Pension Shakeup: Bill Would Close ND PlansNorth Dakota teachers and government workers fought a proposal Friday to close their financially troubled pension funds to new hires, saying the option would provide inferior retirement benefits to future workers for dramatically increased short-term costs.
By: Dale Wetzel, Associated Press
BISMARCK, N.D. (AP) — North Dakota teachers and government workers fought a proposal Friday to close their financially troubled pension funds to new hires, saying the option would provide inferior retirement benefits to future workers for dramatically increased short-term costs.
"We believe that retirement should be a reward for a life's work," said Dakota Draper, president of the North Dakota Education Association. "In order for it to be rewarding, your retirement funds must be safe and secure."
Backers of the change said it would begin the slow, costly process of extricating the state from providing guaranteed pensions to government workers. Instead, lawmakers who favor the move want to establish tax-deferred savings accounts for public employees, similar to the 401(k) plans private companies offer.
"We're at the beginning of a very large and expensive problem here," said Rep. Scott Louser, R-Minot. "I view the current system as driving down the road in a broken-down vehicle that's running out of gas. If you stop and put gas in the vehicle, you can continue a little further, but you still have a broken vehicle."
The North Dakota House's Government and Veterans Affairs Committee reviewed separate bills Friday that would close both the Teachers' Fund for Retirement and the North Dakota Public Employees Retirement System's pension plan to newly hired workers. The committee took no immediate action on either bill.
Both measures are sponsored by the committee's chairwoman, Rep. Bette Grande, R-Fargo, who also headed an interim legislative committee that studied proposed pension changes for the last 18 months.
The teachers' bill would close the pension fund to new hires on July 1, 2012. The public employees' legislation would shut the fund Aug. 1.
Grande said her bills would not affect benefits for current public employees or pensioners, although some witnesses at Friday's hearing said they were apprehensive about the funds' continuing ability to pay benefits if they were not enrolling new members.
The Teachers' Fund for Retirement, which has about 9,900 working members and almost 6,700 retirees, is at about 70 percent of its ideal funding level, financial reports say. The funding level of Public Employees Retirement System, which has about 20,600 working members and 7,400 retirees, is at 73 percent.
Analysts say both funds are likely to exhaust themselves within 30 years unless lawmakers take steps to bolster them.
Groups representing teachers and state government employees want lawmakers to approve pension contribution increases on both employees and their employers to return the funds to health.
Chris Conradi, a consultant and actuary for the Teachers' Fund for Retirement, and Brad Ramirez, an actuary for the Public Employees Retirement System, said the shutdown option would be expensive in the short term.
Pension contributions would need to rise steeply, because there would be fewer employees paying into the funds to make up their deficits, they said.
The pension debate, which will be one of the 2011 Legislature's dominant issues, is focused on two different types of retirement plan.
The Teachers' Fund for Retirement and the North Dakota Public Employees Association both run what are called defined-benefit plans.
Workers and their employers pay into a pension fund, with its investments managed by the state Retirement and Investment Office. Employees are assured a monthly benefit for life, which is calculated according to their salary history.
The two bills considered Friday would shift newly hired workers into what are called defined-contribution plans. The most prominent example of this is a 401(k), a retirement benefit offered by many private companies.
A defined-contribution plan allows workers to save a portion of their paychecks, which is sometimes supplemented by the company.
The contributions are not taxed until the employee begins withdrawing the money. Benefits are not guaranteed, but employees have control over how they are invested and what is done with any leftover money when they die.
Matt Quintus, 22, a Dickinson State University senior who is studying to be a high school science teacher, said the security of a traditional, guaranteed pension plan is attractive to young teachers as they decide where they will seek work.
"One of the attractions of staying here is knowing that I can earn a little less but not have to worry about my economic security," Quintus said. "This is because I know that under the current system, I will be guaranteed a retirement income. This bill takes that guarantee away."
Stuart Savelkoul, director of the North Dakota Public Employees Association, said the option of raising contribution rates and keeping the traditional pension was more prudent.
Public employees are "sensitive to the fact that many in the private sector are not afforded defined benefit retirement plans," Savelkoul said. "However, that does not mean that the state of North Dakota ought to engage in a race to the bottom."
The Teachers' Fund for Retirement bill is HB1258. The North Dakota Public Employees Retirement System bill is HB1228.