LOUISIANA PUBLIC SCHOOL COALITION Louisiana Retired Teachers Association

LOUISIANA PUBLIC SCHOOL COALITION (Louisiana Retired Teachers Association) 2020 Legislative Outlook Louisiana School Boards Association

Understanding the Retirement Dilemma • The entire nation is re-examining retirement plans • No retirement plan was perfect from its inception • Business and government constantly examine retirement plans to provide adequate benefits for retirees and, at the same time, control employer costs that provide for a stable and viable system. • Our task is to help legislators and stakeholders understand how this can be accomplished using our current retirement plan.

Framing the Issues • Expectation is that we will collect our guaranteed benefit for the duration of our lives • Expectation is that we will expect a Cost of Living Adjustment (COLAs) as inflation diminishes the buying power of our benefit • Expectation is that legislators will protect our current retirement plan and make adjustments for COLAs as necessary

Fundamental Equation of Pension Plan Financing Contributions + Income = Benefits + Expenses C+I=B+E This is the basic equation for both a Defined Benefit (DB) Plan and a Defined Contribution (DC) Plan

Fundamental Equation of Pension Plan Financing Contributions + Income = Benefits + Expenses Employers and employees “contribute” to a fund in regular intervals. The fund invests these contributions and earns a return on the investment, which is considered “income. ” The Contributions and Income combined fund the retirement plan that pays “benefits” to members. It also pays “expenses” for maintaining the plan (administrative, investment, auditing, debt, etc. ).

Fundamental Equation of Pension Plan Financing For Defined Benefit (DB) Plans: Contributions + Income = Benefits + Expenses Pre-determined (guaranteed) monthly annuity payments.

Fundamental Equation of Pension Plan Financing For Defined Contribution (DC) Plans: Contributions + Income = Benefits + Expenses Not pre-determined. The annuity = account balance for the C + I (i. e. IRAs + 401(k) plans)

Fundamental Equation of Pension Plan Financing: Why do we want to retain a DB plan over a DC plan? Contributions + Income = Benefits + Expenses Defined Benefit (DB): larger annuity because assets are pooled over time resulting in greater investment income (I). Defined Contribution (DC): smaller annuity because assets are held in individual investment accounts resulting in less income (I).

Fundamental Equation of Pension Plan Financing Contributions + Income = Benefits + Expenses C+I=B+E • If C + I is greater than B + E, then the system is overfunded. • If C + I is less than B + E, then the system is underfunded.

Why do legislators want to change our current plan and how can we convince them to retain our current benefit structure? • Currently, the benefits and expenses (B + E) outweigh the contributions and income (C + I) • Our system is only 67. 1% funded • If everyone retired today, only 67. 1% would receive lifetime benefits! Contributions (C) + Income (I) Interest Re turn on Investment s (I) Employer + the employee c ontribution to the retire ment system (C) Benefits (B) + Expenses (E) Retirees mo nthly pension ob ligations (B ) Unfunded A ccrued Liability (UA L): Debt the state owes to fully fund the system (E) Administrat ive Costs to maintain the retirement system (E)

Why do legislators want to change our current plan and how can we convince them to retain our current benefit structure? • The scale is tipped due to a large debt referred to as the UAL (Unfunded Accrued Liability) • The UAL is $10. 3 Billion • Legislators have concerns that the investment income will not produce enough funding to balance the B + E • Therefore, they continue to increase the Employer Contribution rate Contributions (C) + Income (I) Interest Re turn on Investment s (I) Employer + the employee c ontribution to the retire ment system (C) Benefits (B) + Expenses (E) Retirees mo nthly pension ob ligations (B ) Unfunded A ccrued Liability (UA L): Debt the state owes to fully fund the system (E) Administrat ive Costs to maintain the retirement system (E)

