03/20/2018
Below is LASERS response to Chelsea Stimpson's post point by point on the newly proposed LASERS Retirement Plan:
"This is the beginning of the end of DB plans in the state if it is passed.
1. State employees are not paid to the standards of private employees. Part of the attraction of government work is the pension and insurance. You have just diminished that attraction and therefore will have even more turnover in employment."
LASERS Response:
Hiring and retaining state employees has become a challenge for employers in recent years. Our members are leaving state employment at increasingly higher rates.
In 2017, the Louisiana Civil Service Commission introduced a compensation redesign to move to a more market-based pay plan in order to address the disparity in pay between the public and private sectors. The new pay plan was designed to afford the state the ability to attract top candidates with a competitive entry salary, and then move the employee’s salary to market value in a timeframe conducive to retaining the employees.
The retirement and insurance benefits for state employees are not as attractive as they once were. Since 2006, the LASERS rank-and-file plan has undergone numerous changes. Today, new state workers have to work longer to reach retirement age, and their benefits are lower than those hired prior to July 1, 2006.
The new retirement plan is designed meet the needs of a changing workforce. The foundation of the proposed plan is a guaranteed lifetime defined benefit that is designed to provide at least the same income replacement ratio as Social Security. The defined contribution component is an add-on that includes a level of portability for those members choosing not to retire from state service. If a member does choose to retire under LASERS, at least seventy-five percent of the defined contribution component will be included in the member’s annuity. It ensures retirement security for career state workers while also providing portability for employees who leave state service prior to reaching eligibility for retirement.
"2. You are placing investment decisions in the hands of rank and file members who have no idea how to invest their funds. This will eventually create a population that depends more upon the state for assistance, and, they do not get social security."
LASERS Response:
The defined contribution component of the new retirement plan will be managed by a third-party provider. There will be a number of investment options for new plan members, and LASERS will work closely with the selected provider to provide comprehensive educational outreach to our members regarding their investment options. Target date funds will be available for those members who would like a diversified, professionally managed investment option. Members who want to direct their own investments will have the freedom to do so.
Because our members do not participate in Social Security, the foundation of the new plan, as previously noted, is a defined benefit designed to guarantee a lifetime benefit upon retirement with an income replacement ratio comparable to social security.
"3. If you think current employees and retirees should not be worried because this does not have an impact on them, think again. With less members paying into the DB plan, benefit recipients should have serious concerns about the future funding status of the plan (ability to pay benefits)."
LASERS Response:
The new plan will NOT impact the funding of benefits and COLAs for our current members. LASERS is not a “pay as you go” system like Social Security. LASERS is actuarially funded, which means a retiree’s benefits are funded over their working life.
LASERS already has a number of closed plans and currently has more retirees than active members. These factors do not impact the System’s funding or ability to pay benefits to current or future retirees.
The new plan maintains a responsible payment plan for the existing unfunded accrued liability (UAL).
"4. The Board of Trustees (LASERS) was just given this plan in December and approved it without studying it. It is complicated. If you are a trustee you have a duty to your members to understand anything you approve!"
LASERS Response:
The Executive Director began informally discussing concerns about the sufficiency of our current rank-and-file plan and the possibility of a new plan with individual Trustees in September 2017. A detailed discussion was conducted at the October 2017 Management Committee meeting of the Board of Trustees. Trustees were given the opportunity to ask questions and express concerns. Staff was given the authority to continue researching possible changes to plan structure for new hires. Further discussion was had at the November Management Committee meeting of the Board. The December meeting of the Legislative Committee was another opportunity for detailed discussion and feedback from Trustees. At the December meeting, staff was authorized to seek an author for legislation needed to create the new plan. There was more discussion at the February 2018 Legislative Committee meeting; at that meeting the Board voted unanimously to support SB 14 of 2018. Further, the plan is designed to take effect in 2020, allowing the opportunity for more input and modification. Trustees have been thoughtful and diligent in analyzing this plan.
"5. An argument for the plan may be portability. So you are sacrificing the long term employees for those who come and go, those who have no allegiance to anything let alone a government career. And anyone with any intelligence whatsoever knows that young people do not think about retirement one bit so giving into the demands of that population is ridiculous"
LASERS Response:
The new retirement plan will provide portability for new employees who leave state service prior to becoming eligible for retirement, while ensuring retirement security for career state workers. About seventy percent of new state hires who are eligible for LASERS will terminate state service prior to becoming eligible for retirement. These employees will only receive a refund of their employee contributions under the current plan. Under the new plan, these members will also be eligible to receive, after two years of participation, at least a portion of the employer contributions and investment earnings. After four years of participation, these members will be eligible to receive their entire defined contribution component account balance.
"6. Why has LASERS made a complete change in their stance on hybrid plans? Didn't they hire a hot shot lawyer a few years ago to fight against a similar plan, the cash balance plan? If you read that old piece of legislation you can see that the cash balance plan would have been so much better than this proposal."
LASERS Response:
LASERS has consistently been opposed to any pension legislation that eliminates the defined benefit plan for our members and fails to provide retirement security. LASERS has also made it clear that hybrid plans are not inherently bad or insufficient. On the contrary, one must look at the specifics of the proposed plan and the needs of the members for whom it is designed. With respect to the cash balance plan, the LASERS Board of Trustees opposed it, because an analysis of that plan showed that it would not provide for retirement security for our members. The members were not required to annuitize their cash balance account and there was no predictability regarding the amount of a member’s benefit.
