Tuesday, April 17, 2012

Watching Sausages Being Made

As I may have mentioned before, my husband is a retired state civil service worker. When he retired from working for the state of Louisiana, he did not intend to retire from his work life, but his attempts to find another job have been unsuccessful. So at the moment, our income consists of my Social Security and his state pension. We do have a considerable amount of savings, but we aren’t relying on them for income just yet.

He also belongs to an organization of  state retirees. This organization has been reaching out to current employees, primarily those on the cusp of retirement. So when we attended a recent meeting of the group, it was not surprising that the topic was Governor Jindal’s plan to decimate reform state pension laws. Governor Jindal first tried to pass these reforms a few years ago, shortly after Mama Jindal retired from her civil service job with a full pension. Changes, which would apply to current employees, not just new hires, include extending the retirement age, changing the formula used to calculate benefits to base them on the last five years of salary rather than the last three, as is currently done, and increasing employee contributions by 3 percent. That 3 percent, however, is not going into the retirement fund. It’s going into the general fund. In other words, it’s a tax. (“No it’s not,” says our governor. Why not? Sound of crickets.) Even worse, it's a tax on the people the state owes money to be used in order to pay those people the money owed them. 

It was known back in the 1980’s that the state retirement program was underfunded. Legislation was passed under Governor Buddy Roemer that initiated a forty year plan to catch up the deficit, with the bulk of the state’s contributions to be made between the tenth and twentieth years of the plan. When year ten rolled around, the plan was revised such that the bulk of the payments would be made instead between the twentieth and thirtieth year of the plan. This change was not made by state civil service workers, of course, it was made by elected officials.

You know whose pensions are not being modified under the current bills? Do I even need to say that that the answer to that question is elected officials?

Yesterday, the state Senate Finance Committee met to consider the governor’s package of retirement bills. The retirees group sent out an email alert and hubby decided to go, so I went too.

The meeting was scheduled for 9:30. The committee room was full but we got seats in the overflow room, which had several TV’s so we could watch the proceedings. 

The first thing that happened was the meeting being adjourned due to lack of a quorum, and rescheduled for 11:30. There could have been some perfectly innocent reason for that. People who wanted to testify before the committee had to fill out cards, green cards for those in favor and red cards for those against. When the chair announced that the meeting was postponed, he informed the people who had filled out red cards that they had to do it all over again.*

When the meeting reconvened, the first bill to be taken up was one involving municipality participation in DROP programs for police and fire fighters. Discussion of this bill had been postponed for a week to obtain information about the financial impact on cities due to this bill. Some information had been obtained about police budgets, but none about fire fighters. Despite not having the information, the committee passed the bill out of committee. That was a sign.

Next came Senate Bill 51, the bill extending retirement age. Under current Louisiana law, a civil service worker with thirty years service can retire with full benefits at any age. So if you went to work in the state typing pool or DMV at the age of 18, and worked steadily for 30 years, you could retire at 48.  If you want to retire after 25 years of service, you need to be at least 55. If you are 60 years of age or older, you can retire with any number of years of service, but you need at least ten years to be vested in the retirement plan. Under the Governor’s package, the retirement age for all current retirees, with no matter how many years of service, would be increased to 67.

Or so we thought. When the 11:30 meeting convened, the chair announced that they had pulled the original bill and replaced it with a substitute bill, that phased in later retirement ages based on years of current service, and calculated benefits in two stages. So if you went to work in the state typing pool or DMV at the age of 18, and worked steadily for 30 years, you can still retire at 48; you just can’t draw benefits until you reach age 55 or you can draw reduced benefits. 

The committee first heard testimony from three members of the governor’s staff, who tried to convince us that:

1) There is a financial crisis in the retirement system. The gap between the amount of money needed to fund pensions and the amount in the retirement fund has grown larger since the 40 year plan was adopted. Taxpayers are having to cover a substantial amount of the current pensions.

Well, yeah. Because the bulk of the catch-up payments were shifted by a decade. If the original 40 year plan had been followed, the gap would not be widening. However, by the end of the 40 year plan, the gap will be narrowed again, if no one makes any more stupid changes. So this whole “crisis” is a manufactured one, although tweaking the system for incoming hires may make sense.
2) The original reason for giving state workers a better retirement plan than that found in the private sector was to make up for lower wages in the public sector. Wages in the public sector are now equal to or better than those in the private sector.

