The Pension Problem, yet again

The simple fact is that pensions are still in the news all the time. You might think they settled down after the Detroit pension debacle but do a quick Google News search on pensions and you will see that teacher pensions in multiple states are in the news, Park District employees in Chicago won a court case regarding pensions, and I tweeted a few days ago an article pointing out the problems with a multi-company pension that seemed to be teetering on the brink. This is not a rant against workers pensions though. Pensions are an important part of the negotiated compensation package between workers and employers. 

A consistent theme in pension problems is the inadequacy of contributions and the assumption of higher rates of return on investments than are reasonable. This is an issue specific to the situation of defined benefit pension plans. These pay out an amount specified in the agreement to the worker upon retirement. Beyond the reasons listed above another reason these funds run into trouble is that people are living longer in retirement now. This means the total number of years the plan must pay out to workers is often higher than anticipated and shortfalls can occur. 

I am a big believer that these obligations should be met particularly when we talk about public pensions. This gets tricky since the public contributions are essentially tax dollars from the public. The politics of this do not make the math any easier. Thinking about North Dakota right now this link will take you to the annual report for the State Retirement and Investment Office. The summary information on page 6 states that as of July 2017 North Dakota has unfunded pension liabilities of $1.35 billion. Despite the fiscal issues in the state that was actually an improvement over the year before. 

The latest population movements and changes in the state are vital to understanding how these pension amounts are likely to change and what further population changes will do to the funding balance and the obligations. The time is now to deal with these issues while there is an revenue stream such as the oil tax, or the Legacy Fund if you wish, to make sure this state learns the lessons of Detroit and Illinois, and any number other areas we can discuss. 

 

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