Port: Pension reform proponents are playing with fire by hiding costs

MINOT, N.D. — I want to tell you, dear reader, about a very interesting meeting of the House Government Operations Committee in Bismarck today. But before we get to it, I need to fill you in on some backstory. Because, I'm certain, the fight over pensions that's happening in Bismarck probably hasn't been on your radar.

Making policy for something like pensions is a moral hazard, mostly because those setting the policy are, temporally speaking, so far removed from the consequences of it. Fiscal choices made now may not be felt until years, or even decades, from now.

Imagine a slow-moving ship. One captain and crew decide to begin a turn, but by the time the turn happens, there's a whole new captain and crew. There is a lot of temptation for current leaders to make expedient, politically convenient decisions in the here and now, knowing they'll be long gone once the ramifications appear.

That we can rely on politicians to be feckless and shortsighted is one reason North Dakota must move away from defined-benefit pension plans for its workers.

These plans guarantee a specific retirement benefit for the workers, making them politically popular, at least when initiated. But those guarantees are based on uncertain revenues.

If the economy sours, the stock market tanks or the government makes unwise investments (would you believe me if I told you that Ohio's state leaders once authorized the investment of public funds into baseball cards and other collectibles?), the taxpayers get stuck bailing out the pension.

There is a debate in Bismarck, represented by House Bill 1040, over moving the Public Employee Retirement System pension from a defined-benefit plan to a defined-contribution plan of the sort most of us in the private sector have, which is. That's easy enough for new hires, but dealing with those workers already in the defined-benefit plan becomes a hot potato.

Pensions use contributions from younger workers, plus any investment earnings, to pay out benefits for retired workers. But if the younger workers aren't going into the system, the money to keep the commitment to the workers already in the system has to come from somewhere.

This is where today's meeting of the Government Operations Committee comes in.

Recently, Rep. Corey Mock, a Democrat from Grand Forks and, it must be said, no friend of transitioning away from a defined-benefit pension, added an amendment to Senate Bill 2015 (the budget for the Office of Management and Budget) which would have done two things.

First, it would fund, to the tune of $20 million, an amendment to HB 1040 creating incentives for recently-hired workers to move out of the defined-benefit pension and into the defined-contribution plan.

Rep. Robin Weisz, a Republican, put that amendment in the bill, and it's a wise one (I couldn't help myself), because every worker willing to make that move makes the cost of the overall transition cheaper. Unfortunately, the wise Weisz amendment (I'm so sorry) wasn't funded. Mock's amendment puts in that funding.

The other thing Mock's amendment would do is begin the process of funding our benefits for workers who remain in the defined-benefit pension to 2024 instead of 2026. This is important, because, going back to our slow-moving ship analogy, the sooner we begin the process of funding the transition, the sooner that money can begin earning interest, and the cheaper the overall transition will be for the taxpayers.

Mock compares it to a 20-year mortgage, as opposed to a 30-year mortgage. The monthly payments are cheaper on the latter, but the overall cost of the loan is cheaper on the former.

But at an 8 a.m. meeting of the Government Operations Committee, which followed, per Rep. David Monson, the committee chairman, an early-morning meeting with House Republican leadership, Mock's amendments were removed. The reason given? Monson said House leaders told him it was "not needed."

Mock was the only member of the committee to oppose the removal of the amendment. He argued that if lawmakers delay filling in the revenue hole left by workers moving out of the system, "we are adding to the cost of closing out the whole plan by a half-billion dollars."

The politics at play are interesting.

Mock, an opponent of this transition, is interested in exposing its costs to make it less politically palatable. The higher that cost, the easier it is to argue for an expedient bailout of the status quo.

Those pushing for pension reform have an interest in downplaying those costs. Only, that's a dangerous game, because the costs are real. The math Mock based his amendment on is correct. Executing this transition away from a defined-benefit pension means our current lawmakers must rely on future lawmakers to follow through.

Again, given the propensity of politicians to look for the easy way out, if we blindside those politicians with unaccounted-for costs, this transition may stall, costing taxpayers even more.

I understand the political argument for playing with the timelines to hide some of these costs, and while that's good politics, and while it may make passing HB 1040 easier in the here and now, good politics doesn't often make for good long-term policy.