Louisiana Pension Borrowing Proposal Shot Down

wood mass on water

Louisiana lawmakers were floating a plan to borrow money and buy out the pensions of thousands of “vested” retirees – paying them a lump sum payment up front in order to reduce the state’s future pension obligations.

But experts and stakeholders testified that the plan was not a good idea.

From the Advocate:

A proposal to borrow money to help reduce state pension system debts got shot down quickly Monday.

The idea was to borrow money that would be used to pay one lump sum and buy out the pensions of vested retirees who have not yet begun to draw their benefits. Waiting before drawing on a pension allows the retiree’s pension to increase in value. Paying off the benefits of those retirees would reduce the state’s $20 billion long-term debt obligations, called the unfunded accrued liability.

But a state treasury official, the Legislature’s actuary and two state retirement system chiefs all testified that the idea was plagued with problems.

Just how many vested retirees could take part in such a program, if approved, is unclear. However, the Teachers Retirement System of Louisiana has 6,336 vested but inactive members, and the value of their pensions is $283 million.

Maureen Westgard, executive director of the Teachers Retirement System, said her board “has viewed (the idea of borrowing) as highly risky” in the past.

According to testimony, the aspect of the plan that called for borrowing money was the most problematic. The option of issuing pension obligation bonds was floated. From the Advocate:

Goldman Sachs pitched the idea of “pension obligation bonds,” and he wanted to see if the idea was a viable one, said Pearson, R-Slidell.

“Pension obligation bond history has not been very favorable,” said legislative actuary Paul Richmond, who noted a disaster involving the New Orleans firefighters retirement system.

First Assistant State Treasurer Ron Henson said the state is restricted in its ability to issue debt by a limit on the money it can spend annually in debt payments.

Further, he said, borrowing is already planned for state and local projects that legislators and their constituents want. “Our debt capacity will not allow the luxury of issues like these,” Henson said.

Louisiana State Employees Retirement System Executive Director Cindy Rougeou said it’s uncertain whether the idea would produce a savings or a cost.

“The overall debt is not being reduced. It’s just restructuring part of the overall UAL debt for a hard bond debt,” she said. “It’s almost taking out a second mortgage.”

Louisiana’s pension systems were collectively 58 percent funded in 2013, according to a 2014 Bloomberg analysis. That ranked 8th-worst in the country.

Knoxville Voters Approve All 5 Pension Measures on Ballot


There were five separate pension measures on the Knoxville ballot yesterday – and voters approved all five by a large margin.

The measures weren’t as far-reaching as more controversial reform initiatives such as Phoenix’s Proposition 487.

But they still introduce changes to Knoxville’s retirement system. Among the changes: more investment options for workers covered by the city’s defined-contribution plans and the appointment of finance and accounting experts to the city’s pension board.

The five measured, explained by WBIR:

No. 1: Better clarifies some terms and is essentially nothing more than housekeeping and cleaning up language.

No. 2: Gives city leaders the authority to consider granting retirees the option to take a single lump payment when they retire rather than receiving monthly payments. Note that it doesn’t automatically grant officials the option, but rather the chance to study whether they want to do it.

No. 3: Could lead to those employees covered under a contribution plan (think: 401K) to have a say in how their dollars are invested. Or at least there could be more options than what the city currently sets aside for them.

No. 4: This amendment…says that only the retiree’s spouse would be eligible for his/her retirement benefits. Right now, children and grandchildren can get them.

No. 5: This amendment…would add two new spots to the pension board. The new members would have to have expertise in finance and accounting, they would have to be city residents and they could not be city employees or folks who receive pensions from city employees.

The specific language of the measures can be found here.


Photo by Elektra Grey Photography