During the 2021 session, members of the North Dakota State Legislature attempted to push through SB 2046, a bill that would have closed the North Dakota Public Employees Retirement System (NDPERS) defined-benefit hybrid retirement — or main — plan for all new hires effective July 1, 2023. Although North Dakota United — the state’s public employees union — member activists, and legislative allies eventually defeated the bill, state legislators passed HB 1209 requiring the interim Retirement Committee to develop a plan to effectively accomplish the same goal by January 1, 2024. Adding to the pressure is Gov. Doug Burgum’s plans he announced at the end of September 2021 for spending state surplus dollars during the state Legislature’s special session. His plan would allocate $100 million to NDPERS to help pay down the pension’s unfunded liability, but these funds would only be deposited if the state legislature closes the main pension plan.
The main pension plan covers most North Dakota state employees and participating political subdivisions as well as many educational support staff and higher ed staff. Although only the main pension plan is facing closure under HB 1209, lawmakers have suggested that the state pensions for teachers and others may be next up for closure.
Steps the ND Legislature Has (and Hasn’t) Taken to Fund PERS
In 2007, the main pension plan was 93.4% funded. After the Great Recession, the plan’s funding declined, bottoming out at 62.0% in 2013. It has gradually increased almost every year since and now stands at 69.1% funded as of July 2020.
In 2011, the employee contribution rate was 4% and faced two increases up to the present rate of 7%. Since then, the rate has held steady despite attempts supported by many employees to increase the employee and employer contribution rates to ensure proper funding of the plan. At current contribution rate levels, the main pension plan is expected to lose ground on its unfunded liability “indefinitely.”
Members of NDPERS have done their part to support the pension’s solvency, including a number of concessions in recent years. Starting in 2016, legislators bumped the longstanding “Rule of 85,” which determines when an employee may retire and draw full benefits up to 90 for new hires starting in 2016. The rule is calculated by adding the member’s age and years of service credit. In 2017 SB 2047 passed, which decreased the benefit multiplier for new hires from 2% to 1.75% for new employees hired after December 31, 2019. During that session lawmakers also ended the employee health insurance credit for new hires.
Legislators also adjusted the final average salary portion of a member’s monthly defined benefit in a way that may significantly reduce the monthly benefit available to employees who work seasonally or are contracted for fewer than 12 months each year. The traditional calculation of the average of a member’s 36 best months (out of the last 180) was capped to only include months before 2020. Moving forward, members may take the average of their highest three year-long consecutive periods. Additionally, all current members had their account balances’ interest rate reduced by 0.50 percentage points for 2021 onward.
The main pension plan did gain another source of potential funding in 2021 via the state’s Legacy Fund. Some earnings from the fund may be transferred to the plan as long as certain requirements are met, such as the plan’s funded ratio being below 90%. However, only a maximum of $150 million — with other expenses likely reducing this amount — may be available for transfer. Thus, this may not make much of a dent in the fund’s $1.4 billion unfunded liability.
Defined Contribution Plan Reception Among ND Public Employees
Lawmakers have experimented with pushing employees towards the defined contribution plan before. NDPERS at its founding in 1966 started as a defined contribution plan. In 1977, state legislators converted the plan to a defined benefit pension in order to provide a more secure retirement for participating employees.
More recently in 2013, the state Legislature gave all new hires the opportunity to participate in the state’s defined contribution plan. After four years, “only 3% of new employees chose the DC plan.” Many regretted it and pushed for the option to be transferred to the main pension plan. Legislators acquiesced in 2017, and three out of every four eligible employees chose to switch to the defined benefit pension plan.
In July 2020, defined contribution plan membership consisted of only 93 total participants, compared to the main pension plan’s active membership of 23,495. Since 2010, the plan’s active membership has increased by roughly 13.5% while the number of retirees and beneficiaries has jumped by about 71.5%.
Economic Impacts
Public employees as well as the North Dakota League of Cities and North Dakota Association of Counties have cited public employee pensions as an integral recruitment and retention tool, especially as both private businesses and public entities need to compete for workers.
Pensions for public employees in North Dakota don’t just support retirees and quality public services—they generate significant economic activity in communities across the state, providing consistent income for retirees to spend locally and support local jobs. This effect is intensified in hard-hit rural areas of the state. Taxpayers only cover about one-fifth the cost of NDPERS but enjoy over $800 million in economic output from these pension payments. Without the guaranteed benefits provided by NDPERS, thousands of workers and their families across the state would face economic instability and additional risk in retirement. Tax revenues supporting local communities could drop and additional strain may be placed upon existing social programs to cover the gap in benefits.
