State retirement battle gearing up

Gov. Bobby Jindal’s legal advisors, if they have not already done so, certainly should be obtaining copies of legal rulings by judges in New Hampshire and Arizona before moving forward with the governor’s radical state civil service employee retirement reform package.

On the other hand, if the administration has not been paying attention, it could be in for a surprise if the governor’s retirement bills are signed into law and subsequently challenged in court. And it’s all but certain the issue will end up in the hands of lawyers if the legislature accepts Jindal’s recommendations to tax state employees while reducing benefits.

Leading the charge against Jindal’s proposals was Cindy Rougeou, executive director of the Louisiana State Employees Retirement System, commonly known as LASERS. She lost no time in taking the governor to task for his plan that would require employees to work longer, contribute more and accept less in retirement benefits.

Calling Jindal’s plan “a rush to judgment,” Rougeou says that like a mortgage, the state owes a debt to the four state retirement systems and in decades past, the state failed to meet its full obligation to pay the employer share of the benefits offered.

Despite that, she says, “The assertion that under current law, the UAL (unfunded accrued liability) could be expected to grow by $3 billion in 10 years is false.”

Jindal’s reform package does not address the teachers, school employees or state police retirement systems, she noted, adding that LASERS accounts for only about a third of the $18.5 billion total UAL of all four retirement systems. “A recent Pew report pointed out that Louisiana is one of the top 10 states for paying the actuarially-required rate,” she said.

Perhaps the most important observation by Rougeou was when she said, “The proposals are being touted as measures to attain and maintain the actuarial soundness of the pension systems. Yet funds that would be raised, for example the increase in employee contributions, are not being used to reduce pension debt, but are instead being funneled into the state general fund.”

She said the proposed employee contribution increase of 3 percent, which also would not be applied toward greater retirement benefits, is tantamount to a tax increase assessed only against state employees.

Jindal’s retirement package, besides requiring an additional 3 percent contribution by employees, also would change retirement benefits in mid-stream from a defined benefit to a defined contribution plan and would require employees to work to age 67 before qualifying for retirement.

Rougeou said it would be unfair to compare Jindal’s proposals to changes in corporate plans because LASERS members have neither corporate plans nor social security. “They have only their LASERS defined benefit plan,” she said.

In fact, she said, LASERS members, in addition to the percentage paid by the state, pay contributions of 7.5 percent or 8 percent, depending on their date of hire whereas Social Security benefits require contributions of 6.2 percent from both employees and employers.

“The retirement benefits of current employees are part of the package of compensation they (state workers) were promised when hired; any change to that package is breaking the promise made to those employees,” she said. “Saying that promises are being kept, and keeping promises are two different things.”

Rougeou noted that in 1991, West Virginia instituted a defined contribution plan but switched back to a defined benefit plan four years later when it was found to be less expensive.

A Bloomberg National Poll released on March 9 reveals that 63 percent of respondents do not feel that states should be able to break their promises to retirees. The poll showed that using public employees as political pawns has failed to attract widespread support from a public far more concerned about unemployment than government deficits—deficits that one respondent said are a result of the economy and years of tax cuts and not the actions of public employees.

One man who worked for the state for 25 years before entering the private sector noted that his wife also has 25 years in LASERS, “but she is only 48.”

As it now stands, she would be able to retire at 75 percent of her income in five years, at age 53. Under Jindal’s package, she would be required to work an additional 14 years.

“We have planned our retirement based on what we were told that retirement would be,” he said. “Now to change the rules in the middle of the game puts us way, way behind in our retirement preparations…and we are facing a nightmare.”

Echoing the sentiments of the Bloomberg poll respondent, he said, “None of this retirement mess was the fault of any state employee.” He said it was obvious “that no one in the administration has even looked at this from an unbiased viewpoint. If they did, they could be fired.”

State Civil Service employees are eligible for retirement after 30 years of service at any age, after 25 years of service at age 55, and after 10 years of service at age 60.

LASERS provided Capitol News Service with information that shows there are about 3,000 LASERS rank-and-file members under the age of 55 with 25 or more years of service. There are an additional 1,100 who are 55 or older with 25 or more years of service.

Of the 47,000 rank-and-file LASERS members, approximately 9,900, or 21 percent of the total, are eligible for immediate retirement.

A retirement reform package such as that being promoted by Jindal would, in all probability, result in massive retirements before next July should his package pass legislative muster.

“Many of those employees already have vested rights in their retirement benefits,” Rougeou said. “To change provisions, such as those targeted, would violate the constitutional restriction against impairing existing benefits.

“Employees who are not yet vested have contractual rights to their benefits,” she added. “The Louisiana Constitution provides that membership in the retirement system is a contractual relationship between the employee and the employer.

“More basically, the retirements of current employees are part of the package of compensation they were promised when hired; any change to that package is breaking the promise made to those employees,” she said.

“We also recognize the federal constitution’s prohibition against the impairment of contractual obligations and the passage of ex post facto laws.”

Plans similar to those being put forward by Jindal did not pass the judicial smell tests in two other states.

Judges in Phoenix, Ariz., and Concord, N.H., said requirements by those state that employees pay higher contributions were unconstitutional because they broke the contract between employees and the states which guaranteed workers that they would not be asked to pay additional amounts after being hired unless they received improved benefits in return.

The legal precept for the rulings harkens back to the U.S. Constitution, which prohibits lawmakers from diminishing or impairing a contract, Rougeou said.

“The state has impaired its own contract,” said Superior Court Judge Eileen Willett in Maricopa County (Phoenix), Arizona. “By paying a higher proportionate share for their pension benefits than they had been required to pay when hired, [state workers] are forced to pay additional consideration for a benefit which has remained the same.”

Merrimack County (Concord, N.H.) Superior Court Judge Richard McNamara said the 2 percent to 2.5 percent increase in employee contributions would substantially impair the contract with employees “because it requires employees to pay additional amounts without receiving additional benefit(s).”

Next door in Vermont, that state negotiated an agreement whereby state employees would be required to both work longer and pay more for benefits, but who were given more generous pensions in return.

Jindal has never offered to negotiate with state employees.

There are other cases elsewhere. A New Jersey court overturned increases approved for New Jersey’s judges, saying the increased contributions amounted to a pay cut.

In California, Gov. Jerry Brown proposed higher contributions from state workers but both legal and legislative analysts have warned him to abandon that idea in favor of limiting the increase to new hires.

In the cases of Arizona and New Hampshire, district court rulings in those states certainly do not bind a court in another state like, say, Louisiana. But the arguments of the courts in those states conceivably could apply to similar pending litigation filed by Louisiana employees.

Robert Klausner, a Florida attorney who specializes in public pension law, is certainly paying attention even if Jindal advisors Chief of Staff Stephen Waguespack and Executive Counsel Elizabeth Murrill may not be.

“Given the tenacity of the fights going on nationwide,” Klausner said, “those who are looking for support of the contract theory will seize upon these cases as examples of overreaching by government.”