By
Beacon Author
on March 3, 2010 at 07:04 am
The North Dakota Pension Fund Gap
Last week, the North Dakota Policy Council (NDPC) broke a story that very few people in North Dakota know about (including lawmakers). The story is of the current financial situation at NDPERS (North Dakota Public Employees Retirement System).
NDPERS manages, among other things, the retirement plans of public employees in North Dakota. Nearly all state employees and many local government employees are invested in the NDPERS as a major portion of their retirement plans.
As of June 2008, the NDPERS had an investment portfolio of just over $2 Billion. [see chart below.]
Then, the stock market collapsed in the fall of 2008 and Spring of 2009, and NDPERS lost a full 25% of its value.
Why did this happen?
NDPERS was over exposed to the stock market due to a targeted annual return of 8% - an extremely aggressive goal.
If you as an individual investor were to tell your broker you need to double your money in 10 Years, he/she would set you on a path to target 8% annual growth. It is the type of investment goal better suited to a 35 Year Old than to a system that people will depend on for their retirement.
Now, much like Social Security, NDPERS is on a pathway to insolvency. Their own figures show that, without a drastic increase in funding, NDPERS will be insolvent by 2038. Unlike the Federal Government with Social Security, the state cannot simply write IOUs to itself to cover the difference.
The NDPERS fund currently has $284.1 million in unfunded liabilities - however, that shortfall will expand exponentially until 2038 (or sooner) when it cannot meet its obligations.
Making matters worse, is the fact that the number of state government employees has increased by 4,500 since 1990 (3,300 since 2001); and the number of local government employees has increased by 8,100 since 1990 (1,100 since 2001). [See graphs below]
So, there are an ever growing number of public employees who are future retirees.
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What's Next?
There will be plenty of blame to go around - there are plenty of accountable elected officials that were overseeing the fund.
The more important task will be for the legislature to establish a new fund to ensure the solvency of the retirement fund, and discontinue the practice of forcing the fund to live on unwise and unsustainable investment goals.
The current state general fund surplus will allow for this mess to be cleaned up, but it will be costly, and it will make future increases in state spending as we've seen in recent years (62% over 4 years) nearly impossible.
One long range policy reform the state legislature should look at is developing a way to determine whether a position with a retiring position holder is needed - or if the duties and workload of that position can be transfered to other employee(s).
This would be one way to make both sides (somewhat) happy - taxpayers can be happy that there is a system in place to prevent future bloated government, and public employee interests can be happy that their members' average pay will go up without the need for across the board staffing cuts.
A lesson learned from this current crisis will be that the state should view investments as "bonus funding" not as "base funding."
Hopefully, lawmakers can focus on how to solve the problem rather than pointing fingers.
NDTA will follow this story as it develops and keep you updated.
-Dustin Gawrylow, Executive Director
North Dakota Taxpayers' Association
(701) 751-2530
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