ND lawmakers weigh future of public employees’ pension plan, nearly $2B shortfall
Several bills seek to make the fund solvent but diverge on whether to preserve the defined-benefit public pension plan or transition to a defined-contribution plan for future employees.
BISMARCK — North Dakota lawmakers are weighing what to do about the state's pension plan for public employees, which faces a nearly $2 billion shortfall from full funding.
Several bills seek to make the fund solvent but diverge on whether to preserve the defined-benefit public pension plan or transition to a defined-contribution plan — a 401(k)-style plan — for future employees. The union that represents state employees wants to stick with the pension plan.
The pension plan as of last year had more than 53,000 members, including more than 23,000 current employees and nearly 14,000 retirees and beneficiaries.
Key players say the pension plan's sustainability is most important.
"I believe we need to step up, make the difficult decisions, not kick the can down the road, because we wouldn't be doing our responsibility to the (public) employees and the taxpayers of the state of North Dakota," said House Majority Leader Mike Lefor, R-Dickinson, who has shepherded two bills on the issue from the Legislature's interim Retirement Committee, one of which the governor supports.
Looming over the Legislature is the fund's $1.9 billion unfunded liability.
"It's a major issue, and it is a test of this legislative session," said House Government and Veterans Affairs Committee Chair Austen Schauer, R-West Fargo. "It's a significant test. This problem needs to be dealt with, and if this Legislature doesn't deal with it, it's shirking its responsibilities."
The Retirement Committee bills seek to make the pension plan solvent and transition the plan to a 401(k)-style plan for new hires. The two bills differ only in their effective dates.
House Bill 1040 is the one poised to advance, effective in 2025, while its sister, 1039, likely won't go forward.
House Bill 1040 essentially proposes a 20-year plan, updated every two years, for calculations of components to make the pension plan solvent, including a one-time infusion of money.
Lefor said future public employees, who are mainly people 35 and younger, are a key focus.
"The workforce has changed. How they're working has changed, and the simple fact of the matter is, if they're under 30 years of age (the state government is) not keeping them," he said. "We have to look at different components of why they're leaving: compensation, professional development, benefits, health care, vacation and, of course, retirement."
He said the goal is to ensure every pension retiree "gets every dollar that they're been promised until the last retiree gets their last check, and I am firm on that."
Meanwhile, younger people "want portability" in their retirement plans, a 401(k) they can control and take from job to job, said Lefor, citing data from the Retirement Committee.
The state already has a defined-contribution plan, but from 2013-17 less than 3% of new employees opted for it, according to state Public Employee Retirement System Executive Director Scott Miller.
When the defined-benefit plan will run out of money depends on a number of factors, including how many retirees are being paid, how long they live, and what future salaries are, according to Lefor.
In 2000, the plan was 114% funded; now it's about 65%, according to Lefor, who calls that drop "unsustainable." The state for years hasn't put in money to address the unfunded liability, he said.
That's "flat-out debt," according to Schauer, whose committee is handling Lefor's bills.
"Let's say you're married, and you drive up the credit card debt, or your wife does, and you're maxing out. What do you do? You've got to make a change," Schauer said.
His panel gave a "do not pass" recommendation to 1039, and amended a proposed, one-time infusion in 1040 to $240 million from a state fund derived from oil taxes. That bill now goes to the Legislature's Employee Benefits Committee.
Another bill, House Bill 1379 by Lefor, and 1040 seek $70 million deposits every two years from earnings of the state's oil tax savings into the pension fund to help make it solvent, beginning in 2025.
Gov. Doug Burgum supports 1040, according to spokesman Mike Nowatzki.
Such a proposal "would give prospective team members greater flexibility in how their retirement contributions are invested while maintaining and protecting the pension benefits for existing team members. If we don’t get on the off-ramp from defined benefits now, this will cost North Dakota taxpayers billions more down the road," Burgum told the Legislature last month.
The Senate State and Local Government Committee on Friday heard Senate Bill 2239, brought by Sen. Sean Cleary, R-Bismarck, which seeks to preserve the defined-benefit plan.
His bill also aims to make the plan solvent with a $250 million infusion from the general fund in the 2023-25 biennium and contributions from the state over the next three decades.
Cleary said his goal is to ensure "a competitive state benefit for state employees, that we're preserving the promise we made to current state employees and retirees, and do that in a way that's responsible with taxpayer dollars."
He said Lefor and other lawmakers "are all trying to do this the right way to make sure that it's a responsible bill to taxpayers and we're providing a competitive benefit. There is a disagreement on how we get there, I think."
His bill also allows employees to enroll in the state's defined-contribution plan "if they decide that that's what's best for their retirement goals."
Rep. Jim Kasper, R-Fargo, this week presented House Bill 1486, which he said mirrors 1040 but requires local governments to help cover the shortfall. About 60% of employees participating in the plan are employees of local governments, being cities, counties and school districts.
"It's my belief that those political subdivisions should be paying their fair share of the unfunded liability," Kasper said. About one-third of local governments are in the state's defined-benefit plan, he said.
"Why should we subsidize one-third of the political subdivisions' retirements plans, and the other two-thirds have to take care of their own? I think it's a fairness issue," he said.
Local governments could pay for their obligation out of their own revenues such as property taxes, federal funds, various fees and reserves, according to Kasper.
North Dakota United, which represents more than 11,000 public employees and schoolteachers, supports keeping the defined-benefit retirement plan and ensuring it's fully funded.
The Legislature since 2011 "has failed to act on this issue," and "now here they are with a plan to get rid of (the pension plan) altogether," said North Dakota United President Nick Archuleta.
Lefor's bill is "an incredible outlay of money," $5.5 billion over 20 years, according to Archuleta. Lefor disputes that figure.
The plan is "a very important tool" for recruiting public employees, who generally earn less than their private-sector counterparts, Archuleta said.
He sees the issue coming down to "an ideological bent among some lawmakers that don't believe that public employees should have a defined-benefit plan because pension plans in the private sector have mostly gone away, so they don't think public employees should have that either."
He cites a state human resources survey among state workers that found 42% of respondents "strongly agree" that they prefer a defined-benefit plan over a defined-contribution plan; 3% said they "strongly agree" with the opposite scenario.
Miller, the retirement system leader, said, "People who come to work for the state or a political subdivision are interested in stability, and a defined-benefit plan provides that."