Guest Post: North Dakota’s Pension Timebomb

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During the last few months, as has been a tradition for the last six years or so, state officials have been very proud to brag about all the revenue coming into the state’s treasury because of the oil boom.

Last week Governor Dalrymple released his budget proposal for the next two years.   While there is certainly plenty of money, and and even more ways to spend that money, it is important to put these surpluses in perspective of impending costs in future years that could very easily derail the long term health of the state budget.

While most people understand the threat that the Federal Government poses to North Dakota’s economy when it comes to taxes and regulation, there are major areas in North Dakota’s internal policies that could pose major problems down the line – and to this point, the state legislature and governor have ignored these issues.

During the 2011 Regular Legislative Session, a strong effort was led by state representative Bette Grande (R-Fargo) to reform and modernize North Dakota’s public pension system.

With a 69 to 25 Republican Majority, the effort to reform both the Teacher’s Retirement system and the Public Employee’s Retirement system away from a Defined Benefit program to a 401(k)-style Defined Contribution program failed to pass the North Dakota House of Representatives. 

In the last two years, the public pension funds have continued their downward slide that began in 2008, and now represent a $2 billion dollar unfunded liability over the next ~30 years.

As the chart above shows, the Public Employee Pension Fund is now funded at a 65.1% level and is currently $873.9 million short of being able to cover projected retiree benefits over the next ~30 years.

As the chart below shows, the Teacher’s Retirement Fund is funded at a rate of 60.9%, and is over $1 billion short of being able to meet its projected obligations over the next ~30 years.

These are alarming figures, especially in light of how North Dakota’s leaders spend most of their time bragging about all the surplus dollars the state budget is seeing come in because of the oil boom.  However, this crisis is not a surprise to anyone.

Even more staggering is that from 2010 to 2012 these pension funds have seen their unfunded liabilities increase from $1.3 billion to $2 billion.

These pension funds are in trouble for two reasons:

1. They are based on the antiquated Defined Benefit approach to retirement. This means that the state and local governments have made promises to employees to provide fixed benefits no matter what the market does.  The state is obligated to make these benefit payments regardless of how much revenue is earmarked for that purpose or what the market returns are.

2. The investment philosophy of these pension funds is to chase an 8% annual return.  Even high-flying (liberal) investment geniuses like Warren Buffet say that goal is out of line and that a 6% return is more realistic.

The time to fix these problems is now, while North Dakota has the money to rebalance its tax code, and get future liabilities under control.

Continuing to ignore these problems, and hope they go away, is The Washington Way not The North Dakota Way.

Dustin Gawrylow is the managing director of the North Dakota Watchdog Network.

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  • The Whistler

    Well it’s not as if Dallrymple was on the committee watching the pension funds when they lost $160 billion in financial fraud. Oh wait, he was. I realize that’s alone is a small amount of money but if they can’t bother to watch our money any closer than that then we’re screwed.

  • ellinas1

    Solution is simple: Fund the pension funds properly and adequately.
    Surely a state rich in natural resources can come up with $67 million annually. A combination of employee and public funds coupled with a special tax on gloom and doom bloggers like Dustin Gawrylow will avert the so called pension time bomb.

    • Rob

      The problem isn’t funding. The problem is systemic. Defined benefits pensions fail.

      • ellinas1

        Defined benefit pensions fail only if they are not properly and adequately funded and maintained.
        Your solution will also fail if not properly and adequately funded and maintained.

        • Rob

          The find is adequately funded. It is systemically flawed.

          • ellinas1

            Per Dustin Gawrylaw: “….and now represent a $2 billion dollar
            unfunded liability over the next ~30 years.”

            You get this? $2 billion dollar
            unfunded liability over the next ~30 years.
            Therefore you are wrong, for I trust D, Gawrylaw researched the issue prior to posting the article.
            Fund the fund and quit making excuses.

          • Rob

            So the taxpayers should just pony up another $2 billion?

            And what happens when the fund falls short again because it never hits the investment goals?

            The problem is systemic. We need guaranteed contributions and let the workers manage their own funds.

          • ellinas1

            If the funds are falling short because they don’t reach the investment goals, then adjust the investment goals to match reality.

            I said earlier that “A combination of employee and public funds….” will do the trick.

            The contributions of the employees are guaranteed as the all pay an agreed upon amount every pay period.

          • ellinas1

            Yes. The taxpayers should pony up some of the funds.
            $0.20 cents per day per tax payer is a reasonable amount.
            It is not going to kill you.

    • The Whistler

      The government workers who control the pension fund have mismanaged the money. Since we funded it and they screwed it up they should make it up, not us.

      • ellinas1

        I suppose the market crash at the end of the Bush presidency had nothing to do with the issue.

