Testimony: Louisiana Senate Bill 10 is likely to increase pension debt and weaken retirement system

Members of the Committee:  

Thank you for the opportunity to share our project’s perspective on Senate Bill 10 (SB10) and the proposal for allowing Optional Retirement Plan (ORP) participants to transfer their accrued liabilities to the Teachers’ Retirement System of Louisiana (TRSL).

My name is Steven Gassenberger, and I serve as a policy analyst for the Pension Integrity Project at Reason Foundation. Our team conducts quantitative public pension research and offers pro-bono technical assistance to officials and stakeholders aiming to improve pension resiliency and advance retirement security for public servants in a financially responsible way. 

Allowing ORP participants in higher education to revoke an irrevocable election they made upon entering the system, and transfer retirement liabilities to TRSL, contradicts the principles of sound pension funding and is likely to add to the system’s $9.3 billion in debt. 

The Legislative Auditor’s actuarial note makes clear SB10 is “likely not cost-neutral because the actuarial cost for the purchase is based on TRSL’s ‘comparatively generous assumptions’ and the “lack of individual underwriting that an insurance company would undertake.” 

The reason the proposed transfer of ORP funds creates a real risk of near-term TRSL unfunded liability increases lies in the system’s 7.25% assumed rate of investment return. Considering most state pension plans across the country are lowering their growth rate expectations down to, or below, 7%, any future investment underperformance—which capital market forecasts suggest is likely in the decade ahead—and/or adjustments to TRSL’s investment return assumptions will automatically create additional unfunded liabilities. 

Although the state auditor points out that this proposed change will cost more for state taxpayers, there is still no formal actuarial analysis, stress testing, or concrete reporting on exactly how much this added cost will be. Without a detailed analysis of the costs and financial risks that the state could incur under various investment outcomes, it is impossible to properly evaluate the merits of this proposed policy. 

Transferring ORP assets may not be a good deal for employees either. From the transferee’s perspective, ORP vendors may have investments with liquidity restrictions limiting the ability to comply with the 100% transfer requirement within the transfer window period. Other investments may also have early withdrawal reductions that affect the amount eligible for transfer. Even the timing of market conditions could lead to employees withdrawing their ORP at a low value.

SB10 is likely to shortchange members, increase the state’s pension debt, and weaken a TRSL system already burdened with $9.3 billion in unfunded but constitutionally protected retirement benefits.

We commend legislators, members, and stakeholders willing to examine these important issues and thank you again for the opportunity to share our perspective.