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National report issues caution on pension overhaul

Submitted Photo Leading up to a 2023 vote to overhaul its pension system, North Dakota had an underfunded liability approaching $2 billion. Photo from Adobe Stock.

Starting in 2025, North Dakota will close its public pension plan for new hires, who will instead be offered a 401k-style benefit.

National researchers say these decisions are likely to create more problems.

The Legislature last year approved switching to a “defined-contribution plan” for future public workers, amid concerns about the size of North Dakota’s pension system shortfall.

The National Institute on Retirement Security is out with a new analysis of similar moves made by other states. The organization’s executive director and co-author of the report, Dan Doonan, said there’s no guarantee of lasting improvements.

“I think a lot of people think of this as like a fresh start, like, ‘Oh, what do we want to offer?'” said Doonan. “But the reality is the existing plan will be there for many decades and still have obligations to pay out current workers and retiree benefits.”

The report says among the states analyzed, employer costs increased significantly after closing a pension plan. Doonan pointed to Alaska, with higher turnover for those hired after its pension plans closed because they might feel undervalued. That state is now debating whether to switch back.

Lawmakers supporting North Dakota’s move argued it was thoroughly vetted with long-term thinking. But Doonan and other skeptics said they worry North Dakota will go down the same path as other states in having to deal with unintended consequences.

He encouraged states to be creative in addressing an underfunded pension system without making a controversial switch.

“We see other places where the benefit designs are designed to share some risk with workers and retirees and that helps them keep costs stable but still offer that core benefit employees like,” Doonan said. “That makes it common so that when you walk into a school, the first teacher you meet might have twenty years [of] experience.”

Doonan added that states with higher employee turnover after a pension plan has closed are essentially paying to train public workers who might leave for another state.

It’s unclear if North Dakota lawmakers will revisit the issue on a larger scale anytime soon. The next scheduled regular session is set for early 2025.

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