Over at Watchdog today I write about a recently-released audit of the Public Employees Retirement System (PERS), which is the pension plan for the state’s employees (the teachers have a different fund).
The audit shows that PERS has over $680.7 million in unfunded liabilities, and is currently only 77.8 percent funded. That’s not good, though it’s better than the 2013 audit which showed that the fund was only 62 percent funded and had over $1 billion in unfunded liabilities. The excuse back then was that the fund’s fiscal picture was still being impacted by the 2008/2009 financial collapse, and that the numbers would improve once those ugly investment years were off the books.
[mks_pullquote align=”right” width=”300″ size=”24″ bg_color=”#ffffff” txt_color=”#000000″]The number of people are already receiving benefits isn’t going to change, but the number of people paying into the PERS to support those benefits is going to decline.[/mks_pullquote]
That does seem to have happened, though more than half a billion in unfunded liabilities is hardly a positive situation. And I wonder if it’s going to get worse as the state enters a some years of budget tightening, because another contributing factor to that shrink in unfunded liabilities was a spate of hiring which had more workers paying into the system.
As I reported at Watchdog, “From 2014 to 2015, the pension added over 2,000 new members, growing to 42,122.” That’s a big increase for a state with under 750,000 residents, no doubt created by the expansion of the state’s payroll during the oil boom years. The state had more to do, and added a lot of public workers to do it.
But what happens now that the oil boom is over, and the demand for state services has declined?
In a perfect world this would mean that the government payroll would shrink, though I think we all know that in reality government agencies fight hard to avoid giving up payroll even when the need for expanded payroll has passed. Still, we’re going to see some layoffs in the state government (indeed, we’re already seeing them), and that’s going to pose a problem for the defined-benefit pensions like PERS.
The number of people are already receiving benefits isn’t going to change, but the number of people paying into the PERS to support those benefits is going to decline. Which likely means that some of the ground we’ve made up on unfunded liabilities is going to be lost.
Of course, the state could just stop playing this game and move workers to defined-contribution plans which do not create these sort of long-term liabilities.
Lawmakers had opportunities, back during the oil boom years when the state was flush with revenues, to fund the defined-benefit pensions for existing employees while moving new employees to a defined-contribution plan (one exists now but it’s optional), and thus remove the risk of these unfunded liabilities. But they didn’t, because the teacher and public worker lobbies are very, very powerful even in a Republican state like North Dakota.