BATON ROUGE, La. (AP) — Louisiana Gov. Bobby Jindal won his first significant victory Wednesday in his bid to revamp state retirement, when both the House and Senate agreed to create a new pension plan for future rank-and-file state workers.
The bill sent to the governor's desk would create an 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.
With passage, Louisiana is set to become the first state in the nation to provide only the "cash balance" retirement plan for certain employees. Nebraska has such a plan — but also includes its employees in the federal Social Security system. Louisiana state employees aren't in Social Security.
Supporters of the Jindal administration proposal, sponsored by Rep. Kevin Pearson, R-Slidell, described the change as a way to rein in the growth of the pension programs that are billions of dollars short of the money they'll need to pay for all benefits promised.
"This gives us an opportunity to get away from a system, a defined benefit system, which is flawed and which is costing our state," said Rep. Jeff Thompson, R-Bossier City.
Opponents said the cash balance plan won't give state workers enough of a safety net and could leave retirees dependent on state social service programs if their retirement checks don't meet their needs.
"What we're doing is we're taking their benefits anyway. We're placing them in the hands of Wall Street," said Rep. James Armes, D-Leesville, arguing the new plan will make it tougher to recruit state workers. "Please don't vote for this."
It's unclear whether the change will save the state money. Financial analysts disagree widely on its implications, with the Legislature's retirement analyst saying the new plan could cost the state more and the analyst hired by the Jindal administration predicting hefty savings.
The Senate voted 26-8 for the final version of Pearson's bill, and the House gave it final passage with a 67-37 vote. While senators spent no time revisiting discussion of a measure they had previously supported, House members debated the proposal one last time.
House Speaker Chuck Kleckley urged passage of the Jindal administration proposal, saying the current retirement system was broken and in need of change.
"The time has come to send this bill to the governor," said Kleckley, R-Lake Charles.
After passage, Jindal's deputy chief of staff, Kristy Nichols, described the measure as "the single most important piece of pension reform that's been passed in decades. This is a game-changer for the state."
The switch will apply to rank-and-file state employees and university staff, not to law enforcement or other workers deemed to be in hazardous duty. It also won't change the retirement benefits offered to public school employees.
Under the changed system, the contributions made by the employee and the state will be invested, and the account will grow at the rate of investment earnings.
The employee will never lose money for investment slumps, as in a traditional 401(k) plan. But the state will no longer guarantee a specific level of expected investment return, or a monthly payment based on the worker's highest years of salary.
When employees leave their state jobs, they will get a lump sum payment of their account balance, including interest and credits for the investment earnings, or they can 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 will get a refund only of what they paid into the system.
Thompson and other supporters described it as a shift to a system similar to what private companies provide.
"It offsets risk, provides some security. Is it perfect? No. Is there a perfect plan? No," he said. But he added, "What we have is flawed."
But critics of the bill repeatedly noted that private sector workers have a Social Security safety net that Louisiana state employees don't have.
"They deserve better than this," said Rep. Sam Jones, D-Franklin. "This plan guarantees nothing more than about 60 percent of what we're doing today."
Pearson disagreed, saying calculations show that nearly all state workers would have a higher benefit than they would under Social Security under the new retirement system.