Why do legislators want to change our current plan and how can we convince them to retain our current benefit structure? • Currently, the employee contribution rate is 8% • The employer contribution rate is 26% • The employer contribution is extremely high due to the UAL. If the C (employer share) and the E (UAL) are so high, then why do we want to defend an underfunded system? • Particularly, when the Legislature is looking for ways to… Contributions (C) + Income (I) Interest Re turn on Investment s (I) Employer + the employee c ontribution to the retire ment system (C) Benefits (B) + Expenses (E) Retirees mo nthly pension ob ligations (B ) Unfunded A ccrued Liability (UA L): Debt the state owes to fully fund the system (E) Administrat ive Costs to maintain the retirement system (E)

Why do legislators want to change our current plan and how can we convince them to retain our current benefit structure? • Deal with volatility of the stock market and tough economic times • Balance the state budget • Provide stability and predictability of employer costs in the retirement system! Contributions (C) + Income (I) Interest Re turn on Investment s (I) Employer + the employee c ontribution to the retire ment system (C) Benefits (B) + Expenses (E) Retirees mo nthly pension ob ligations (B ) Unfunded A ccrued Liability (UA L): Debt the state owes to fully fund the system (E) Administrat ive Costs to maintain the retirement system (E)

Why do legislators want to change our current plan and how can we convince them to retain our current benefit structure? • Because pension reform is working • Because research shows the current DB plan is key to recruitment and retention of educators

What is the 2020 legislative outlook for retirement? • Pre-filed legislation • Talking points about Hybrid Plans and Constitutional Conventions (and why LRTA opposes them) • Retirement Committee Members to contact • Sample letters to use as a guide

Pre-filed Retirement Bills 2020 Chamber Bill (Legislator) No. Description HOUSE (Ivey) HB 32 HOUSE (Ivey) HB 33 HOUSE (Ivey) HB 34 Hybrid Retirement Plans Present law establishes four state retirement systems – the La. State Employees' Retirement System, the Teachers' Retirement System of La. , the La. School Employees' Retirement System, and the State Police Retirement System – and provides a defined benefit retirement plan for members of each system. Proposed law establishes an optional hybrid retirement plan (Hybrid Plan) – consisting of a combination of a defined benefit pension and a defined contribution (DC) account – that is available to members of TRSL whose first employment making them eligible for membership in a state system occurs on or after July 1, 2021 (hereafter referred to as "new members"). Establishes an optional hybrid retirement plan for persons employed by a public postsecondary education management board, whose first employment making them eligible for membership in a state system occurred on or after July 1, 2021. Establishes an optional hybrid retirement plan for employees of charter schools whose first employment making them eligible for membership in a state system occurred on or after July 1, 2021. Status Position Pending House Retirement LRTA Opposes (pending LRTA Board Approval)

Pre-filed Retirement Bills 2020 Chamber Bill (Legislator) No. HOUSE (Ivey) Description Status Position Constitutional Amendment [Constitutional Amendment] • Present constitution guarantees benefits payable to a member or retiree of a state retirement system, or their lawful beneficiary. Current retirement plan is Defined Benefit (DB). Proposed constitutional amendment provides that such benefits are guaranteed only if they HB Pending have been annuitized by a state retirement system. No Defined 26 House Contribution (DC) portion of any hybrid plan (DB + DC) would be Retirement constitutionally guaranteed. Provides for submission of the proposed amendment to the voters at the statewide election to be held November 3, 2020. LRTA Opposes (pending LRTA Board Approval)

