Ending the defined benefit pension system is one of the agenda items in Illinois.
Monique Morrissey of the Economic Policy Institute reports on the specifics of Louisiana. But the dangers of the Cash Balance Plan apply to many states, including Illinois.
With Congress mired in partisan gridlock, states are serving as laboratories for retirement policy as well as other policy areas. While some states are making positive strides, others are moving in the wrong direction. Among the latter is Louisiana, where a bill signed earlier this year by Gov. Bobby Jindal will switch many newly hired state and local government workers from traditional defined benefit pension plans to a cash balance plan starting in 2013.
Public-sector workers in Louisiana are not covered by Social Security. However, the current Louisiana public pension system provides death and disability benefits as well as a traditional retirement pension based on a worker’s salary and years of service. Thus, participants in the current system can count on fixed payments in retirement, regardless of stock market performance. Under the new system, participants will accrue retirement savings in accounts that earn a variable rate of return, similar to 401(k) accounts. Thus, there is no way for participants in the new system to know in advance how much they will have upon retirement.
Read the entire report here.