2017 Regular Session Frequently Asked Questions
BENEFITS FOR LASERS MEMBERS
Question: Have retirement benefits under the defined benefit plan for current members become too expensive?
Answer: The total “normal cost” for funding benefits has actually decreased over the past several years. The State will pay 4.00 percent of payroll to fund the cost of benefits earned by current employees. Rank-and-file employees pay 7.5 or 8 percent of their salary, depending on their hire date, to fund their future benefits. If State employees were in Social Security, the State and employees would each pay 6.2 percent of salary.
Question: Are benefits paid by LASERS to its members overly generous?
Answer: As of June 30, 2015, the average rank-and-file LASERS retiree is paid a benefit of $24,660 a year.
CHANGES FOR EXISTING EMPLOYEES
Question: Are there pieces of legislation that would change the rules for existing employees?
Answer: No.
COST-OF-LIVING ADJUSTMENTS (COLAs)
Question: What is a cost-of-living raise?
Answer: A COLA is an adjustment made to your retirement benefit in order to counteract the effects of inflation. COLAs are not automatic or guaranteed. COLAs are funded through excess investment earnings, which are earnings above the LASERS expected actuarial return, and above the hurdles that have been legislatively established to help reduce the debt owed to the System.
Question: What must happen under current law in order for a COLA to be granted to LASERS retirees?
Answer: Several criteria must be met before a COLA can be granted:
- The Experience Account, which receives excess investment returns, must have a balance sufficient to fund the COLA on an actuarial basis. There must be a recommendation by the LASERS Board of Trustees to the legislative leadership that a COLA be granted and legislation granting the COLA must receive at least a two-thirds vote of both the Louisiana House of Representatives and Louisiana State Senate. The legislation is subject to gubernatorial veto. (R.S. 18:542)
- To be eligible, regular retirees must be retired at least one year on the date the COLA is granted and must be at least age 60. These requirements were set by the Legislature in 2009. For survivors, the age 60 requirement is based on the age the retiree would have attained by the date the COLA is granted. There is no age requirement for disability retirees.
Question: When did LASERS retirees last receive a COLA?
Answer: A 1.5 percent COLA was granted July 1, 2014 for eligible retirees.
Question: How is the amount of a COLA calculated?
Answer: Based on Act 399 of 2014, a COLA is subject to the following restrictions:
System Funding | System earns at least 8.25% |
System earns ARR1, but not 8.25% |
System does not earn ARR |
Less than 55% | None | None | None |
At least 55% but less than 65% |
Lesser of 1.5% or CPI-U2 |
Lesser of 1.5% or CPI-U |
None |
At least 65% but less than 75% |
Lesser of 2% or CPI-U |
Lesser of 2% or CPI-U |
None |
At least 75% but less than 80% |
Lesser of 2.5% or CPI-U |
Lesser of 2% or CPI-U |
None |
At least 80% | Lesser of 3% or CPI-U |
Lesser of 2% or CPI-U |
Lesser of 2% or CPI-U |
1ARR is the Assumed Rate of Return for the System, currently 7¾% for the 12 month period ending on June 30 of the previous year.
2CPI-U is the Consumer Price Index – Urban.
Legislation can change this process.
Question: How many consecutive years can LASERS retirees go without receiving a COLA?
Answer: There is no limitation.
Question: If a COLA is granted, is it retroactive to cover the years retirees did not receive one?
Answer: No, COLAs are not retroactive.
Question: Are all of Louisiana’s retirement systems required to provide the same COLA at the same time?
Answer: No.
Question: Does the LASERS Board of Trustees support a COLA for retirees?
Answer: The LASERS Board of Trustees has identified the adoption of a reliable and dependable mechanism for the funding and granting of COLAs for eligible System retirees as a significant board issue.
SOCIAL SECURITY IMPACT
Question: Do members of LASERS pay the Social Security tax?
Answer: No. The LASERS retirement system is mandatory for most state employees. Neither the employees nor the State pay the Social Security payroll tax.
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 2016-002 Update (PDF) regarding this issue.
TYPES OF RETIREMENT PLANS
Question: What is a defined benefit (DB) retirement plan?
Answer: A defined benefit (DB) plan guarantees a lifetime monthly benefit to retirees. The benefit is calculated based on a formula that considers the employee’s years of service, the compensation received by the employee, and an accrual rate. Assets in a DB plan are managed by professionals using a long-term investment horizon. Funding for the plans is provided through employee contributions, employer contributions, and investment earnings, with investment earnings funding the vast majority of benefit payments.
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 be forced to rely on public assistance.
Question: What is a hybrid retirement plan?
Answer: A hybrid plan can take various forms, but typically has elements of both defined benefit and defined contribution plans.
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, much like a mortgage.
Question: How much is LASERS UAL?
Answer: As of June 30, 2015, the UAL of LASERS was approximately $6.90 billion.
Question: How will the legislatively mandated UAL payment schedule reduce LASERS debt over time?
Answer: The existing payment schedule is projected to result in a $1.5 billion reduction to the LASERS $6.90 billion debt in eight years and a $5.9 billion reduction in 22 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: Legislative reforms adopted since 2005 are expected to reduce costs for LASERS by $3 billion. LASERS has supported many 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. 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. A third new Rank and File plan was adopted in 2014 which increases the retirement age for certain new hires to age 62.