Pre-filed Retirement Bills 2020 Chamber Bill (Legislator) No. HOUSE (Bourriaque) HB 8 HOUSE (Ivey) HB 24 Description Status Position Retire/Rehire Present law provides for the reemployment eligibility of retired members of TRSL. Proposed law retains present law. Present law generally requires suspension of retirement benefits for a retiree who returns to work in a position covered by the system. Provides exceptions. Authorizes a retiree to return to work in certain positions, including as a substitute classroom teacher, and to continue to receive his benefit; however, the allowable employment earnings of such retiree are capped at 25% of his benefit amount; requires a reduction in the retirement benefit if the cap is exceeded. Proposed law provides that a person hired as a substitute classroom teacher by a school board in a parish with a population of 10, 000 or less is not subject to the cap on earnings. Present law further provides that any retired teacher who returns to active service within the 12 - month period immediately following the effective date of such retirement shall have his retirement benefits suspended for the duration of such active service or the lapse of 12 months from the effective date of his retirement. Proposed law allows substitute classroom teachers in parishes with a population of 10, 000 or less to return to work within the 12 -month period immediately following the effective date of such retirement without suspension of benefits. Present law defines the term "teacher" for purposes of present law applicable to TRSL. Excludes certain persons from the definition of teacher. Present law provides relative to the reemployment of TRSL retirees in teaching and related positions. Requires suspension or reduction of retirement benefits for certain retirees who return to active service as teachers even if such employment is based on employment by contract or corporate contract. Proposed law excludes from the definition of teacher a person employed by a private company to provide tutoring or standardized test preparation services, regardless of any contractual relationship that may exist between the company and an employer as defined by present law. Pending House Retirement LRTA Neutral (pending LRTA Board Approval) LRTA Opposes (pending LRTA Board Approval)

Pre-filed Retirement Bills 2020 Chamber Bill (Legislator) No. SENATE (Peacock) SB 19 Description Status Board Composition Present law creates the state and statewide retirement systems and the boards which govern these systems. Proposed law retains present law. Present law (R. S. 42: 16 and 17) provides that in certain limited circumstances, public bodies may enter into executive session to discuss certain business outside of the public arena. Proposed law retains present law. Present law (R. S. 24: 8) authorizes any member of the legislature to attend any meeting (including executive sessions) of any state board, commission, agency, or committee. Proposed law retains present law. Present law provides for the chairman of the Senate Committee on Retirement and a member of the House Committee on Retirement appointed by the Speaker to be members of each state and statewide retirement system board. Proposed law retains present law. Present law permits each of the chairmen of the House and Senate Committees on retirement, as legislators and ex officio members of each of the state and statewide retirement system boards, to authorize legislative staff members to attend any executive session of any board or committee meeting of any state or statewide retirement system. Proposed law changes the chairman of the House Committee on Retirement to the member of the House Committee on Retirement appointed by the Speaker. Specifies that the legislator may authorize staff to attend executive sessions only of a board of which the legislator is a member. Present law further requires any such authorization to be in writing, to specifically name the authorized staff, and to be submitted to the director of the board whose executive sessions staff will be attending. Provides that such written authorization is valid for one calendar year from the date of submission. Proposed law retains present law but changes the time period from one year to the period of time the member is on the board. Present law permits a legislator to revoke or modify a written authorization at any time. Provides requirements and mechanisms. Proposed law retains present law. Pending Senate Retirement Position LRTA Neutral (pending LRTA Board Approval)

Pre-filed Retirement Bills 2020 Chamber Bill (Legislator) No. Description HOUSE (Edmonds) HB 10 Status Position Calculation of Retiree Compensation Present law provides for the calculation of average compensation in the formula used to calculate a retiree's retirement benefits. Present law provides that average compensation is calculated over a three-year period for any teacher whose first employment making him eligible for membership in one of the state retirement systems LRTA occurred on or before Dec. 31, 2010, and over a five-year period for a Neutral teacher whose first employment occurs after that date. Pending House (pending LRTA Present law provides that certain compensation is excluded from Retirement Board Approval) average compensation if year-over year compensation increases exceed specified limits. Proposed law provides that limits on compensation in the first year of the average compensation calculation period do not apply if the 12 previous months of employment spanned an interruption in service of more than 10 years.

