NDPERS is the North Dakota Public Employee Retirement System. This retirement plan became effective July 1, 1966, following the passage of Senate Bill 164 by the North Dakota Legislature in 1965. The plan was designed to provide retirement benefits in recognition for the services of our state's public employees.
All state agencies participate in the North Dakota Public Employees Retirement System (NDPERS) except those covered by other state sponsored pension plans (not including Social Security). Employees of political subdivisions may participate in NDPERS if their governing boards elect to participate.
NDPERS is a hybrid defined-benefit retirement plan, which means its participants are given a defined monthly benefit following retirement, as a defined-contribution plan, which puts a defined contribution into a retirement savings account each paycheck, and the employee can then draw from the collected earnings after they retire.
Defined-Benefit vs. Defined-Contribution
There has been an explosion in the growth of defined contribution (401k) pension plans around the country. Despite claims to the contrary, defined benefit pension plans like NDPERS provide the safest and most secure future for retired government workers and those who are planning their retirement.
Advantages of Defined-Benefit Programs (NDPERS)
- Defined benefit pension plans provide GUARANTEED income security to workers for their retirement. No matter what happens in the stock market, how long an employees lives after retirement, or whether he or she becomes disabled.
- Employees are not subject to investment risk. Pension funds invest assets with an optimum mix of growth potential and risk. Studies show that individuals responsible for their own retirement income typically invest too conservatively, and thus do not adequately protect their retirement benefits from inflation.
- Retirement benefits are not dependent on employees’ ability to save. Lower-income workers and workers facing declining incomes lose twice under defined contribution plans, where employer contributions are often tied to employee savings. While defined benefit plans often have mandatory employee contributions their contributions provide workers a secure retirement.
- Defined benefit plans provide cost of living adjustments and pensions formulas that are tied to the highest paid years, which protect employees from inflation while they save throughout their working lives.
- Death and disability insurance, which are typically provided under defined benefit plans, provide income security for participants. Defined contribution plans provide no insurance benefit in case of an employee’s death or disability; employees must purchase this coverage at additional cost.
- Defined benefit plan provisions can allow for portability with shorter vesting periods, reciprocity agreements, and buybacks for prior or related service. Defined benefit plans may also allow employee borrowing.
- Defined benefit plans allow employers to set and to guarantee income-replacement goals for their workforce. Employees with inadequate retirement income may work longer at higher wage rates than their younger replacements, negotiate higher employer contributions to their 401K type pension plans, or even sue employers for not providing enough investment and retirement-planning education.
- Employers benefit from the favorable investment performance of pooled pension fund assets. The wide range of investment options open to large funds makes it possible for employers to provide adequate benefits to employees while limiting contributions.
- Defined benefit plans offer an incentive for government employees to stay in public service. Many valuable employees, who would earn a higher salary in the private sector, stay in public service because of the guarantee of income security when they retire.
Disadvantages of Defined-Contribution Plans
- Defined contribution plans are not a “magic pill” to solve employers’ budget constraints. Defined contribution plans are not more efficient at providing benefits equal to defined benefit plans. Comparable benefits often require comparable employer contributions. Plus, features such as employee loans, investment options, education and information obligations, and periodic statements can make defined contribution plans expensive to administer.
- Employers face high costs to switch to defined contribution plans.
- Defined contribution plans shift the cost of administration onto the public employee. Employees pay significant management fees to mutual funds and other plan services directly out of their retirement savings whereas pension funds use their own managers.
- Many defined contribution advocates resent pension fund power and influence on corporate governance issues. Corporations and executives who don’t like pension fund activism hope to use defined contribution plans to erode investor power, by breaking up large pension plans into small pools of individuals’ savings.
North Dakota United's Position
North Dakota United supports the current PERS system. It is a well-run, defined-benefit program providing excellent benefits to current retirees and a secure retirement for those who are active government employees. While the system may need some fine tuning from time to time, any wholesale change to the current defined benefits program provided by NDPERS will be resisted by NDU. A secure retirement for loyal public employees in North Dakota must be the only goal for NDPERS. Legislators need to weigh very carefully any attempt to change the current system. Public employees are satisfied with NDPERS.
“If it ain’t broke, don’t fix it.”