Dorso Column: It’s Time For North Dakota To Fix Public Pensions Pensions

piggybank320

It grates on some when I bring up legislative activity from before the turn of the last century, but in the case of public pensions there is a lesson to be learned. When I served in the legislature we tried to change the retirement plans for public employees from a defined benefit plan to a defined contribution plan.

Instead of getting that accomplished we usually went backward.

The North Dakota Public Employees Association was usually the victor in these skirmishes for a number of political reasons. The voters need to know the legislature will, and has had in the past, bills introduced that actually will make the retirement pension funds for teachers and other public workers even more financially unstable from an actuarial standpoint. I can remember the arguments for lowering the retirement age or enhancing the benefits so as to attract more people to government service. Usually that took the form, as an example, of changing the rule of 75 to 70. Today a person approaching retirement takes the total of the years of service and adds it to their age to see if they qualify for the pension benefit. Thus in the rule of 70 for example a person who first became a state employee at age 25 and continuously worked until they were 60 could qualify for full retirement.

Another issue was how many years of service were used to calculate the benefit. Would the state use the compensation paid for the last three years of service or the last five to calculate the benefit? I know district judges who would wait until the legislature had passed the funding for the ND Unified Court System before making their retirement plans. If they knew they would get a substantial salary increase they would hang on another two years so the average of their pay would boost their pension.

Granted, we all would make the same calculation if it were available to us.

In the above two cases the NDPERS actuaries always said the impact was minimal. Of course what did we expect they were contracted by PERS?

The other factor outside the control of the legislature is the monetary performance of the fund. As pointed out in SAB some days ago the actuaries are using the unrealistic number of 8% average yearly growth for the investments of the fund. Who after these last four years and looking ahead with the present White House administration thinks that is even close? The Federal Reserve has already said they intend to keep interest rates at record low levels for the foreseeable future which has a direct impact on all retirement plans.

The question then remains how many hundreds of millions in taxpayer dollars is reasonable to contribute to a fund that has no chance of becoming fiscally sound for a long time to come? Will North Dakota become a Stockton or San Bernadino, California? How about Detroit, Michigan where retired city employees feed on the decaying corpse of a once great city because of a very liberal defined benefit plan?

North Dakota should do a conversion to a defined contribution plan just as most of corporate and private industry has. I can tell you that in Florida there are many retired United Air Lines pilots or former General Motors white collar workers working as Wal-Mart greeters or at a golf course cutting grass and carrying golf bags trying to make ends meet when their defined benefit plans hit the skids. They all will tell you they wish their employers would have changed to a defined contribution years ago. Will it happen to NDPERS retirees? The pilots and some city employees didn’t think so 30 years ago.

An idea we tried some years back was to promise to make the defnied benefits plans sound over a few bienniums if we changed NDPERS to a defined contribution plan for all new hires. As an added incentive we were going to allow present employees to make the conversion if they wished. I think that was the deal breaker because all of the old employees were worried that many of the newer hires would make the conversion thus making their defined contribution plan even more unsound.

The politics went like this: The Republican legislators who lived in districts where there were a high concentration of public employees were afraid to vote against NDPEA even though it didn’t represent the majority of state employees. Of course the Democrats were lock step with NDPEA as it contributes heavily to their campaigns. The Republican elected officials in the capitol were silent or openly against the plan. They either felt they had a vested interest in preserving the status quo or didn’t want to take the heat which would have been inevitable.

NDPEA and NDEA have the state and school districts in a catch 22. Present policy makes the problem worse and the politics of fixing it even harder. As more state and local governments find they are unable to sustain defined benefit plans it becomes obvious that Rep. Bette Grande’s proposal last session, to move new state hires to defined contribution plans, had merit.

The state has the money to fix it now and the legislature should do so.

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  • camsaure

    You are correct, it is way past due to correct this. Problem is I have little faith the Liberals and RINOs have the guts to do what is right. They are more worried about re election. This is all very unfortunate.

  • Concerned State Employee

    The Grande bill needs to be submitted again. During testimony, the Legislators need to ask each Public Employees union what percent of those they claim to represent are actually members of the union, and why they think that is the case. That would make for an interesting exchange.

    The Legislature should not fear the unions. Their membership is light, and the primary reason they continue to exist is to preserve the defined benefit plan at all costs; not for public employees, but for the existence of the unions and those they employ. If the defined benefit plan is transitioned out, the unions will die. When they fight for defined benefit plans to remain in place, they are only fighting for their own survival as a union and not for what is good for those they claim to represent or the taxpayers of the state.

    The retirement funds need to be there for public employees to benefit from them. They will not be if the system remains a defined benefit one. It is also not right to dump this mess onto the backs of taxpayers, most of whom are on defined contribution plans or take responsibility for their own retirement planning. Staying on a defined benefit plan only furthers the perception that public employees are leeches on the backs of taxpayers instead of public servants whose first responsibility is to do right by the taxpayer. Switching to defined contribution is the responsible thing to do both for the taxpayer and for all public employees

  • dipper

    What the hell is the “rule of 75″? State pensions are based on the rule of 85 (age plus years of service). While Dorso does not explicitly say the state uses a rule of 75, that is the clear implication of his writing. Misleading arguments like this are not helpful.

  • Captjohn

    I am not trying to mislead but to inform. If the reader were to check they would find that the rule for retirement is different for some jobs within state goverment. I was being illustrative of bills NDPEA supported in the past.

  • kevindf

    The private sector is now guaranteeing the day-to-day value of these accounts. The value can never decrease. Where is my guarantee?

    • http://Sayanythingblog.com The Whistler

      I think the plan is that if the state’s fund were to go down, we in the private sector will just have to work later in life to give our superiors in state government the cushy retirement they demand.

  • http://Sayanythingblog.com The Whistler

    There’s no excuse for the state’s employees to have a better retirement plan than the average private sector worker can afford. I wish they’d quit being so greedy.

  • Zipper

    Thank you for your response.
    However, i really would like to know, who is governed by a rule of 75? NDPEA website says for its members the rule of 85 applies. This includes judicial employees and administrative staff at NDUS. As far as I can tell, professors are either NDPEA or TIAA – CREF, about which I know little, but seems to be a defined-contribution plan. Judicial employees appear to be under the rule of 85. Highway Patrol employees are under another program – subject to a rule of 80. Whether or not not you think law enforcement should be able to retire earlier is an open question.
    There may be other groups that fall under a rule of 75 – I would really like to know who they are.
    I believe we need to move to a defined contribution plan for state employees. What concerns me is that while you see the numnbers you cite as being “illustrative,” I don’t know what they are illustrating. The problem is that if I use your arguments and start talking about attempts to change the “rule of 75″ to the ‘rule of 70,” it is easy for opponents to argue, “Hah, you don’t know what you’re talking about.” Accuracy is important.
    Thanks for responding

    • RCND

      The rule of 70 and 75 were past attempts at changes by the unions. They never passed, but they were discussed

      • Dakotacyr

        The unions never put in a rule of 70 or 75.

  • LibertyFargo

    Perhaps fitting in the context of Public Sector Unions…

    “To compel a man to furnish funds for the propagation of ideas he disbelieves and abhors is sinful and tyrannical.” – Thomas Jefferson

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