Pre-filed Retirement Bills 2020 Chamber Bill (Legislator) No. SENATE (Peacock) SB 21 Description Status System Actuarial Valuations Present law provides that each actuarially funded state, municipal, parochial, or other retirement system as supported in whole or in part by public funds shall submit to the chairmen of the standing committees on retirement of the House of Representatives and the Senate a copy of their most recent actuarial valuation at least 30 days prior to the beginning of each regular session. Proposed law provides that the actuarial valuations shall be submitted within 10 days of board approval. Proposed law provides that the reports shall be submitted electronically in compliance with present law. Effective June 30, 2020. Position Pending Senate Retirement LRTA Neutral (pending LRTA Board Approval)

Pre-filed Retirement Bills 2020 Chamber Bill (Legislator) No. Description Status Position Eligibility for TRSL Membership Present law provides that all teachers shall become members of the Teachers' Retirement System of Louisiana (TRSL). Present law provides for certain exceptions. Proposed law provides for an exception to membership in TRSL if a LRTA Pending Senate teacher is either: SENATE Neutral SB Retirement (pending LRTA (1) Sixty years of age or older at the time of employment, or (Mills) 2 Board Approval) (2) Fifty-five years of age or older with credit for at least forty quarters in the Social Security system. Proposed law provides that the exception shall not apply to the reemployment of retirees. Effective July 1, 2020.

Pre-filed Retirement Bills 2020 Chamber Bill (Legislator) No. SENATE (Peacock SB 17 Description Status Eligibility for TRSL Membership Present law provides for employees of the Louisiana School Boards Association to be members of the Parochial Employees' Retirement System (PERS). Proposed law provides for employees of the Louisiana School Boards Association to be members of the Teachers' Retirement System of Louisiana (TRSL). Proposed law provides that any employee of the Louisiana School Boards Association employed on or before June 30, 2020, who was a PERS member by virtue of his employment, shall have the irrevocable option to transfer his service credit to TRSL. Present law provides for transfers of service credit between two public retirement systems within the state of Louisiana. (R. S. 11: 143) Proposed law retains present law. Proposed law requires anyone wishing to transfer under the provisions of proposed law to give written notice to PERS and to TRSL on or before December 31, 2020. Effective June 30, 2020. Pending Senate Retirement Position LRTA Neutral (pending LRTA Board Approval)

Pre-filed Retirement Bills 2020 Chamber Bill (Legislator) No. Description Status Eligibility for TRSL Membership Position SENATE (Peacock Present law relative to LASERS rank-and-file members, TRSL members, and LSERS members provides the following retirement eligibilities for those whose first employment making them eligible for membership in any state retirement system occurred on or after July 1, 2015: (1) Retirement at age 62 after five years of service. (2) Retirement at any age after 20 years of service; however, the member's benefit will be actuarially reduced from age 62. Proposed law retains present law for those members hired on or before June 30, 2020. Pending Senate Retirement Proposed law provides for retirement eligibility for those members whose first employment making them eligible for membership in a state retirement system began on or after July 1, 2020. Proposed law provides that such members are eligible for retirement at age 67 or the age of retirement set by the Social Security Administration, whichever is greater, after five years of service. The actuarial reduction for new members under proposed law would be from age 67 or the age of retirement set by the Social Security Administration, whichever is greater. Proposed law provides that the "age of retirement set by the Social Security Administration", for a person whose first employment making him eligible for membership in one of the state systems occurred on or after July 1, 2020, means SB 18 the greater of age 67 or the highest normal retirement age in whole years required for eligibility to receive unreduced retirement benefits from the Social Security Administration on January 2 nd of the applicable calendar year as follows: (1) For a person whose first employment date is between January 1 st and June 30 th, inclusive, the January 2 nd of the year immediately preceding the year he is first employed. (2) For a person whose first employment date is between July 1 st and December 31 st, inclusive, the January 2 nd of the year he is first employed. DISABILITY Present law provides that members of LASERS rank-and-file, TRSL, and LSERS who become disabled are required to have a physician certify their continued total disability every three years until they attain age 62. Proposed law retains present law for all members whose first employment making them eligible for membership in a state retirement system occurred prior to July 1, 2020. Proposed law further provides that for all members whose first employment making them eligible for membership in a state retirement system occurred on or after July 1, 2020, such certification must continue until the member attains age 67. Effective June 30, 2020. LRTA Will Monitor (pending LRTA Board Approval)

Talking Points: Hybrid Plans • What are hybrid plans? • Hybrid plans are a combination of Defined Benefit (DB) retirement plans and Defined Contribution (DC) retirement plans. • Teachers in Louisiana pay into a DB retirement plan. The payout from a DB retirement plan is guaranteed based on a payment formula. In other words, you receive a guaranteed amount using a formula that is based on your years of service and salary. • A DC retirement plan is similar to a 401(k) plan. While both DB and DC plans are affected by the market, the payout for a DC plan is based on how well investments performed before withdrawal. The amount paid out by a DC plan is not guaranteed.

