute to their retirement, while raising the retirement age to 67 and freezing cost-of-living increases for the foreseeable future; 2) creating a public version of the 401(k) model for most new hires; and 3) merging the two teacher-related retirement systems to reduce overhead expenses.
Which brings us back to the questions facing legislators. Do a majority of the state House and Senate believe it’s OK to change the rules of the retirement game, or do they believe state workers have a sacred contract when it comes to retirement benefits?
What’s certain is that state government must do something about its alarmingly high unfunded accrued liability. In short, Louisiana is projected to owe members of its four retirement systems $18.5 billion more—and the deficit is growing annually—than what it has in its retirement bank. The state’s retirement system, thanks to the—ahem—wisdom of past legislators, began with a deficit the day the defined-benefit program was born, and it’s an escalating problem that’s largely been ignored ever since. If anything, instead of acting to stem the rising tide of red ink, officials of elections past have done their best to exacerbate the problem, voting regularly to increase benefits and approve cost-of-living adjustments.
At least one study predicts that if nothing is done soon to significantly reduce the retirement debt, then Louisiana’s government will be bankrupt by the early 2020s. Others suggest the day of reckoning won’t arrive until 2030 but, regardless, our state is on a collision course with fiscal disaster.
Which brings us to the real question that legislators must answer: Who must bear the cost of rescuing Louisiana from its retirement canyon—state workers or taxpayers?