Joint state House and Senate Retirement committees have met several times over the past few months to try and solve a problem that has been many years in the making.

Under House Speaker Jim Tucker’s recommendation, a new system of paying retired state workers – teachers, employees and State Police – would change from “defined benefit” plans (DB) to “defined contribution” plans (DC).

It’s a plan that does not meet with favor from state Rep. Jean Doerge, D-Minden, who is a member of the House Retirement Committee.

“Jim (Tucker) thinks this would eliminate the unfunded accrued liability,” Doerge said. “ Some of the legislators are saying that the UAL has risen pretty high. And they’re saying with it that high, it looks like a debt to the state and that keeps us from getting a higher bond rating.”

At the end of June, the four public retirement systems – state employees, teachers, school employees and State Police – carried a combined debt of $16.8 billion, up from $12 billion at the end of June 2008.

DB plans provide a lifelong retirement benefit to a retiree and/or his beneficiary, based on the retiree’s years of service and level of compensation.

During an employee’s working lifetime, employer and employee contributions will typically be made to the retirement system,  with funds held in trust and invested by the system in order to fund an employee’s future benefit.

When the employee retires, his retirement benefit will be based on the following formula: (years of service) x (accual rate) x (final average compensation).

Doerge said DC plans don’t necessarily provide a guaranteed benefit.

During his working lifetime, the employee and possibly his employer make contributions to the employee’s retirement account.

Those monies are invested, and the benefit at retirement depends on the account balance at the time of retirement. Some DC plans provide for an annuitization, whereby the benefit will continue for life, but other plans do not, in which case the retirement benefit will cease when the retirement account is depleted.
A former educator, Doerge relates well to teacher concerns.

“We have a difficult time now hiring teachers,” Doerge said. “One of our selling points was a good retirement system. That is a concern and I think it’s a concern of state employees also, because it’s going to be difficult to get good quality people to come in if they don’t have a good retirement system to look forward to.”

She said she is equally concerned about other state employees, as well as the State Police.

“I’m afraid people are not aware of this,” she said. “Our teachers’ retirement system is really fighting it. I would think law enforcement would really fight it. State Police pension and retirement system – I don’t know if they’re aware of it.”

Doerge agrees that Tucker has a legitimate concern. She just questions his way of resolving the problem.

“According to all we have heard, switching from the DB plan to the DC plan will not eliminate the UAL completely,”

Doerge said. “It will eventually, somewhere down the line years and years from now, but not right away. He (Tucker) is looking for a quick fix.”

Doerge said she does not know at this point if changing to the new plan will make it into legislation, which would be introduced during the upcoming session. If so, it will not affect those already in the retirement system – only newcomers to the system, if the vote is in favor.

She said the committee expressed concern regarding what would happen if the current state DB plans were closed to new hires. The committee noted that if new hires were put into a DC plan, the state would not be relieved of its funding obligations for the DB plans and would not be free from having to pay down the existing UAL of the DB plans or any new UAL created in the future for the DB plans.

It was expressly noted by the committee that going to a DC plan would do nothing to help with the existing UAL. Moving to a DC plan would merely preclude the creation of a new UAL going forward for new hires only. The committee expressed concern about the lack of new funds coming into the DB plans if new hires are required to participate in the DC plans instead.

“Suppose you die early, and you’ve got children who are supposed to get this, they have to take care of the children, according to the DB Plan,” Doerge said. “That’s what builds on your UAL. It’s not a perfect thing, but I like the idea that when you work all your life, you don’t have to go home and worry about your money running out.”

Be first to comment this article

Only registered users can write comments.
Please login or register.

Powered by AkoComment Tweaked Special Edition v.1.4.6
AkoComment © Copyright 2004 by Arthur Konze - www.mamboportal.com
All right reserved