Where does your retirement money come from? For most people, the answer is through a 401(k). However, some North Dakotans rely on pension plans funded by their employer. Rural and urban areas alike use pension plans to fund retirement for a large number of government employees. The expected goal of these plans is to give people financial security. Yet, it is challenging to achieve security when pension plans often carry large debts.
Before the pandemic, North Dakota’s pension plans were funded at about 70 percent. The state’s two largest pension systems, the North Dakota Public Employees Retirement System (NDPERS) and the Teachers’ Fund for Retirement (TFFR), were funded at about 72 percent and 65 percent, respectively.
Underfunded pensions impact everyone in the state, extending well beyond the employees who depend on them for retirement. For instance, the City of Chicago has pension debt so large that it would take just under $27,000 from every taxpayer to cover the debt.
Mistakes made in the past often cost taxpayers in the future; since the government must pay what it promised workers, efforts to lessen pension debt can come at the expense of other public priorities. To avoid making costly mistakes, we must look for ways to raise money for these plans in the short term and improve our pension system for years to come.
Across the United States, pension plans show a wide range of funded ratios — the percentage of the plan currently funded by the government. In 2017, only seven states had at least 90 percent of their pensions funded. This means that many states in the country have very poor pension systems, with some states being funded at less than 50 percent. North Dakota falls in the middle of this range, but that should not be an excuse to be complacent.
Change is needed. Many states raise taxes to meet their expectations but then fall back into the hole. NDPERS was funded much higher 10 years ago, but it fell into this trap of complacency. We must look for a more effective system than bailing out the same plans every few years without addressing cyclical problems. North Dakotans should take the issue of pension debt seriously to better our state’s future.
Meet the Author
Isaac Dubovoy is a Mancur Olson Research Fellow at the NDSU Center for the Study of Public Choice and Private Enterprise. He is an undergraduate studying economics and mathematics at North Dakota State University.