The board took the action because members voiced concern that federal issues involving the IRS and Social Security status of the cash balance plan would not be resolved before the new law was to take effect, said Maris LeBlanc, deputy director of the system, according to The Advocate.
The Social Security Administration needs to be asked whether the plan would provide an equivalent benefit to Social Security; otherwise, affected state employees would have to be enrolled in Social Security with required employee and employer contributions. Also, a determination letter from the IRS must be received for the plan to be qualified for favorable tax treatment (see “Louisiana Cash Balance Plan Faces Hurdles”).An adverse decision from the IRS could cause contributions employees put into the system to become subjected to taxes beginning July 1. LeBlanc said the IRS determination period does not begin until February, and it is unclear how long it will take to get an answer. She added that the Social Security equivalency letter, which must be sought by the Jindal administration, has not been submitted “to our knowledge.”
The Advocate reports that Jindal administration spokesman Michael DiResto said there is no reason for delay. “We are confident that the plan meets all IRS requirements,” he said.
Under the new plan for future nonhazardous-duty employees, an employee would contribute 8% of pay and the state would contribute 4% with all but 1% of the investment earnings going toward an individual’s pension. The 1% would act as a reserve to guard against investment losses.The Louisiana Retired State Employees Association has filed a lawsuit alleging that the cash balance plan did not get the required two-thirds vote in the State House to win approval (see “Association Challenges Louisiana Cash Balance Plan”).