  • kevindf

    Look for ND to institute an exit tax so no one can leave with their assets and incomes.

  • matthew_bosch

    Keep up the good fight Dustin.

    • $8194357

      Dustin….Keep up the good fight.

  • Flamejob5

    How come are our temporary servants’ retirements are fixed & guaranteed (which are subsidized by us), but their Masters retirements are not?


    There was a meeting held today by the Fargo school board to determine whether or not to limit the amount paid towards accumulated sick days for teachers because they feared it was an unsustainable expense. I almost threw-up upon hearing that many of the angry teachers who were accumulating these sick days had tens-of-thousands of dollars coming towards them and actually viewed the program as more of a bonus retirement plan (in addition to their pension) than what it was originally intended for.

    All i could think of was just how spoiled-rotten many of our public servants have become without them prob even realizing it.

    • Rob

      I don’t like the idea of the government holding all this money in trust for them. Just pay them the money and let them invest it or whatever.

      • Waski_the_Squirrel

        Exactly. Apparently the state thinks I’m too stupid as a teacher to take care of my own retirement. My personal retirement investments are outperforming the state retirement. Even a few years ago when they weren’t, they had a huge benefit over the state system: I get to take them with me if move out of state or switch jobs within the state out of education.

        The state forces me to stay in servitude: the longer I pay into its ridiculous retirement system, the more trapped I am in a teaching job in the state of North Dakota. If I want to cross the border into Montana or South Dakota, too bad: I have to start over with those state retirements.

        I don’t care if TFFR is offered as an option. As anyone reading this might have guessed, I resent being forced into it. I want that money to invest as I choose.

        • Rob

          I’ve heard representatives of the state’s public workers and teachers say pretty much exactly that. If it were left up to you, you’d blow.

          They know better.

    • ellinas1

      Teachers are not your servants, nor are you their master.
      They offer to educate your children in exchange for remuneration.
      As a matter of fact none of the public employees are your servants, as they offer their services for remuneration.
      The politicians, I consider public servants.

      • Neiman

        They are OUR employees, public servants.

      • Concerned State Employee

        I am a state employee, and I DO serve the taxpayers. I am a public servant. The taxpayer is my customer.

    • $8194357

      Article 28
      No law shall be passed for the benifit
      of the few over the many…Equalitiy under the law….
      Politicians retirement/healthcare, anyone?
      Sad what socialisms destruction of the Constitutional Republic
      has accomplished with the DC water boys and girls insider trading huh..

  • $8194357

    Thats what government is, no…

    Getting someone else to pay for your own goals/agendas?

    AND NOW?
    Ya think “someone” would figure this out in DC sometime?

    Why is Obama arming the enemies of freedom? This cat is dangerous and scary. Why the support of Islamic revolutions whose stated goal is sharia and a universal caliphate? What’s he doing to protect the oppressed religious minorities in peril? America, time to remove your morphine drip. Wake up!

    More tanks for Egypt this year than the entire Marine Corps has…
    For the new Egyptian Muslim Brotherhood dominated government, the Obama Administration is ensuring another $1.3 billion annual shipment of state-of-the-art weaponry.
    More Perspective…
    This year alone, Obama will be sending the Egyptians 200 M1A1 Main Battle Tanks. Egypt already maintains the world’s 7th largest tank force, numbering in at 4,000. The active-duty Marine Corps has less than 150 M1A1 Abrams tanks in its inventory at any given time.
    Under the new Obama budget, the tank force for The Corps, along with the rest of the U.S. Armed forces are facing a $1,000,000,000,000 cut over the next decade.

    Obama has been arming Egypt to the teeth. And last year Obama tried to slip through a questionable arms deal that got little attention — 125 M1A1 tanks to Egypt, as well as other weapons, equipment, parts, training and logistical support.

    “US sending 20 more F-16s to Egypt, despite turmoil in Cairo” FOX News

    • awfulorv

      Why? Because 4.000.000 Republican voters, including some on this blog, sat on their hands and refused to vote for Romney because he was not their type of Christian. Preferring, by their actions, to let these nefarious deceivers, remain in power, and blight the future of this country, I fear, from this time forward.

  • $8194357

    Government Employees Insurance Company..
    Just “another” private/government double dipping
    crony organization, huh…
    From Fanny/Freddy to Barrycare….We are so screwed by DC..

  • lt.

    “A charismatic man shall come from the east and seduce the west and he nwill be the
    antichrist.” Nostradamus. I read this in college 35 years ago and have been waiting for it to happen and now we have been inoculated by a radical Muslim in our white house and he will accomplish what Japan,Germany or Russia could not do and he will
    do it without firing a shot.

    • ellinas1

      Steer manure. Pure bullshit.