Legislature Set To Give New State Workers Option For Defined Contribution Plans

Public pensions, nationally, are a mess and while North Dakota has escaped most of the nation’s economic problems over the last several years, pension headaches aren’t something we’ve been able to afford.

Late last year the North Dakota Auditor’s office published some ugly pension numbers for the state’s Public Employees Retirement System. According to the audit, NDPERS is only 65% funded while the retirement fund for highway patrol officers is only 70% funded. In a separate audit, the Teachers Fund For Retirement was found to be only 60% funded. All of those numbers represent a decline from previous funding levels.

The scape goat for those declines is the national economy hurting investment returns, but the real problem with these pension funds is systemic. Defined-benefit pension plans are, in the long run, something akin to pyramid schemes. They only produce enough revenues to keep paying out to beneficiaries at the top as long as you keep adding new workers at the bottom of the “pyramid” to pay in.

Look no further than Social Security, itself a sort of national defined-benefit pension which is currently in deficit, for evidence of that.

Thankfully, legislators seem to be moving toward reform. It’s glacial – like “eating an elephant” one legislator pushing the reforms told me – but it’s happening. Case in point, HB1452 gives new enrolles in the Public Employees Retirement System the choice to opt out of the defined-contribution plan to a defined-benefit plan which operates something akin to a 401k or IRA.

The pertinent text (which may yet be tweaked):

The board shall provide an opportunity for eligible employees who are new members of the public employees retirement system under chapter 54-52 to transfer to the defined contribution plan under this chapter pursuant to the rules and policies adopted by the board. An election made by a member of the public employees retirement system under chapter 54-52 to transfer to the defined contribution retirement plan under this chapter is irrevocable. For an individual who elects to transfer membership from the public employees retirement system under chapter 54-52 to the defined contribution retirement plan under this chapter, the board shall transfer a lump sum amount from the public employees retirement system fund to the participating member’s account in the defined contribution retirement plan under this chapter.

These changes will be approved by Sadly, only the PERS plan is getting this change, so the teachers and others will have to wait. The House/Senate conference committee should be kicking this version of the bill out for a floor vote later this week according to the legislators I’ve spoken to.

Still, the more workers we can move out of the doomed defined-benefits plan the better.