Pension Reform in the Bayou State
Louisiana, like many other states, made promises to its current and future retirees; guaranteeing a pension upon retirement. Unfortunately, the value of the state’s promises doesn’t match the amount saved for these said promises. This difference, known as an “unfunded liability,” is an important issue for Louisiana to tackle.
In 2011, the Louisiana Legislative Auditor’s Office determined that unfunded liabilities amounted to $18.2 billion – coming to a total of roughly $4,090 for every single man, woman and child in Louisiana. If nothing is done to make up the difference, Louisiana faces pension plans which could run out of money as soon as 2017. Refusing to solve this impending issue will force the state to come up with the difference from other sources, raise taxes or default on the current promises made to retirees.
In January, Governor Bobby Jindal introduced legislation for pension reform in Louisiana. Part of the proposed plan includes increasing the retirement age to 67; calculating final average compensation (FAC) on retirement benefits based on the last five years of salary, rather than three; increasing employee contributions from 8 percent to 11 percent, and creating a new cash balance retirement plan for new employees.
Similar reforms have saved millions of dollars for taxpayers in other states. In 1997, Michigan transitioned to a similar styled defined-contribution pension program from all of its new employees. According to a recent study from the Mackinac Center for Public Policy, Michigan has saved between $2.3 and $4.3 billion dollars.
While Americans for Prosperity-Louisiana would prefer to see all employees, not just new employees, moved into a defined benefit pension plan, the Governor’s legislation includes common sense reforms to create a stable pension system in Louisiana. Tackling pension reform will save our citizens from having to pay millions in future taxes, and allows tighter reigns on reckless overspending in our state; something that we desperately need in order to keep our state budget in check.