ND Senate Bails Out Public Worker Pensions, But Authorizes Study For Move To Defined Contribution Plans

In his speech carrying SB2059 to the floor, Senator Dick Dever noted an alarming fact that I’ve written about before here on SAB: North Dakota’s public employee pension system, PERS, has fallen to being only 67.4% funded. In 2011 the fund was 70.5% funded, and not so many years ago the fund was 104% funded.

North Dakota is talked about often as having skipped the national recession, but this is one area of trouble the state hasn’t avoided. North Dakota’s pensions are in trouble (it’s worth noting that the state’s other largest pension fund, the Teachers Fund For Retirement, was only 60% funded per the latest audit.

Unfortunately, as these funds crater, the only “solution” (if it can be called that) the state legislature has been willing to embrace has been for taxpayer bailouts of the funds. These are done under the guise of contribution levels for both employers and employees going up, but since the taxpayers are both the employer and the ones providing the funds for the employees, it’s really just a bailout.

SB2059 is a little different though. It was amended in committee to contain an authorization for a study into the desirability of the existing pension format, and a look at a move to defined contribution plans. That’s a step in the right direction. Here’s the floor debate for the bill, which ultimately passed on a 35 – 12 vote.

There seemed to be some consensus on the floor that the future of these pensions need close scrutiny, which is a good sign. At least a majority of the legislators seem willing to admit there’s a problem, but as Senator Dever pointed out whatever is done with the pension plan going forward the state has obligations made to current employees now.

That’s true. Still, it’s hard not to see Senator Dwight Cook’s point too. “We are making a promise to some very important people…that maybe future legislators can’t keep,” he said during the floor debate. “I’m going to vote red [no] because I’m uncomfortable with this bill.”

What’s worrisome is that North Dakota has the resources to make a move to a defined contribution system of pensions easily now. It wouldn’t be hard to appropriate funds to pay out defined benefits to those in the existing system, while moving new hires over to a defined contribution system that would tie funds to individual employees and put them in charge of investments.

Right now public employees are at the mercy of the decisions made by the state’s investment officials. Wouldn’t it be a better situation to have the employees in charge of their own retirements? Especially when it removes the taxpayers from potentially budget-busting consequences?

As Senator John Andrist pointed out during the debate, these defined-benefit pensions are going broke all over the country in both the public and private sectors. The are systemically flawed. There is no bailout or reform that can fix them. We need something new. We aren’t getting that with this bill, but at least we’re getting the authorization to explore something new which may set the stage for some meaningful changes in the 2015 session.