Talking Points: Hybrid Plans • Why do we OPPOSE DC and/or Hybrid Retirement Plans? • Changing to a hybrid plan does not eliminate debt. • States that switched to hybrid retirement plans before paying down the debt actually increased the debt (Bond and Doonan, 2019). • Switching to a DC retirement plan from a DB retirement plan could cost nearly twice as much to maintain (Rhee and Joyner, 2019).

Talking Points: Hybrid Plans • Why do we OPPOSE DC and/or Hybrid Retirement Plans? • Hybrid retirement plans offer benefits that are less than DB retirement plans. • The amount paid out by the DC portion of the plan is not guaranteed. • The accrual rate of the DB portion of the plan will be significantly lower than the accrual rate of a full DB plan. Therefore, the guaranteed payout from the DB portion is significantly lower. • No state has effectively implemented a hybrid plan that produces benefits equal to or greater than our current plan.

Talking Points: Hybrid Plans • Why do we OPPOSE DC and/or Hybrid Retirement Plans? • We do not recommend a change until research indicates that hybrid plans are effective. • Research shows DB plans attract and retain teachers, which is linked to improve student achievement (Rhee and Joyner, 2019).

Talking Points: Hybrid Plans • What about the Unfunded Accrued Liability (UAL) or debt? • Since it was created in 1936, TRSL has had an unfunded accrued liability (UAL or debt). Over the years, benefits promised were not fully funded mainly because there was no requirement that the employer contributions needed to properly fund these benefits had to be paid. • In 1987, Louisiana voters passed a constitutional amendment requiring the System to be properly funded and pay off the debt accrued as of 1988.

Talking Points: Hybrid Plans • What about the Unfunded Accrued Liability (UAL) or debt? • Since the 1987 constitutional amendment, more than a dozen pension reforms have been passed - all designed to maintain the financial health of the system and ensure its sustainability over the long-term. These reforms are projected to have a long-term savings of $5 billion for the state. • Due to our current pension reforms, the new debt is eliminated annually through the investment returns. • The IUAL of the retirement system will be paid off by 2027. • In 2019, TRSL sent $200 million toward paying off the UAL.

Talking Points: Hybrid Plans • Our Current Pension Reforms • Since 2009, the state has enacted significant pension reform, including: • Restructuring the UAL payment plan to make payments more level and steer more of the retirement system’s excess investment earnings toward reducing the UAL. Almost $1 billion in excess earnings have been directed to the UAL. • Dedicating additional excess investment returns to the UAL. • Raising the retirement eligibility age to 62 for individuals hired on or after July 1, 2015. • Adopting a method to project long-term funding needs that allows for greater budget stability.

Talking Points: Hybrid Plans • Our Current Pension Reforms • Due to our current reforms, the UAL debt of the retirement system will be paid off by 2027. • The expected long-term reduction in costs from these and other legislative reforms is $5 billion.

Talking Points: Hybrid Plans • Bottom Line • The UAL is decreasing. • The state is making its required contributions to the System. • TRSL is on track to meet UAL payoff deadlines. • TRSL’s funded ratio is increasing. • TRSL maintains a highly diverse investment portfolio. • In FY 2019, TRSL paid $2. 2 billion in retirement benefits; almost 90% went to Louisiana residents. • TRSL is a sustainable retirement plan.

Talking Points: Hybrid Plans • Research • Rhee, N. & Joyner, Jr. , L. F. (2019). Teacher pensions vs. 401(k)s in six states: Connecticut, Colorado, Georgia, Kentucky, Missouri, and Texas. National Institute on Retirement Security. • Bond, T. & Doonan, D. (2019) Examining the experiences of states that closed pension plans. National Institute on Retirement Security.

