BATON ROUGE, La. (AP) — Gov. Bobby Jindal's push to create a new retirement plan for future rank-and-file state workers narrowly received the support of the Louisiana House on Wednesday, a day after running into trouble there.
The House stripped an amendment, opposed by Jindal, which would have required the workers to also participate in federal Social Security, before approving the bill in a 55-45 vote, giving the measure two votes more than it needed for passage.
As it heads to the Senate for debate, the proposal would create a cheaper investment account similar to a 401(k) plan for state employees hired after July 1, 2013, instead of a monthly retirement payment based on their salaries and years of employment.
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Rep. Kevin Pearson, R-Slidell, described his proposal as a way to rein in costs of pensionprograms that are more than $18 billion short of the funding they'll need to pay for all the benefits promised.
"We're all trying to figure out what's the balance that helps the state get out of this (unfunded liability) while at the same time providing our workers with a fair retirement," said Rep. Joel Robideaux, R-Lafayette, a supporter of the measure.
Critics said the change to a new plan, called a "cash balance" plan, could leave workers without enough of a safety net, since Louisiana state employees aren't part of the Social Security system.
Rep. Joe Harrison, R-Napoleonville, said only one state, Nebraska, has a cash balance plan for its workers — but also includes them in the Social Security system.
"The one state that is in it said, 'We need a safety net behind it.' And why is that? Because it involves risk," Harrison said. He added of the employees who would be impacted by the change, "Let's not sell away the future of those people."
Financial analysts disagree widely on whether the retirement plan change for new employees would cost or save the state.
Under the proposed system, the contributions made by the employee and the state would be invested, and the account would grow at the rate of investment earnings. The employee would never lose money for investment slumps, as in a traditional 401(k) plan, however.
The risk shifts to the employee, because the state would no longer be guaranteeing a specific level of expected investment return, or a monthly payment based on the worker's highest years of salary.
Rep. Sam Jones, D-Franklin, said because the pension benefit would be tied to investment earnings, the plan could leave state employees in poverty after they retire. Pearson disagreed, saying because the cash balance system would protect against investment losses, it would be a solid benefit.
When employees leave their state jobs, they would get a lump sum payment of their account balance, including interest and credits for the investment earnings, or they could get an annuity, a fixed annual payment for life once they reach age 60.
If they stop working for the state in fewer than five years, employees would get a refund of what they paid into the system, but not the employer contributions.
The cash balance plan wouldn't apply to law enforcement workers and others considered hazardous duty employees. It also wouldn't apply to public school teachers, unless they chose to opt into the program.
Bill opponent Rep. John Bel Edwards, D-Amite, argued the measure needed two-thirds support for passage because it could raise costs for the state retirement system, but House Speaker Chuck Kleckley, R-Lake Charles, a Jindal supporter, disagreed. The House voted to support Kleckley's ruling.
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