BATON ROUGE (The Center Square) — A new report shows Louisiana is in the middle of the pack nationally for the health of its public pension program, ranking 28th for risk-free unfunded liabilities.
The American Legislative Exchange Council recently released its sixth annual report on the solvency of state-defined benefit pension plans titled “Unaccountable and Unfunded,” authored by ALEC Policy Analyst Nicholas Stark, Research Manager Thomas Savidge, Chief Economist Jonathan Williams, and Lee Schalk, Vice President of ALEC policy.
The report shows Louisiana ranked 28th nationally with risk-free unfunded liabilities of $128 billion, calculated using a risk-free discount rate based on U.S. Treasury Bonds of 1.13% and a fixed discount rate of 4.5%.
The discount rate is used to determine the value of liabilities public pension funds must pay in coming decades, and the ALEC rates used for calculation are much lower than the expected discount rate for the Louisiana State Employees’ Retirement System of 7.4%, which is scheduled to go down to 7.25% next month.
The ALEC report ranked Louisiana 37th nationally for unfunded liabilities per capita at $27,657.45, which was more than three times the top state of Tennessee at $8,511.92 and more than $15,000 below the worst state, Alaska, at $42,829.02.
Louisiana is similarly situated in regards to LASERS’ funding ratio — a measure of plan assets to liabilities — with a 33rd place ranking of 27.97%, according to ALEC.
The Pelican State’s best measure stemmed from the change in funding ratios between 2012 and 2020, using the fixed discount rate of 4.5% to account for changes in the risk-free discount rate. Louisiana’s funding ratio of 24.93% ranked sixth nationally, outpaced only by Ohio, Nebraska, Arkansas, West Virginia and Alaska.
New Jersey posted the worst funding ratio change at -27.48%.
Data from LASERS show the system pays out $1.3 billion in annual benefit payments to 93,142 members. The system reports market value of assets as of June 30, 2021 of $14.7 billion, with an unfunded accrued liability of just under $7 billion.
The ALEC report found unfunded state pension liabilities totaled $8.28 trillion nationwide, or just under $25,000 for every man, woman and child in the United States.
“This is an unprecedented amount in the history of this report, but most of the change is the result of a decrease in the risk-free discount rate, caused by the decrease in U.S. Treasury note yields,” according to the report.
The total unfunded liabilities increased $2.45 trillion in the 2021 report as the risk-free discount rate fell from 2.34% to 1.13%, “in part due to historically low interest rates driving down treasury note yields and drastically increasing the present value of liabilities,” according to the document.
Vermont, the country’s top ranked state for risk-free unfunded liabilities, has total unfunded pension liabilities of about $14.4 billion, while the worst, California, tops $1.5 trillion in total unfunded pension liabilities.
“If the CEOs and CFOs in the private sector signed off on financial statements with the accounting used by state and local governments, they’d be in prison,” said Jonathan Williams, ALEC’s Executive Vice President of Policy. “That is the kind of Enron-style accounting, unfortunately, that has gone on for far too long in state and local governments. And so our report cuts through some of the bad accounting and really gives an apples to apples comparison on how states are funding, or in many cases unfortunately not funding, the pension obligations.”
