Some sobering news for taxpayers
If you are a taxpayer in North Dakota, if you have children and grandchildren who are taxpayers in North Dakota (or will be), please allow me a few minutes of your time. I realize that the debate over public pension reform is not exciting, but it is vital that you understand where we are at today and, more importantly, what it means for your pocketbook.
Supporters of public pension plans roll out the same old scare tactics and misdirection, believe me, I know. Back in 2011 I sponsored a bill to convert the Public Employee Retirement plan from a defined benefit plan to a defined contribution plan for new employees. A similar bill is before the Legislature this year and it needs to pass.
In 2011 the plan’s unfunded liability was $580 million and my bill failed by one vote. Instead, the Legislature chose to “fix” the plan by making extra contributions (your tax dollars) to pay down the unfunded liability. The result? The plan now has a $1.8 billion unfunded liability. That is real money, and sadly, even that number understates the true plan liability, that is likely $4.5 to $5 billion. And you, the taxpayer, is on the hook.
According to the actuarial reports for the last three years, the “extra” contributions intended to pay down the unfunded liability were over $300 million. But, over those same three years the plan’s unfunded liability grew by $595 million. That looks bad even with Common Core math.
The decision to kick the can down the road in 2011 failed, so let’s try a new approach. First, some facts to counter the fear-mongering.
A pension plan is a promise, a contract. This fact was recently supported by the Supreme Court in Thole v. U.S. Bank . This case involved a private pension plan but the Supreme Court ruled that pension plans are contracts. What does that mean? It means that every state employee currently in the plan will receive the retirement benefit they are promised. Every penny. In fact, and this is important taxpayer, the state of North Dakota (you) must pay those benefits even if the plan runs out of money.
Placing all new employees in a 401(k)-type plan does not put current employees at risk, it simply means you stop making promises you cannot afford.
Critics of pension reform say that closing the plan to new hires will cost $5 billion. But, as the great Paul Harvey would say, here is the rest of the story. The state (you) will need to put an extra $5 billion into the plan over the next 40+ years whether or not pension reform is passed. The only difference is that if we choose to kick the can down the road, we will make 40 more years of new promises.
It is going to cost $5 billion over the next 40+ years either way just to pay off the promises we have already made. Making new promises is foolhardy. The first rule of holes? Stop digging.
Originally published in the Fargo Forum
