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MINOT, N.D. — Sen. Sean Cleary, a Republican from Bismarck, is a former staffer for Governor Gov. Burgum. Last year, in the NDGOP's divisive primaries, Cleary was one of the candidates Burgum backed against a challenge from the Trumpy wing of the NDGOP.
Now Cleary and Burgum stand in opposition to one another on a key part of the governor's agenda for this legislative session.
During his budget address to lawmakers in December , Burgum called on the Legislature to address a massive shortfall in the state's pension fund for public workers.
"Our July 1 financial report for our main retirement plan shows the state pension fund had an unfunded liability of nearly $1.9 billion," Burgum said. "To move the pension toward fully funded status, we propose a one-time, $250 million injection into the pension fund. This would be in addition to the $48 million per biennium, starting in 2023, that the Legislature has previously approved as an ongoing transfer from the Legacy Fund."
But here's the interesting part: Burgum also called for a phase-out of the defined-benefit plan. "As part of these proposed reforms, we also support a responsible plan to close the defined benefit plan for prospective hires as soon as possible, and shift to a defined contribution plan," he said.
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Allow me to give you some background on this issue.
A defined-benefit pension is, well, a pension. One which guarantees a certain retirement payout — a defined benefit — to the workers vested in it. The state, and the workers, each pay into the pension. The pension funds are invested. Worker retirement payments are made from the revenues. These have mostly fallen out of favor in the private sector, for reasons we're about to get into, but they're still common for public workers.
A defined-contribution plan is what those of us in the private sector typically have. Our employers define a set contribution to our retirement investments, but there's no guaranteed payout.
Defined-benefit plans are great for workers. It's a guaranteed retirement. They're less great, however, for taxpayers because while the payout is guaranteed, the revenues funding it is not. That's how our state's pension fund came to have a nearly $2 billion shortfall.
But fixing that problem is tricky. You can put more money in through legislative appropriations or increased contributions from workers, or both, but that doesn't fix the fundamental flaw at the heart of the plan, which is that you're guaranteeing to pay something with guaranteed revenues.
Transitioning away from a defined-benefit plan is prohibitively expensive. You can't just pull the rug out from the workers who are already on the plan, but if you stop adding new workers to pay into the pension pot, where do the revenues come from to pay the benefits for the retired workers?
This is the quandary Burgum is asking the Legislature to address. He wants to make the workers already in the pension whole, but also move new workers away, understanding that it's going to cost the taxpayers in the short-term to alleviate the long-term risk of continuing the pension.
Cleary, setting himself in opposition to his old boss, has announced a proposal to provide funding to make the pension whole but which eschews any sort of reform that would put us on track to close the pension.
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It's a bailout, in other words. A plan to put more money into a flawed pension plan.
Here's how Cleary's press release describes his plan: "This proposal would allocate $250 million to help shore up the state’s pension plan. This is the same to what has been proposed by the executive budget proposal and alternative legislative bills. In contrast to these other proposals, Senate Bill 2239 would not use Legacy Fund earnings to fund the pension liability and would not seek to close the defined benefit pension. Increases in employee and state contributions would instead be used to put the pension plan back on path to solvency. This proposal would also give employees the option to join the PERS Defined Contribution plan should they decide that works best for their retirement goals."
Here's the proposed legislation:
The politics behind Cleary's move are pretty obvious. He presents a Bismarck-area district, and by dint of geography, given that Bismarck is our state capital, he represents a lot of public workers. He has support from Sen. Dick Dever, another Bismarck-area lawmaker with a lot of government workers as constituents.
Also quoted in his press release is Nick Archuleta, the president of North Dakota United, which represents the state's public workers.
These folks are all approaching this issue from the perspective of the public worker, and, again, defined-benefit pensions are great for the people vested in them.
But what about the taxpayers?
Our state has the money, now, to bailout the pension. And it would be very easy to do that now without the additional financial pain of transitioning new workers away from that pension, or the political headache of fighting North Dakota United and other interests over it.
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Some might say that's the path of least resistance.
But what happens in ten or fifteen years when the cracks of this flawed pension begin to show again?
Bailing the pension out with no reforms attacked to wind it down amounts to kicking a very problematic can down the road. We have the resources to deal with this now. We should deal with this now. Let's not leave this to be a problem for future generations of North Dakotans.
