Louisiana Pension Influence Growing | Chief Investment Officer

Louisiana’s state pension systems are vital to working families and retirees across the state, serving as key economic drivers, particularly in rural areas, where public pension benefits are a substantial source of personal income and economic activity, according to a new report.

The report, “Pensions in the Parishes 2017,” from the Louisiana Budget Project (LBP), surveyed how the state’s pension systems impact each parish, and shows the combined economic impact of the three largest state retirement systems: the Louisiana State Employees’ Retirement System (LASERS), the Teachers Retirement System of Louisiana (TRSL), and the Louisiana State Police Retirement System (LSPRS).

According to the report, Louisiana’s pension systems pay out more than $4 billion in benefits to 164,000 retirees and their families every year, which translates to 2% of all personal income in the state, up from 1.7% in 2014.

“When considering changes to state retirement systems, policymakers should keep in mind the impact pensions have in supporting local businesses and jobs in every parish across the state,” LBP Director Jan Moller said.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

Moller cited West Feliciana Parish, where payments from the state’s three largest pension systems total 3.4% of all personal income, and nearly 19% of all retirement income.. “That steady source of income is vital to the parish’s economy, where one in five residents live below the poverty line,” Moller said.

The LBP monitors and reports on public policy, and how it affects Louisiana’s low- to moderate-income families.

The report found that payments to retirees in the state’s 14 pension systems account for one of every 10 dollars of retirement income in the state.

“These dollars don’t just sit in savings accounts,” said the report, “but are spent and pumped back into local economies where they have a substantial economic impact, supporting everything from car dealers and restaurants to grocers and hospitals.”

The report also compared the $4 billion economic impact of Louisiana’s pension payouts with the payrolls of some of the state’s largest industries. For example, total compensation for all hospital employees was $5.3 billion, while restaurant and other food service workers made around $4 billion. Workers in the chemical manufacturing industry were paid $3.4 billion in 2015, while employees of car dealers and auto part stores earned a collective $1.8 billion.

Louisiana has four state pension systems, which include LASERS, TRSL, LSPRS, and the Louisiana School Employees Retirement System (LSERS) for non-teacher school employees. There are an additional 10 pension systems for local government employees, such as pensions for district attorneys, firefighters, and municipal workers.

Tags: LASERS, LBP, Louisiana Budget Project, LSERS, LSPRS, Pensions in the Parishes, poverty, TRSL

Kentucky’s retirement system faces a funding shortfall across its pension systems of $33 billion, and could face insolvency in just five years, according to an audit report from the PFM Group.

“If the commonwealth reverts to the pattern of underfunding the system that it followed from fiscal year 2004 to fiscal year 2014,” said the report, “we project that the [Kentucky Employees Retirement System] fund will be depleted by fiscal year 2022.”

The report said that, based on alternate return assumptions for a 10-year investment horizon and increased liquidity requirements consistent with an updated KRS policy, the unfunded liability would rise to $42 billion. The audit also cited the state’s last-place ranking by Standard & Poor’s with just 37.4% of total current obligations now funded, compared to a national median of 74.6% as of fiscal year 2015, the most recent period reported by S&P.

Kentucky sponsors three major retirement systems covering state, local government, school district, and nonprofit employees across the state. Within the three major systems, there are eight total pension plans.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

Although weak investment returns over the past decade contributed to the system’s decline in funding, the auditor said, “the largest single factor underlying the decline was an actuarial funding approach that effectively back-loaded payments such that – even if the commonwealth and other member employers had met all of the calculated actuarial funding requirements each and every year – these payments would still have been less than the annual interest on the unfunded actuarial liability.”

The report also said that each of the plans modified various actuarial assumptions over this period, such as adopting more conservative investment return assumptions and adjusting mortality rates that reflected improving longevity.

“Together, the actuarial back-loading and assumption adjustments drove nearly half of the aggregate growth in underfunding (47%), and led to a majority of the shortfalls in the TRS [Kentucky Teachers’ Retirement System] and CERS-NH [County Employees Retirement System Non-Hazardous] plans.”

The audit report was released just after the KRS slashed its rate of assumptions, a move that will add an estimated $2 billion in debt to the already struggling pension system.

The system lowered its investment rate of assumption to 5.25% from 6.75%, its inflation assumption to 2.3% from 3.25%, and its payroll growth assumption to zero from 4%.

The change in assumption rates means Kentucky is currently $13 billion underfunded for what it is expected to pay retirees over the next 30 years. State agencies will have to contribute nearly 78% of each employee’s salary to the pension fund, up from 50%. That means for every state worker earning $50,000 a year, taxpayers will owe the pension fund $39,000.

Changing the assumptions and making decisions based off the more realistic figures will mean a much bigger actuarially required contribution (ARC) payment will be needed from the General Assembly to shore up the system, according to the Kentucky Chamber of Commerce.

Tags: Kentucky, Pension, shortfall