All over the country, defined benefits pension plans are crumbling. Public sector plans for state and municipal workers are under water. Federal pension plans are under water. Even Social Security, which is little more than a sort of universal, defined-benefits pension plan is under water. And the fundamental problem with each of those plans is that they’re ponzi schemes. In order to keep paying out benefits to those at the top, they need a steady influx of new people to pay in at the bottom.
Since neither our population, or the ranks of or private or public sector employees, grow fast enough over the long turn to maintain benefit payouts to those at the top, these funds fail.
Even here in North Dakota, home to one of the strongest economies in the nation, pensions are a problem. The Public Employees Retirement System is only 67% funded. The Teachers Fund For Retirement is only 60% funded. The legislature has been debating these issues; the House voted this week to give state employees the option to move to a defined contribution system, the Senate voted to give the pensions a taxpayer bailout and study the defined contribution issue.
In Minot, the pension fund for municipal employees is only 49% funded, and now city leaders are looking to a defined contribution plan for future employees so as not to make obligations to future employees which the city may not be able to meet:
A city pension committee is recommending the Minot City Council replace employee pension benefits for future employees with a defined contribution plan.
The Pension Ad Hoc Committee voted this week to have the city close the pension plan to new employees at a date to be determined by the council. The city would solicit proposals for a defined contribution plan for new hires.
An actuary told the committee last fall that the fund is vulnerable. With $51 million in the fund, the plan is only 49 percent funded in terms of meeting its liabilities over 30 years. The standard recommendation has been to have pension funds at least 80 percent funded.
The problem, of course, is that defined contribution pensions aren’t a silver bullet for existing pension problems. The city still has an obligation to those city workers already in the system, but at the very least removing new hires (and whatever existing employees may be willing to make the switch) from the burden on the existing pension system is a start.
Unfortunately, the taxpayers are just going to have to pony up the cash to make up for the shortfall to those already in the system.
What’s frustrating is that this is been an issue on the radar for years now, but public officials listening to unions and other interests have been slow to act.