North Dakota is eyeing changes to the retirement plan offered to state employees.

Future hires would be moved to a “defined contribution” plan, but there are concerns it would negatively affect the ability to attract workers.

Conservative-leaning groups such as Americans for Prosperity, as well as the bill sponsors, say the North Dakota Public Employees Retirement System has an unfunded liability of $1.8 billion. They want to move away from a defined pension benefit to a 401k-style system, which would rely on investments.

Kendal Killian, executive director of the National Public Pension Coalition, said it does not make sense to overhaul one of the key selling points for those in the public sector.

“They usually get paid a little bit less in their salary,” Killian pointed out. “They usually have a good work-life balance. But they really do it because of the superior benefits; health care benefits and retirement benefits.”

The bill in question was introduced in the House. Opponents argued the state should instead embrace a Senate plan, which would commit funds to shore up the pension system but would also give future hires the option to select a defined-contribution plan. They suggested it could help ease any concerns about appeasing younger workers who might want more flexibility with their retirement options.

Still, Killian contended the main conversation should center around trying to protect the pension system.

Beyond issues with attracting and retaining workers, he noted public-sector employees who receive the benefit can retire with more certainty, which helps the state’s economy.

“If you jeopardize the pension of these workers, you’re also jeopardizing the residual economic benefits that pumping these dollars into the state does,” Killian stressed. “And (that) will eventually create kind of a domino or chain reaction that can affect everyone.”

The group pointed out in places such as Alaska and Palm Beach, Florida, the closing of pension systems had unintended consequences, where extra costs were incurred to recruit and train workers to fill staffing voids.

The House plan has been estimated to cost roughly $5 billion over 20 years, but sponsors emphasized it would quickly bring more stability to the system. Backers of the Senate plan countered it is less costly in the long run, while still offering a pension to new hires.

ND House advances major pension reform 

BISMARCK — The North Dakota House of Representatives, by a vote of 77-16, moved forward Wednesday a bill that would address the state’s longstanding and growing unfunded pension liability in the public employee’s retirement system (NDPERS).

House Bill 1040 would adjust the state’s method of funding the NDPERS system, infuse more than $300 million dollars to help pay down the current $1.85 billion dollar debt and move all new employees into a defined contribution plan. 

If no changes are made to NDPERS, the plan will continue to accrue unfunded liabilities, and according to NDPERS actuaries, will exhaust its assets in about 80 years. If investment returns do not come in as expected, NDPERS could run out of money in as little as 30 years. Once the plan runs out of money, it becomes the state’s legal obligation to fund retiree pension checks directly from the state budget. 

HB 1040 fixes the underfunding issues that NDPERS has had for two decades by swapping from contribution rates set in statute to an actuarially determined rate.

“HB 1040 will ensure that every dollar promised to current workers and retirees will be met, while taking the growing cost burden off the current and future taxpayers of North Dakota. At the same time, we will be offering new employees a more generous and portable benefit than the current NDPERS DB plan offers,” said House Majority Leader Rep. Mike Lefor, R-Dickinson.