Bette Grande: North Dakota Teacher Pension's Unfunded Liability Is Worse Than You Think
Rob posted last week about a piece in The Forum that addressed the Teachers’ Fund for Retirement (“TFFR”). He was absolutely correct that there should not be a bailout of TFFR without serious reform of the program. The future of our public pension plans is an important debate and I spent much of my legislative career working on this issue.
Based on the July 1, 2014 actuarial valuation for the TFFR Plan, the actuaries found a $1.2 billion unfunded liability. That is a significant number in itself, but the truth is much worse. In ‘actuarial world’ it is a $1.2 billion unfunded liability but in the real world where the rest of us live the unfunded liability is actually this:
$1.2 billion growing at 8% per year x 30 years. (Someone else can do the math, I’m not sure I want to know)
We don’t get to pay in ‘actuarial dollars’ we have to pay the full amount.
And that is just for TFFR, we as ND taxpayers have a similar unfunded liability in the ND Public Employees Retirement Plan (“NDPERS”).
These public pension plans are a scam forced on the taxpayers and younger teachers/public employees. We must get engaged in this issue now.
First, some facts on TFFR.
- TFFR has paid out more dollars in benefits & expenses than it has received in contributions every year for the last 15 years! In 2014 TFFR paid out $42.8 million more than it took in from contributions. Since 2004 TFFR’s funding deficit is $427 million.
- The ratio of Active teachers to Retired teachers in the plan has dropped from 1.83 Active teachers for each Retired teacher in 2004 to 1.33 Active to Retired teachers in 2014, the trend is accelerating.
- Net cash flow as a percentage of market value has been negative every year since 2004.
It is a similar story and a similar unfunded liability with the NDPERS Plan. We continue to dig a deeper and deeper hole and throwing in a couple of billion in taxpayer money will not fill the hole. I heard once that when it comes to holes – the first rule is to stop digging.
[mks_pullquote align=”right” width=”300″ size=”24″ bg_color=”#000000″ txt_color=”#ffffff”]”The truth is we, as a State, made promises to the teachers and public employees and we must honor those commitments. But, investing taxpayer dollars to bail out these plans (with no guaranty it will be enough) while we continue to make new promises (which we cannot keep) to future teachers and employees does not pay the bills.”[/mks_pullquote]
We have that chance with Senate Bill 2038 which has a hearing Thursday (January 22nd). SB 2038 would close the NDPERS Defined Benefit Plan at date certain; this is essentially the Bill that lost by 1 vote in 2011, when the Unfunded Liability for NDPERS was only $599 million.
Today’s unfunded pension liabilities will have to be paid over the next 30 years; what will tomorrow’s unfunded liabilities be if we add another 400 FTE’s as proposed.
The truth is we, as a State, made promises to the teachers and public employees and we must honor those commitments. But, investing taxpayer dollars to bail out these plans (with no guaranty it will be enough) while we continue to make new promises (which we cannot keep) to future teachers and employees does not pay the bills.
Many people ignore the issue of unfunded pension liabilities. It does not seem to motivate the majority to action. Why worry about something we do not have pay for 20 or 30 years? Or, somebody else will pay for it.
Well, our younger teachers and public employees should be engaged; they will pay twice. First, as taxpayers they will be forced to pay for the pension promises we have made. Secondly, as teachers and public employees, they are already paying.
As pointed out in article in the Forum, the annual plan contribution for each teacher is 25% or more of their compensation. 25%! Now, the actuaries say that the ‘normal cost’ (the contribution % it should cost per teacher per year) is about 10.5%. But because TFFR is in such tough shape each employee is putting in an additional 15% of their compensation each year. (These contributions are often split between the employee and the employer but it all comes from the same bucket doesn’t it?)
For a teacher earning $38,000 a year that extra 15% contribution for the good of the order equals $5,700. That $5,700 could be put to better use as higher salary and/or property tax relief. Instead, the money is put into to the plan to pay for promises made in the past.
As I mentioned earlier, every dollar contributed to the Plan each year and then some, is being paid out each year as benefits and expenses. We are not gaining any ground here.
The main argument against our proposed reforms in 2011 was that without young people joining each year the plans could not survive. Some will say that my use of the word ‘scam’ is too harsh. What would you call it then? Ponzi?
Forcing the younger generations to pay for our promises is not leadership and it is not right. Have we changed so much as a society that we do not see this anymore?
“If there must be trouble, let it be in my day, that my child may have peace.” — Thomas Paine