Burgum floats fix to North Dakota's underfunded retirement plan

In his budget presentation, the Republican governor also hinted at two proposed policy changes for new hires to address the underfunded plan: closing a retiree health insurance credit and reducing a multiplier used to calculate retirement benefits.
North Dakota Gov. Doug Burgum presents his two-year budget proposal to state lawmakers Wednesday, Dec. 5, 2018. Tom Stromme / Bismarck Tribune
North Dakota Gov. Doug Burgum presents his two-year budget proposal to state lawmakers Wednesday, Dec. 5, 2018. Tom Stromme / Bismarck Tribune Tom Stromme / Bismarck Tribune

BISMARCK — North Dakota is more than $1 billion short of fully funding its pension plan for state and local government employees, a situation that hasn’t caused immediate hardship but has caught the attention of Gov. Doug Burgum.

During his budget address to lawmakers last week, the Republican governor suggested bumping up both the state and employee contributions to the state’s main retirement plan by 1 percent. Along with a one-time transfer of $265 million in state funds and trimming benefits for new hires, Burgum predicted the plan could be solvent in less than two decades.

“We have made a solemn contract with every retired state team member and all future retirees who participate in our state pension,” he told lawmakers in the state House chambers Wednesday, Dec. 5, while unveiling his spending plan for the 2019-21 budget cycle.

Scott Miller, executive director of the North Dakota Public Employees Retirement System, said the plan’s unfunded liability — the difference between obligations to employees and retirees and projected assets — stood at nearly $1.1 billion as of June 30. He blamed market losses from the dot-com bust at the turn of the century and the Great Recession, as well as insufficient contributions.

Miller said the shortcoming isn’t immediately dire for workers and retirees since the plan isn’t projected to run out of money until 2106. But it’s a financial red flag that could hamper the ability of the state and its political subdivisions to borrow money, he said.

“The bottom line is that at some point we need some help to turn this around,” Miller said.

North Dakota is hardly alone in falling short on its retirement funding. Only four states had at least 90 percent of the assets needed to pay promised benefits in 2016, the Pew Charitable Trusts said earlier this year. North Dakota matched the U.S. average of 66 percent, according to the Pew report, but Miller said it's currently about 72 percent funded.

There are more than 47,000 members in the main PERS retirement plan, Miller said. The main plan covers state and local government workers but not judges or law enforcement officers, who are on separate plans. Not all political subdivisions participate in the state's plan, Miller noted.

In his budget presentation, Burgum also hinted at two proposed policy changes for people who enroll in the main PERS plan starting in 2020: closing a retiree health insurance credit and reducing a multiplier used to calculate retirement benefits.

Nick Archuleta, president of the education and public worker union North Dakota United, said his organization’s membership has been consistent in opposing benefit reductions.

“We can’t support the diminution, if you will, of benefits for our current members as well as our future members,” he said, before adding that they are OK with a 1 percent bump in contributions from the state and employees.

Democratic state Sen. Erin Oban, who said her Bismarck district is home to "a ton" of state employees, questioned whether the situation was urgent enough to warrant $265 million in state funds that could be used elsewhere.

"I certainly think we should keep chipping away and making sure that the state employees who were promised a retirement that looks the way it does, that they are guaranteed that retirement," she said.

Senate Appropriations Committee Chairman Ray Holmberg, R-Grand Forks, agreed that policymakers need to deal with the underfunded retirement plan. But he cautioned that efforts to do so may compete with more immediate needs like education funding.

“Those are some of the tugs and pulls and prioritizing,” he said. But he said the governor "should be applauded" for highlighting the issue.

Burgum argued that positive revenue forecasts and restrained spending make this an “ideal moment in time” to address the looming problem. Lawmakers will return to the Capitol on Jan. 3 to begin the 2019 legislative session.

“The longer we wait, the more expensive it will get,” Burgum said.