In Reducing the Cost of Tomorrow: A Practical Guide to Pension Reform in Jefferson, Orleans and St. Tammany Parishes, BGR explores the changes to public pension benefits policymakers can make to reduce the costs and risks associated with the pension plans. The report is the fourth installment in a series of BGR pension reports.
From 2009 to 2016, the public’s pension plan costs increased for all but one of the plans in which the governments in Jefferson, Orleans and St. Tammany parishes participate. In the City of New Orleans, pensions absorb 16 cents of every dollar citizens send to the general fund – a pot of money that also must be used to pay for basic services. In many cases, citizens are helping to pay for public sector retirement benefits that are far more generous and secure than their own. In fact, in the eight-parish New Orleans area, roughly half of the private sector workers lack access to any form of employer-supported retirement plan, much less a government-style defined benefit plan.
The fourth part in a series, Reducing the Cost of Tomorrow examines an array of potential reforms to the 18 public pension plans in which local government employers in Jefferson, Orleans and St. Tammany parishes participate. It advances the case for more efficient use of taxpayer dollars.
Reducing the Cost of Tomorrow explores in detail the changes to public pension benefits policymakers can make to reduce the costs and risks associated with the pension plans. Among the options BGR sets forth:
Alternatively, policymakers can reduce the costs and risks associated with public pension plans by moving to a different model entirely:
Table 6 from the report provides examples of the differences in employer costs as a percent of payroll under a defined contribution plan versus the existing state and local defined benefit Plans. In most cases, employers pay significantly more for a single year’s worth of benefits under a defined contribution plan (the normal cost). But the costs to employers of providing a defined contribution plan pale in comparison to the total amount employers owe in fiscal 2016. That year, employers will pay up to 10 times the normal cost because of past underfunding and the risks they’ve taken on by offering a defined benefit plan. In other words, if history is a guide, a defined contribution plan would be a much cheaper option in the long run.
In looking to craft pension reforms, citizens and policymakers should keep in mind the vast gulf between public and private sector employees when it comes to retirement benefits. It is critical that reformers strive to provide public employee benefits that, as part of a total compensation package, will attract and retain high quality employees – while also ensuring that the level of benefits and their costs are fair to taxpayers.
Defined benefit pension plans for public employees in Louisiana as currently structured are in desperate need of reform. In most cases, the multipliers exceed the national median by wide margins, significantly increasing the rate at which employee benefits accrue and significantly reducing the amount of time that an employee needs to work in order to receive 100% of pre-retirement income.
It remains true that the Plans in which local governments participate are more generous than national public sector medians in most respects. That generosity has contributed to ballooning costs – with employer contributions as high as 118% of total employee pay – threatening state and local government budgets. In other words, the cost of yesterday’s pension promises can diminish government’s ability to provide public services today and in the future.
Both public employees and private citizens alike bear the cost of past generations’ pension excesses. Policymakers ought to consider alternative pension plan designs that, in the long run, halt this generational cost transfer.
These plan designs would shift some, if not all, risk away from public employers. While employees take on additional risk, they also would enjoy greater plan portability. Under a defined contribution or cash balance plan, changing jobs would not mean having to start saving for retirement all over again. These plan designs may also better reflect the evolving expectations and career patterns of the work force.
At a minimum, policymakers should pursue reforms to the existing defined benefit offerings to bring them to a more reasonable level. That implies lowering multipliers to at least the national public sector median, raising the minimum retirement age, eliminating perks such as lump sum payment programs, limiting the income replacement to a need-based percentage of an employee’s salary, implementing a cap on benefits and leaving it to employees to self-fund cost of living adjustments.
This report is the latest installment in BGR’s Candidate Q&A Election Series. The new report consolidates and reissues the responses of the newly elected City of New Orleans mayor and councilmembers who completed BGR’s surveys last fall on important issues facing City government.
For the October 14, 2017 primary elections in New Orleans, BGR provided voters with its 2017 Candidate Q&A Election Series. BGR submitted questions to all mayoral and City Council candidates on public safety, infrastructure and other important public policy issues facing the City of New Orleans government.
BGR reviews two property tax propositions on the ballot in New Orleans on December 10, 2016: a tax increase for fire protection services and a tax renewal for the Sewerage & Water Board’s drainage system.
In Reducing the Cost of Tomorrow: A Practical Guide to Pension Reform in Jefferson, Orleans and St. Tammany Parishes, BGR explores the changes to public pension benefits policymakers can make to reduce the costs and risks associated with the pension plans.
BGR explains and analyzes two tax propositions in New Orleans on April 9, 2016: one for street work and other improvements, and a second for the police and fire departments.
In Sound the Alarm, BGR examines the New Orleans Firefighter Pension and Relief Fund – which has become a major burden for the public – and relevant bills under consideration by the Legislature in 2013.
In The Rising Cost of Yesterday: Metro Area Pension Costs and the Factors that Drive Them, BGR examines 18 defined benefit pension plans available to local government workers in Jefferson, Orleans and St. Tammany parishes (the Plans).
In On the Ballot: November 6, 2012, BGR examines three proposed constitutional amendments, two propositions pertaining to multiple parishes in the New Orleans area, a proposed change to the City of New Orleans charter and two local tax propositions.
Understanding Pensions: A Primer on Public Employee Pension Plans is the first in a series of reports on the public pension plans in which local governments in Jefferson, Orleans and St. Tammany parishes participate.
This edition of Now looks at the issue of public pension costs.
BGR analyzes 10 State constitutional amendments on the ballot for November 2, 2010. The amendments concern a wide variety of issues, including salary increases for elected officials, the homestead exemption, a cap on millage increases by non-elected taxing authorities, public retirement benefits and expropriation of blighted property.
The Bureau of Governmental Research analyzes four proposed amendments to the State constitution and one proposed amendment to the St. Tammany Parish home rule charter. The report covers amendments that will go before voters on October 20,
(August 14, 2018) – The Bureau of Governmental Research (BGR) won two awards from the Governmental Research Association (GRA) at its national conference July 30 to August 1 in Detroit. BGR received the Outstanding Policy Achievement award for the 2016 report...
Current New Orleans City Hall employees will avoid changes to their retirement plans under a deal City Councilwoman Stacy Head cut to apply changes designed to save taxpayers money only to employees hired after Jan. 1. Head has been seeking changes...
(July 27, 2017) – The Bureau of Governmental Research (BGR) won two awards from the Governmental Research Association (GRA) at its national conference July 16-18, 2017, in Salt Lake City. BGR won the Outstanding Policy Achievement award for the...
After a boisterous New Orleans City Council committee meeting Thursday at which dozens of city workers railed against a proposal to make the municipal pension plan less generous for newer employees, the proposal was yanked by its sponsor, who...
We’re running out of time. That’s how I feel with a little less than a year left in office as a council member. Election season is heating up and you will begin to hear much from candidates about their...
New Orleans City Councilwoman Stacy Head is proposing changes that would make the city’s main pension plan less generous for new employees and those hired in the past 10 years — changes she said are necessary for the long-term viability...