The regular session of the Louisiana Legislature is right around the corner and one of the most depressing aspects of it is what won’t be discussed. Pension reform isn’t going to be a prominent topic.
In fact, what could happen is lawmakers will make things worse. That’s because bills to give retired state workers a 1.5 percent cost of living raise have not only been filed but, according to the early handicapping, are likely to pass.
It’s been eight years since the last raise, which is a long time in any context other than one in which the private sector is enduring stagnant wages and chronically high unemployment for years. That is to say, like now.
Under the bookkeeping formulas kept by the state, the money is there for the COLA boost. Now. It may be better to give than to receive, but a pension increase, like a raise, is a gift that keeps on giving for the recipients. This is no bonus forun a job well done, it’s something that stays on the books and has to be met going forward even if balances cause that accounting formula to change.
Furthermore, it’s no secret that state and municipal governments face few if any looming financial crises greater than pensions. Some governments have taken piecemeal steps to address this, largely copying moves made by the private sector.
More specifically, defined contributions plans like 401ks are now recognized as far more sensible than the rich defined benefits schemes that were once the norm.
Nevertheless, whether the fiscal bombshells created by defined benefit plans — which guarantee a certain payment for life — can be defused remains an open question. By no means is this all the workers’ fault. Lawmakers in states across this great land have frequently underfunded pensions, and states have stuck to a very respectable and probably outdated “anticipated” rate of return of 8.5 percent.
Translated, that means not enough money has been poured into the pension systems and investment returns will have to be forever rosy.
But the relationship between unions – whose power is increasingly concentrated in the public sector – and lawmakers means handsome deals have been struck between decidedly non-adversarial parties. Besides, it all involves other people’s money, and the unions have always provided handsome returns to friendly politicians’ campaign war chests.
Taxpayers are now looking at the monstrous bill produced by such cozy extravagance.
Louisiana, fortunately, doesn’t have as gigantic a burden as states like Connecticut face. That doesn’t mean it isn’t a huge problem in the Pelican State – to the tune of somewhere between $20 billion or nearly $75 billion, depending on which alarming report you consider more accurate.
Louisiana hasn’t adopted sensible reforms like raising the retirement age and moving to defined contribution plans. Louisiana taxpayers are still stuck with an antiquated and expensive arrangement where the defined benefit plan rules supreme.
In 2012 the Legislature did pass a law requiring future state hires to enroll in defined contribution plans, but led by the teachers’ unions and other interested parties – staffers, boards, lobbyists, investment salespeople, accountants, lawyers and the rest who ride like remoras on this bloated whale – the law was repealed.
It’s hard to predict how deeply we must dip the gourd into the magic fountain of other people’s money to make good on the state’s current obligations. What is clear is regardless of whether one goes with the rosy estimates floated by those in the pension business or the much scarier numbers arguably more objective analysts reach, it would take tens of thousands out of Louisiana wallets just to plug the existing gap.
In other words, what Louisiana and practically every other state across this great land faces is a system that is — all together now — unsustainable.
It is beyond belief everyone doesn’t see this, which means everyone does. The state workers drawing these handsome pensions want them. They fight like cornered tigers over having to contribute another dollar to what they regard not as some extraordinarily generous entitlement paid for by folks who have no such protected eggs themselves, but as some kind of right, confined to them, as sacred as free speech.
These brutal fights seem to have knocked the starch out of our current lawmakers. Yet absent a Legislature and governor with the guts to do what they must, this is headed to an ugly ending. Debts that can’t be paid, won’t be. Assuming they will is like assuming massive bundles of poorly vetted mortgages represent a safe investment.
Once upon a time Gov. Bobby Jindal and others in Baton Rouge talked about the mess and bravely tried to accomplish something. Some in similar positions to Jindal – Wisconsin’s Scott Walker springs to mind – have seen their national reputation (along with their state’s bottom line) improve by tackling this beast.
No doubt politicians feel they are better off kicking pension reform down the road and living to fight another day. But fight another day for what?
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on February 28, 2014 at 5:58 PM, updated March 01, 2014 at 11:12 AM