A bid by Mayor-President Josh Guillory to cut Lafayette Consolidated Government’s retirement costs has his administration in yet another lawsuit while the state withholds millions.
Billing it as a way to save LCG as much as $4 million a year in retirement costs, Guillory pushed a plan during his first year in office to place new LCG hires into the state’s retirement system for parish government employees instead of its pension for municipal employees that LCG had been using since 2010. As a consolidated government, LCG can move between either system with legislative approval.
But LCG’s withdrawal from the Municipal Employees Retirement System (MERS) has been a drawn-out, messy affair as the two entities have argued for well over a year about how much the city-parish government owes for leaving the municipal system.
Current and former LCG employees covered by MERS were unaffected by the change; only new hires were put into PERS. MERS will continue paying LCG’s retirees even after LCG moves their replacements (and their contributions) to PERS, leading to a dispute over how much LCG owes MERS for current and future retirement benefits.
The dispute culminated in a March 16 vote of the MERS board of trustees to block $14.8 million of state funds from being sent to LCG until it pays MERS that amount for its share of retirement costs. The state is already withholding $30 million in reimbursements on LCG’s beleaguered Bayou Vermilion Flood Control project. It’s unclear what, if any, impact the MERS dispute will have on the eventual release of those drainage funds. “It hasn’t been discussed,” says Louisiana Division of Administration spokesman Jacques Berry.
On the same day as the MERS board vote, LCG sued over the funding freeze, though Guillory’s administration didn’t announce the decision until five days later. The case is being tried in Baton Rouge before 19th Judicial District Court Judge Tiffany Foxworth-Roberts.
Moving to PERS lowered LCG’s contribution rate to 12.25% of each employee’s pay, down from 27.5% in MERS. LCG had roughly 800 jobs covered by MERS when it began switching new hires to PERS in 2020. The step down to 12.25% was projected to save millions as LCG cycled new employees into the PERS system. Benefits for former LCG employees who retired under MERS will not be impacted.
But the change has raised two questions central to the dispute: how much LCG owes MERS for job positions it is moving to PERS, and whether that amount should be lowered by the contributions it has made to MERS for employees who left LCG before becoming vested in their retirement benefits.
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“The law requires LCG to pay the portion of the unfunded accrued liability attributable to any position moved from MERS to PERS,” MERS attorney Brent Hicks wrote in a statement to The Current. “After years of discussions and many opportunities, LCG did not pay the amount due for the transitioning positions, which as of February 28, 2023, exceeded $14.7 million.”
MERS claims LCG should pay its share of benefits costs for 186 positions that have switched to PERS. But the Guillory administration argues less is owed because of contributions already made and because MERS is using a more expensive calculation than state law allows.
“MERS is taking an aggressive position based on incorrect application of the statutes and normally accepted actuarial methods. We have an obligation to pay the appropriate actuarial [liability] for certain employees up to the day they separated from service,” City-Parish Attorney Greg Logan said in a release. “However, MERS is seeking [liability] on employees that should not be included; and therefore, their calculations are wrong as they are based on the wrong assumptions.”
Employees must work for several years to become vested and qualify to receive any benefits from MERS when they retire. Those who leave before becoming vested get their own contributions back, but MERS keeps their employers’ contributions to pay toward the cost of other retirees from that position.
LCG insists any money it owes MERS for future benefits costs should be reduced by its contributions for employees who leave before becoming vested. If an employee left LCG after just two years, for example, LCG would want credit for its contributions toward that employee’s retirement costs.
LCG also argues that MERS is using a more expensive method of calculating how much the local government owes for its exit from the retirement system than state law allows and is billing LCG for benefits that MERS wouldn’t have to pay since the positions have been moved to PERS.
MERS Director Maris LeBlanc said last week she could not comment on the details of the issue because of the recently filed suit. Hicks wrote in his statement that the system did not take its decision to block LCG’s state funding lightly and that it “looks forward to presenting its position to the courts for resolution.”
MERS had not filed a response to LCG’s lawsuit as of Friday, and a hearing date hasn’t yet been set.
The case could prove fateful for LCG’s bid to save money by switching retirement systems, since achieving its $4 million per year savings would require roughly 600 more employees covered by MERS to retire.
So far, LCG’s initial estimates of moving about 150 per year into PERS has only seen 186 jobs swapped to PERS since November 2020, further delaying any cost savings. Court costs and a looming payout of $14.8 million over the transition threaten to push Guillory’s plan further into the red for years.