North Dakota Public Employees Pension Sees Unfunded Liability Break $1 Billion

The latest audit for North Dakota’s Public Employees Retirement System (PERS) is out, and the numbers aren’t good. Due to what the audit describes as investment losses, the unfunded liabilities in the pension have grown by nearly $200 million since last year. In 2012 the unfunded liability – pension obligations that aren’t covered by projected revenues – was $873 million. In 2013 the unfunded liabilities are $1.034 billion.

As a percentage, PERS is only 62% funded down from 65.1% last year:

Has you can see, the much smaller (in dollar value) Highway Patrol pension fund is also in rough shape.

Over the last several legislative sessions the unions representing public employees (the North Dakota Education Association and the North Dakota Public Employees Association) have fought efforts to reform both PERS and the Teachers Fund For Retirement (the teacher pension fund). Just last year the two unions merged, forming North Dakota United, for the explicit purpose of continuing their fight against pension reform.

And while they’ve been victorious in kneecapping reforms in the legislature, the unfunded liabilities represented by PERS has exploded (the TFFR was only 60.9% funded in 2012, there’s no audit yet for 2013).

This graph shows the decline in the percentage of pension obligations funded:

This graph shows the increase in the dollars of unfunded liability:

By the way, these calculations of unfunded liability are almost certainly on the low side given that they’re based on a projected 8% rate of return on pension investments, a rate most pension critics find to be unreasonable. Also keep in mind that these unfunded liabilities keep growing despite increased contributions from employees and the state government. That’s gone from 5% and 5.15% for employees and employer respectively in 2012 to 7% and 7.12% in 2014.

Those who oppose pension reform will be quick to blame the investments, and the market meltdown of 2008 – 2009, for this problem. That’s becoming harder to believe as we move further away from the 2008-2009 collapse, but even if that’s true reforming North Dakota’s pensions away from defined-benefit plans – where employees are guaranteed a specific dollar amount pension – to defined contribution plans where employees get a set contribution to retirement investments they manage themselves would protect public employees from bad investments, and taxpayers from these massive unfunded liabilities.

Here’s the full audit report: