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| | 2012 Regular Session Frequently Asked Questions
Legislation filed for the 2012 legislative session has prompted a number of questions from members of LASERS. Some of those questions, and responses from LASERS, are below: AIR TIME
Question: I bought air time based on the current law. May I get my money back? Answer: If you separate from service and apply for a refund of contributions, your payment for the air time will be included in the refund.
You may not remain employed in a LASERS eligible position and receive a refund of your air time purchase. The actuarial cost of your purchase cannot be recalculated. Question: The purchase price for my air time was based on an actuarial calculation. This calculation included an assumption of the date on which I could draw an unreduced benefit, based on present law. If this bill passes, will LASERS make a recalculation and refund me the difference? Answer: No. The actuarial cost of your purchase cannot be recalculated
SERVICE CREDITS
Question: I had service credit from another system actuarially transferred to LASERS. Because the funds transferred from my previous system were not sufficient to fully offset the actuarial liability from my transfer, I accepted a reduction in my service credit. This transaction was based on the laws in place on the date of my transfer. Will the system recalculate and award me additional service credit if this bill passes? Answer: No. The actuarial cost of your transfer cannot be recalculated. Question: I had service credit from another system actuarially transferred to LASERS. Because the funds transferred from my previous system were not sufficient to fully offset the actuarial liability from my transfer, I paid an additional amount to preserve my service credit. This transaction was based on the laws in place on the date of my transfer. Will the system recalculate and refund me the difference if this bill passes? Answer: No. The actuarial cost of your transfer cannot be recalculated.
SOCIAL SECURITY IMPACT
Question: Do members of LASERS pay the Social Security tax? Answer: No. The LASERS retirement system is mandatory for state employees. Neither the employees nor the State pay the Social Security payroll tax. Question: If I retire before the October 1, 2012, deadline in the Age 67 bills and then go to work in the private sector, what impact is there on my Social Security benefits? Answer: Social Security benefits will be offset under the formula provided in the Windfall Elimination Provision based on the level of the LASERS benefit collected.
STATE EMPLOYEES' INVOLVEMENT
Question: I am a state classified employee. Do I have the right to address members of the legislature? Answer: Read the Louisiana Department of State Civil Service General Circular Number 2012-994 Update (PDF) regarding this issue.
TYPES OF RETIREMENT PLANS Question: What is a defined benefit (DB) retirement plan? Answer: A defined benefit retirement plan guarantees a monthly benefit for the lifetime of the retiree. The LASERS plan also affords disability retirement, spousal benefits, and benefits to survivors of employees who die while in state service. Question: What is a defined contribution (DC) retirement plan? Answer: A defined contribution retirement plan, usually in the form of a 401(k), can only pay out those funds that have been paid into the plan, as impacted by the gains or losses of the stock market. A retiree with only a DC plan who makes poor or overly conservative investment decisions or those who outlive retirement benefits may create social costs. Question: What is a Cash Balance Retirement plan? Answer: A cash balance plan is a defined benefit plan that defines the benefit in terms that are more characteristic of a defined contribution plan. In other words, a cash balance plan defines the promised benefit in terms of a stated account balance. In a typical cash balance plan, a participant's account is credited each year with a "pay credit" (such as five percent of compensation from his or her employer) and an "interest credit" (either a fixed rate or a variable rate that is linked to an index such as the one-year treasury bill rate). Increases and decreases in the value of the plan's investments do not directly affect the benefit amounts promised to participants. Thus, the investment risks are borne solely by the employer.
(This information was taken from the United States Department of Labor website).
UNFUNDED ACCRUED LIABILITY Question: I am confused about the terms “Initial Unfunded Accrued Liability” (IUAL) and “Unfunded Accrued Liability” (UAL) as it relates to LASERS. What is the difference? Answer: The IUAL is the debt owed to LASERS by the State of Louisiana from the inception of the system in 1946 through June 30, 1988. LASERS was created with an unfunded liability because benefits were granted but were not fully funded. The IUAL began accruing interest on June 30, 1988, at the rate of 7.5 percent annually; in 1990, the interest rate changed to 8.25 percent. In 1987, a constitutional amendment led to a 40-year amortization schedule for the IUAL, requiring the debt be satisfied in 2029.
The UAL is the initial debt plus any additional unfunded liability accrued since June 30, 1988. The UAL is the total amount by which the retirement system’s liabilities (benefit obligations) exceed the assets of the system. Payments to the UAL are amortized over a specified period of time. Question:; How much is LASERS UAL? Answer: As of June 30, 2011, the UAL of LASERS was approximately $6.5 billion. Question:; How will the legislatively mandated UAL payment schedule reduce LASERS debt over time? Answer:; The existing payment schedule will result in a $1 billion reduction to the LASERS $6.5 billion debt in ten years and a $4 billion reduction in 20 years. The UAL balance will continue to decline as long as the state continues to make the debt payments. Review the current UAL Payment Chart for more information. Question: What steps have been taken to address the UAL? Answer: Since 2005, LASERS has supported legislative and constitutional changes to reduce the UAL. Act 75 of 2005, relating to Rank and File members hired after July 1, 2006, increased employee contribution rates, limited retirement eligibility to 10 years of service at age 60, increased the Final Average Compensation (FAC) from three to five years, and reduced the salary spiking cap from 25 to 15 percent. Most recently, Act 992 of 2010, consolidated plans for new hires, consolidated Hazardous Duty plans and adjusted benefits for consistency, modified survivor benefits, and applied components from Act 75 to other groups.
For more information about the UAL and steps taken to reduce it, read the Compact Guide to LASERS, page 12 and 13. |
