Bad budgeting undermines Louisiana teachers’ pension plan, study claims
BRADENTON, Fla. - The public pension plan for Louisiana’s teachers is among the most expensive in the country with more than $11.7 billion in debt driven by “years of irresponsible budgeting practices” by state policymakers, according to a report from an organization called TeacherPensions.org.
In a 24-page report called, “Bayou Blues: How Louisiana’s Retirement Plan Hurts Teachers and Schools,” the public policy think tank concludes that state officials are responsible for the system’s large and growing unfunded liabilities, and teachers are paying the price for past mistakes.
The Teachers’ Retirement System of Louisiana had a net pension liability of $11.7 billion in 2016, as reported in the system’s 2016 comprehensive annual report, said Chad Aldeman, an author of the report. Teacherpensions.org is a project of Bellwether Education Partners.
“They reported a net pension liability of $11.7 billion in 2016, up from $10.7 billion in 2015,” Aldeman told The Bond Buyer Thursday.
When asked to comment on the report, TRSL spokeswoman Lisa Honoré said the pension system’s response was printed in a letter to the editor in the Advocate newspaper.
TRSL Director Dana Vicknair wrote that the report by Bellwether contained a number of inaccuracies.
“To their credit, legislators have taken responsible steps since the late 1980s to contain retirement costs, and these efforts are working,” Vicknair said. “Contrary to Aldeman’s assertions, the balance of the debt is coming down and debt payments are not increasing. This is great news for our state.”
The current net pension liability is $10.3 billion, according to TRSL’s June 30, 2017 actuarial valuation by Foster & Foster Actuaries and Consultants.
The decrease from 2016 was mainly due to a reduction in principal following receipt of the prior year’s unfunded accrued liability payment and an experience gain from investment and non-investment actuarial assumptions, according to the valuation. The actuarial rate of return was 9.15% in 2017, for a gain of $237.5 million, the valuation said.
The expected rate of return was 7.7% as of July 1. Plan administrators plan to reduce the expected rate of return by increments of 0.05% annually until it reaches 7.5%.
According to the paper, Louisiana teachers receive benefits that are worth far less than the contributions the state makes on teachers’ behalf.
“The state pension system estimates the average value of teachers’ final benefits to be worth only 4% of their salary,” the report said. “Nearly half of all teachers who enter the classroom at age 25 will miss out on even these meager savings. Just 1% of teachers will stay in the classroom long enough to earn the maximum retirement benefit.”
The report claims that TRSL delivers benefits through a back-loaded formula that “disproportionately rewards the small fraction of teachers who remain on the job for more than 25 years.” In one recommendation, the report said the state should consider enrolling all new teachers in Social Security. Louisiana teachers do not participate in social security and most participate in the system’s defined pension plan.
TRSL’s director wrote that Louisiana provides pension benefits at a “substantially” lower cost than Social Security.
“School boards pay 4.3% of payroll toward retirement costs compared to private sector employers that pay 6.2% into Social Security,” Vicknair wrote in her letter to the paper Tuesday.
Employer costs for teacher retirements have remained under 7% for almost 20 years.
“The actual cost of teacher retirements is not the same as the state’s payments to TRSL for years of underfunding the system,” Vicknair said. “Both are components of employer costs, but switching to a different type of retirement plan won’t erase the state’s debt.”
The governor’s office did not immediately provide a comment on the report by TeacherPensions.org.
TRSL is Louisiana’s largest public retirement system for K-12 school employees (excluding bus drivers, maintenance and janitorial employees) and unclassified personnel in higher education. More than 188,000 members participate in a qualified defined benefit plan. The market value of the system’s assets is $19.5 billion, and its funded ratio is 64.5%, as of the 2017 valuation.