State workers could see nest egg changes

By Deon Roberts, Online Editor

If you work for Louisiana government, your retirement offerings could change, according to a story today by The Associated Press.

New hires would be enrolled into a system similar to a 401(k) plan, under a proposal being considered by Louisiana lawmakers.

Currently, state employees take part in “defined benefit” plans.

Here’s a description of such a plan from the U.S. Department of Labor’s Web site:

A defined benefit plan promises a specified monthly benefit at retirement. The plan may state this promised benefit as an exact dollar amount, such as $100 per month at retirement. Or, more commonly, it may calculate a benefit through a plan formula that considers such factors as salary and service — for example, 1 percent of average salary for the last 5 years of employment for every year of service with an employer.

Lawmakers are mulling a change that would put new hires into “defined contribution” plans.

Here’s DOL’s description:

A defined contribution plan, on the other hand, does not promise a specific amount of benefits at retirement. In these plans, the employee or the employer (or both) contribute to the employee’s individual account under the plan, sometimes at a set rate, such as 5 percent of earnings annually. These contributions generally are invested on the employee’s behalf. The employee will ultimately receive the balance in their account, which is based on contributions plus or minus investment gains or losses. The value of the account will fluctuate due to the changes in the value of the investments. Examples of defined contribution plans include 401(k) plans, 403(b) plans, employee stock ownership plans, and profit-sharing plans.

Here’s an excerpt from the AP story:

House Speaker Jim Tucker wants lawmakers to consider switching incoming state government employees to “defined contribution” plans where the employees manage their own investments. Employees and employers pay into the plans, and employees retire with those contributions along with any investment earnings or losses.

Readers, what do you think? Should state employees be required to pay into their retirement plans, like those of us with 401(k) plans do, or should public dollars continue to fund their state retirement packages 100 percent?•

(Editor’s note: After this blog posting ran, I was contacted on Oct. 29 by Robyn Ekings, the spokeswoman for the Louisiana State Employees’ Retirement System. She told me that state employees do contribute to their retirement. Those hired before July 1, 2006, contribute 7.5 percent of their salary, and those hired after contribute 8 percent. Retirement contributions also come from the employer and investments, she said. So, it looks like state employees are already contributing to their retirement plans. I stand corrected.)