Pension Security

What Is a Pension vs a 401K?

A pension is a defined benefit plan, which means that the employer promises to pay you a certain amount of money each month after you retire. The amount of money you receive is based on your salary and years of service. Pensions are typically funded by the employer, but some employees may also contribute to their pensions. Pensions give financial stability and security to the employees and the communities in which they live.

A 401(k) is a defined contribution plan, which means that you contribute money to the plan from your paycheck, and your employer may also make a matching contribution. The money in your 401(k) account grows tax-deferred, and you can withdraw the money after you retire.

Most Private Sector Jobs Don't Get Pensions, Why Should Teachers and Public Workers?

The first reason is due to the public employee wage gap. According to the Economic Policy Institute, teachers in the United States make, on average, 21.4% less than other college-educated workers. Similarly, data comparing federal government and private sector compensation from the Bureau of Labor Statistics had indicated that government workers earn 22.47% less on average than private sector workers in similar jobs in 2021.

Pensions are a benefit that can help make up for this wage gap. TFFR and NDPERS are significant recruiting tools that keep public employee and educator salaries and benefits competitive.

How Will Shutting Down NDPERS Affect ND Taxpayers?

No one knows exactly how negative shutting down NDPERS will be on ND taxpayers, but we can look to what happened in other states after they make similar decisions. 

In 2006, lawmakers in Alaska made the decision amid a multibillion-dollar shortfall in the pension fund, to replacing them with a 401(k)-style retirement system. Shutting the plan down resulted in a mass exodus of employees and agencies struggled to fill job openings. To entice people to fill vacancies, taxpayers forked over $20 million per year in the form of signing bonuses. 

In 2012, the Town of Palm Beach closed its pension system to all future public safety officers, including police and firefighters. As years passed, more and more police officers left the force. Recruits would often train with Palm Beach and then transfer to a jurisdiction that offered a pension. Eventually, training costs ballooned to $20 million. After four years, the town was forced to re-open its pension plan.

In 2012, voters in the City of San Diego passed Proposition B, which eliminated pensions for all future city public employees except police ocers and replaced them with a 401(k)-style retirement system. That same year, a mass exodus of longtime public employees occurred. Because San Diego was the only city in California to not oer a pension plan, it struggled for years to recruit and retain highly qualified workers. In January 2021, a state trial court declared Proposition B to be invalid. Reimplementing the pension cost taxpayers almost $80 million.