Maybe, if  you average in all the wages of all civil service employees as compared to comparable private sector employees. What happens if you break out comparable groups by job title and educational level, such that engineers in the public sector are being compared to engineers in the private sector, lawyers in the public sector are being compared to lawyers in the private sector, medical personnel in the public sector are being compared to medical personnel in the private sector, and so forth? The public sector doesn’t pay as well for those people. 
It’s true, pensions for state retirees are far better than anything now available in most of the private sector, but for most of the years state workers have been working to earn those pensions, their wages lagged far behind what the private sector was able to pay.
And of course, what they neglected to add is that if you work for the state of Louisiana, you don’t pay into Social Security. The comparison they were making was state retirement benefits versus private retirement benefits, not versus private retirement benefits plus Social Security benefits. Although it was hard to say what numbers they were using, since at no time did anyone quote them.
3) The original bill was constitutional and the new substitute bill even more so. Why is this an issue? Because the retirees group doesn’t think so and is going to sue of this law passes. Why do they think it is unconstitutional?
Louisiana Constitution Article X, Section 29(B) makes membership in a state retirement system a contract between the members and the employer:
Membership in any retirement system of the state or of a political subdivision thereof shall be a contractual relationship between employee and employer, and the state shall guarantee benefits payable to a member of a state retirement system or retiree or to his lawful beneficiary upon his death.
Article X, Section 29(E)(5) also provides:
The accrued benefits of members of any state or statewide public retirement system shall not be diminished or impaired.

Legal counsel for the governor’s office tried to show that changing the retirement standards for existing workers does not “diminish or impair” their benefits. 
Remember that 49 year old who is either going to give up the 6 years of benefits she would have received between age 49 and 55 or receive reduced benefits? Well, her benefits are not being "diminished or impaired", according to the governor’s office, because the benefits she earned up until now are still being treated the same, so she won’t get any less than the benefits she earned in 28 years. 

Legal counsel also tried to assure the committee that constitutional review of the bill would be fast-tracked and settled in a few months. There ensued a lengthy question and answer session in which it became clear that a) the senators did not understand how the new benefits were going to be calculated, b) senators were concerned about how much defending the bill in court could cost the state and if they would be liable for back payments if the law was overturned, c) the governor’s people had no answers to those questions and d) the senators were going to pass the bill out of committee anyway, even without having those questions answered.

So after the three witches governor’s office staff, we heard from the State Auditor. When the possibility of constitutional issues were introduced, he commissioned an outside law firm specializing in contract and retirement law to look into the constitutional aspects of the bill as originally proposed. The person who had prepared that report was present and testified that the law stood a good chance of being declared unconstitutional, that it would take at least two years to decide, and that in states in which similar changes to pensions had been overturned, the states then owed substantial amounts in back benefits.

The committee then recalled the governor’s legal counsel to explain dueling opinions on the constitutionality of the bill. Counsel made vague references to 60 years of case law and Louisiana contract law and one specific reference to the court’s opinion in a recent retirement case. Consultant pointed out that most of the “60 years of case law” occurred prior to the 1974 constitution, that the Louisiana contract law referred to involved the state’s ability to amend contracts between private parties, not between itself and private parties, and that the specific case cited concerned how interruptions in time of service affected benefits.

Finally opponents to the bill were called. At this point, the chair noted that it was getting late and said he would have to restrict each speaker to two minutes.

Gosh, if it were only possible to tell how the committee is leaning on this one. 

Representatives of the state retirement system and the teacher’s retirement system spoke briefly about the impact the bill would have on people currently in the system, especially those of retirement age who still want to continue working. If the bill passes, those people will have three months to decide whether to go ahead and retire or to take the chance that the bill might be overturned and possibly lock themselves into years of more work for less in benefits. One of the Senators assured them that they would work on the bill on the floor to make sure their concerns were addressed.

Gee, I thought that’s what the committee was for. ("I'm just a bill, up on capitol hill . . .")

Mostly they turned their remaining time over to another attorney, this one a Louisiana attorney who had worked for the state attorney’s office. He prefaced his remarks by pointing out that he had read all of the documentation from the convention that produced the 1974 constitution, to be sure he had a sense of what the writers intended by Article X, Section 29(B). He also pointed out that the amendment that added Article X, Section 29(E)(5) was added at the time the 40 year catch-up plan was adopted, apparently to make sure that the legislature did not throw the responsibility for making up the shortfall in the retirement system back onto the workers.

At last, I thought, someone who can answer the questions that arose earlier.
At which point the chair announced he was going to have to cut the speaker off due to time considerations.

Do you notice the catch 22 here? If you have a lot of people who want to speak in opposition to the bill, each one just gets a few minutes. If you don’t have a lot of people who want to speak in opposition, well, obviously no one is opposed but a few cranks.
The attorney announced he had emailed his prepared remarks to the committee members and the chair assured him they would read them. An hour later (during which there was no break for email reading) the bill passed committee.

Quelle surprise.

*I find it funny that even though the committee room was filled with flat screen TV’s, laptops, tablets, and smart phones, they still use those red and green cards.

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