Talking Points: Constitutional Convention • What is a constitutional convention? • The purpose of a constitutional convention is to either write a new constitution or reform / revise an existing constitution. Delegates are appointed to review or rewrite the constitution.

Talking Points: Constitutional Convention • Why do we OPPOSE a Constitutional Convention? • Per Article X, Section 29 (A), the Louisiana Constitution guarantees lifetime retirement benefits to TRSL retirees. The state constitution has included this guarantee since 1973. A constitutional convention has the potential to remove this guarantee. Therefore, the state would no longer be required to pay retired teachers pensions (that they EARNED).

Talking Points: Constitutional Convention • Why do we OPPOSE a Constitutional Convention? • A constitutional convention could also remove budgetary protections from other areas of the constitution, such as education funding. Inadequate or inconsistent funding would affect the school systems’ ability to pay the employer’s cost to the Teachers’ Retirement System of Louisiana (TRSL). • As the voice for the retired education community, LRTA opposes any legislative action that would negatively affect retired teachers and/or their pensions. • The state can amend the constitutional convention through legislation.

Talking Points: Constitutional Convention • Bottom Line • A constitutional convention could affect your future retirement benefits. If the constitutional guarantee of lifetime benefits is removed, the state would not be required to pay public pensions. • Removing budgetary protections from other areas of the constitution can affect our retirement system.

Start talking to your legislators NOW! House Retirement Committee

Start talking to your legislators NOW! House Retirement Committee

Start talking to your legislators NOW! Senate Retirement Committee

Sample Letter: HB 26 Dear Representative/Senator ______________ My name is _________________ and I am a(n) active/retired educator from _______. I have/retired with _______ years of experience. (Add something personal about your educational experiences. ) I am writing to ask that you oppose House Bill 26 authored by Representative Barry Ivey. This bill proposes amending the Constitution to limit the guarantee of retirement benefits for state employees to certain types of benefits. Research shows states that shifted to hybrid plans from defined benefit plans failed to pay down the retirement debt and offered a lower benefit to educators statewide. The passage of this legislation would further endanger future retirees’ benefits by removing Constitutional protection to a portion of that lowered benefit. Louisiana has adopted retirement reform measures that are paying down the retirement debt, and at the same time, providing a modest benefit to its retirees. Please do not put this modest benefit in peril by removing full constitutional protection. This legislation could also create a serious adverse effect on teacher recruitment and retention in Louisiana. Please oppose House Bill 26. Thank you for your consideration of this important request. Regards (or closing of your choice),

Sample Letter: HB 32 Dear Representative/Senator ______________ My name is _________________ and I am an active/retired educator from _______. I have/retired with _______ years of experience. (Add something personal about your educational experiences. ) I am writing to ask that you oppose House Bill 32 authored by Representative Barry Ivey. This bill recommends adding an optional hybrid retirement plan to the Teachers’ Retirement System of Louisiana. Research shows states that shifted to hybrid plans from defined benefit plans failed to pay down the retirement debt and offered a lower benefit to educators statewide. In August 2019, the National Institute on Retirement Security (NIRS) release a study that evaluated four different state retirement systems that switched to hybrid retirement plans or offered hybrid retirement plans as an option. Kentucky established a new tier of benefits for new hires that included a hybrid retirement plan, similar to what Representative Ivey is proposing. Research showed that the hybrid plan did nothing to address the funding for Kentucky’s system. Therefore, the unfunded accrued liability (UAL) or debt increased. Finally, although this bill may help control for employer costs, there is not enough information to indicate the retirement benefit is greater than or even equal to our current defined benefit plan or Social Security. Louisiana has adopted retirement reform measures that are paying down the retirement debt, and at the same time, providing a modest benefit to its retirees. Please oppose House Bill 32 Thank you for your consideration of this important request. Regards (or closing of your choice),