Legislative Reports & Updates, Reports & Updates from Rick

Rep. Rick Holman • Nov. 5, 2013 Report

State Employee and ND Teacher Retirement Funds.
As I was walking from the motel to the North Dakota Capitol last Wednesday morning I came across another person walking to work. Our conversation led me to find out that she had been working in the ND Health Department for 39 years. Having stayed in one job with one employer for all of her working career is certainly unique in this day. From my own experience, I have worked for several employers, including myself. I have spent significant time as a public school teacher, a farmer and a college professor, but also part-time as a carpenter’s helper and real estate agent.  
The North Dakota Legislature meets for four months, every two years to pass legislation, but all legislators have responsibilities during the other 20 months. Interim Committees made of both Senators and Representatives study issues in depth with and prepare legislation for the next regular session. The Government Services Committee that I serve on is examining the State Employee and Public School Teacher retirement policy.

In 1934, during the depression, President Franklin Roosevelt and the US Congress instituted Social Security to provide all Americans a more secure retirement. Up until that time, many Americans were retiring into poverty. As a result, millions of people have been able to look forward to a monthly retirement income to provide them retire with basis of financial security. More recently, the economic downturn of 2008 has placed a strain on the Social Security system, as well as all public and private retirement funds. Eighty years ago, the life expectancy of a person was much lower than now. Currently, someone with forty years in the workforce may look at needing retirement income for the next thirty years. The good outcome of people living longer and healthier has created a new situation. How can forty-five years in the workforce create a fund to support thirty years or more of retirement?

In late October, the PEW Charitable Trust Foundation called together experts from around the country to examine and discuss pension fund options for teachers and public employees. I was fortunate to be one of five Legislators from North Dakota who were invited to learn from their expertise. The Government Finance Committee has been assigned the study of pension plans for state employees and teachers. By looking at models from other states we can learn from their experience as we examine and try to find what’s best for North Dakota’s teachers and public employees.

The discussion centered on the two most common models for retirement funding. A Defined Benefit (DB) plan requires employee and employer to pay in to a fund with the employee guaranteed a benefit based on salary and time of employment. Most classified state employees and teachers are currently members of a DB plan. Some states make cost of living adjustments but ND does not. The other model, the Defined Contribution Plan (DC), sometimes called a cash balance or 401K retirement plan, is used by most private sector businesses as well as many individuals. The return at retirement is tied to the amount of money plus earnings that has been placed in the fund by the individual employee and employer. The DC plan allows the employee to pick how much and how long to receive the benefit in the accumulated fund.

The problem; The Defined Benefit plan, because of the economic downturn does not have enough in the fund to guarantee sustained benefits. For the same reason, Defined Contribution plans decreased in value, drastically cutting the amount of monthly income available for retirees. Going forward, the ND Legislature, working with all stakeholders must find out what type of plan is best for the over 31,000 people who are part of ND plans. There are 10,138 active and 7,489 retired teachers, 21,115 active and 7816 retired state employees. 31, 253 people are paying in to a fund that supports 15,305 retirees (49%).

Going forward, several things are important when analyzing potential changes.

1. How much is needed in the fund to make it sustainable.
2. What is the benefit level that when combined with Social Security will provide a secure retirement?
3. How can the benefits be transferred to another job, i.e. be portable. Half of all teachers nationally, leave the profession within five years. Most young people change jobs several times before settling into longer term employment.
4. What is a reasonable and reliable return on investment as funds move forward?
5. How much insulation from market forces, while receiving a good return is necessary to maintain a credible balance?
6. What is the age at which someone should be able to begin drawing retirement funds?

Two presentations, one from Georgia and one from Wisconsin showed us a balanced approach combining the Defined Benefit and Defined Contribution plans. These Hybrid plans, managed by the state provide security for both the employee and the state with a predictable outcome. Protected from severe downturns, such as we experienced in 2008, future retirees are able to know and plan for retirement by blending other sources of income such as Social Security with their government supported retirement plan

As we continue to deliberate changes to the state retirement system, we will continue to listen to the many stakeholders. Our goal must be for those who provide government services and those who teach our children to retire without having to make major changes in lifestyle due to lack of resources.
Rep. Rick Holman, ND District 20

Rick Holman
622 153rd Ave NE,
Mayville, ND 58257-9000
701.238.1124   701.788.2081
We now have a world full of scientists who have no faith and
the faithful who have no reason, and that’s a great loss for
all of us.  Elizabeth Gilbert author of Eat, Pray, Love.


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