The heads of the two largest public pension funds in Louisiana said this week that the state should use a large part of its $865 million surplus from fiscal 2008 to help reduce $10 billion of unfunded retirement debt.

Speaking to the Press Club of Baton Rouge, Cindy Rougeou, executive director of the Louisiana State Employees Retirement System, and Maureen Westgard, director of the Teachers Retirement System of Louisiana, said the state’s retirement obligations will take an increasing portion of available funds. Money spent to retire the debt takes funds away from roads and schools, they said.

The two systems have a combined $11.4 billion in unfunded accrued liability, of which $10 billion must be paid off by 2029, according to the provisions of a constitutional amendment passed by voters in 1987.

The $10 billion of debt covered benefits plus interest that the pension systems paid out from their inceptions through 1988 without adequate financing by the state Legislature.

Reducing the total debt would lower future payments because the annual interest rate of 8.25% would be applied to the lower overall debt figure.

The debt service needed to retire the $10 billion is currently $673 million per year, Rougeou and Westbrook said, but it will reach nearly $1 billion a year by 2018, and be above $1 billion for the next 11 years.

Rougeou said the chairman of the Senate Retirement Committee has suggested allocating $600 million of the $865 million state surplus to trim retirement obligations during the 2009 legislative session.

The State Employees Retirement System currently has $8.4 billion in investment assets, and pays out some $750 million a year to 37,575 retirees.

The Teachers’ Retirement System has an investment portfolio of $15 billion. More than 61,000 retirees draw combined annual benefits of $1.38 billion.

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