OUR OPINION: N.D. should weigh hybrid pensions
December 13, 2012 at 5:03 pm in Grand Forks Herald
Dustin Gawrylow’s right: Pensions for public-sector workers in North Dakota represent a huge challenge. The pensions “now represent a $2 billion unfunded liability over the next 30-odd years.” And North Dakota lawmakers should pay attention. Continue Reading
Dustin Gawrylow’s letter was correct in some parts but left some out in others. First, pension systems with defined benefit plans from the around the country that are rated and considered financially sound, fund 85% of the future liability and the legislature did take action to reach the 80-85% level in the next few years when the revisions failed to pass. Second, he is absolutely correct that failing pension systems fail to use a pragmatic rate of return of 8%. My own financial planning assumes 2 – 3% rate of return over the inflation rate which has been proven to be realistic and work when back tested against the data. Third, just like individual 401k’s and retirement investments, everybody took a hit in 2008 so one has to look at the longer term averages to determine unfunded liabilities rather than panic over a shorter term fluctuation. Fourth, many such hybrid systems already exist, the largest being the Federal Employee Retirement System (FERS) which ended traditional defined benefit pensions for federal employees in 1986. Rather than reinvent the wheel, there are examples of successful hybrids already available in private industry, other states and federal government that would probably solve the state employees pension issue.
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One problem with the switch would be that current and future workers are paying in extra to fund the unfunded deficite caused by excessive losses to real estate and stock bubbles mixed with lots of derivatives that produced no insurance payout.
So changing plans would basically require the state to write out the check for the deficit. Something it hasn’t wanted to do.
Any change needs to be accompanied by changes in operation. The state invested $160 million in a company that didn’t exist, it only did a little poorer on return than the rest of the portfolio.
Most of the money is being managed without policy in place as to how it should be managed and they continue to roll accounts and play with derivatives.
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Very true but that check is going to need to be written eventually and the sooner the better.
This is a challenge that the Feds need to meet as well.
The military needs to go to a retirement plan like this where after you leave service you take your 401k with you to your next job.
This would eliminate the military pensions after a person retires for the rest of their life
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I agree with you but with the caveat that it applies to new enlistees. Those who started under the old program are allowed to finish.
It is not fair to change horses mid stream.
The military already did this once under Carter. My father was in the Army then spent 20+ years in the USAF. He fought in three wars (WWII, Korea, and Vietnam). His retirement planning was social security (he always had a second job and my mother worked) and his military retirement (he retired as an E6).
After he retired they changed the law and started subtracting the amount he received from social security from his military retirement.
This was completely wrong, and in my eyes a violation of the contract he had with the government. He served his time with one goal and they changed the rules AFTER he was done serving.
You have to honor your commitments.
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That should apply to state income taxes as well.
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Actually no, if you leave things alone you don’t need to eventually write the check. The contributions were already increased with another increase planned and that will catch up the system.
If you do the proposal and make the new contributions part of someone’s account, then there is no catching up, you never catch up.
What is needed is reform of the management, we need to quit doing things like derivatives. We need to have investment policies where there are none today. That’s true without regard to what form the retirment plan takes.
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