Could Louisiana state retirement systems debit DROP accounts when investment returns were negative?

Plain-English summary

The directors of two Louisiana retirement systems asked whether they could credit Deferred Retirement Option Plan subaccounts with a negative interest rate when investment returns were negative or too low to cover a half-percent maintenance fee. The AG said no. It treated those subaccounts as accrued retirement benefits protected against diminution by the state constitution. The opinion also described related initial benefit accounts, but the specific question and answer concerned debiting participants’ subaccounts.

Currency note

This opinion was issued in 2002. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Could the systems post negative interest to DROP subaccounts?
The AG said no because doing so would diminish accrued benefits.

Did the answer change when the investment return failed to cover the maintenance fee?
No. The opinion addressed that situation expressly and rejected debiting the account.

Which systems asked the question?
The Louisiana State Employees’ Retirement System and the Teachers’ Retirement System of Louisiana jointly requested the opinion.

Background and statutory framework

The opinion discussed R.S. 11:449(C) and R.S. 11:788(C) and relied on La.Const. Art. X, Sec. 29(E), which it quoted as prohibiting diminishment of accrued benefits.

Citations and references

• The provisions and authorities discussed appear in the reproduced opinion below.

Source

• Landing page: https://www.ag.state.la.us/Opinions
• Original PDF: https://www.ag.state.la.us/Opinion/Download/02-0082

Original opinion text

~t~te o~ ~oui~i~u~
One Arnencan Place
301 Ma~n Street, Sutte 600
DEPARTMENT OF JUSTICE
P O. Box 94005
C~WL roWS’ON
TEL ’(225~342-7013
FAX. (225) 342-2090
BATON ROUGE

RICHARD P. IEYOUB
70804-9005
ATTORNEY GENERAL
OPINION NUMBER 02-0082

                                                     APR 3 0 Z00Z      92-A-2-(g)      RETIREMENT - State Employees

92-A-2-(I) RETIREMENT - Teachers
Art. X, §29

Ret=rement Systems cannot d=minish rettrement benefits, including DROP Accounts.

Ms. Glenda T. Chambers
Mr. James P. Hadley, Jr.
Executive Director
Director
Louisiana State Employees’
Teachers’ Retirement System
Retirement System
of Louisiana
P. O. Box 44213
P. O. Box 94123
Baton Rouge, LA 70804
Baton Rouge, LA 70804

Dear Ms. Chambers and Mr. Hadley:

You jointly requested the opinion of this office concerning whether the Louisiana State Employees’ Retirement System ("LASERS") and the Teachers’ Retirement System of Louisiana ("TRSL") have the authority to debit the Deferred Retirement Option Plan ("DROP") accounts administered by LASERS and TRSL.

As you advised, the DROP plan for LASERS was established at R.S. 11:447, et seq. and at R.S.
11:786, et seq. for TRSL. R.S. 11:446(A)(5) provides that the members of LASERS who have not participated in DROP have an option to choose an Initial Benefit Option ("IBO"), which if elected shall be placed in an account in accordance with R.S. 11:449. R.S. 11:783(A) establishes an "Initial Lump-Sum Benefit" in TRSL similar to LASERS’ IBO and provides that, if elected, the funds shall be placed in an account in accordance with R.S. 11:788.

R.S. 11:448 provides in pertinent part as follows:

A. Upon the effective date of commencement of participation in the plan and during the period of participation in the plan, membership in the retirement system shall cease and the participant shall be considered by the system to be in a retired status. During this pedod, neither the employee or employer contributions shall be payable.

R.S. 11:449(C) provides as follows:

Interest shall not be credited to a participant’s subaccount during the period of participation. Amounts which remain credited to the individual’s subaccount after termination of participation in the plan shall be credited with interest at the end of each plan year at a rate equal to the realized return on the system’s portfolio for that plan year as certified by the system actuary in his actuarial report, less one- half of one percent. (Emphasis added).

Page 2

Ms. Glenda T. Chambers
Mr. James P. Hadley, Jr.
OPINION NUMBER 02-0082
Page -2-

The language of R.S. 11:788(C) is substantially the same as R.S. 11:449(C).

Your question is whether the systems can credit the participants’ subaccounts with a negative interest rate (i.e., debit the account) when the realized return is insufficient to offset the one-half of one percent maintenance fee or the realized return is a negative percentage?

The answer to your question must be in the negative. The participants’s subaccounts are retirement benefits. La.Const. Art. X, Sec. 29(E) states in pertinent part as follows:

The accrued benefits of members of any state or statewide public retirement system shall not be diminished or impaired. (Emphasis added)

Thus the systems are prohibited from taking action which would cause the accrued benefits of the members of the system to be diminished. We are of the opinion that debiting the account because the realized return is insufficient to offset the maintenance fee or because the realized return is a negative percentage would diminish the accrued benefits of members of the systems.

Trusting this adequately responds to your request, we remain

Yours very truly,

RICHARD P. IEYOUB
Attorney General

BY:
S. HESS
Assista Attorney Gen,

RPI/MSH