State lawmakers last week very nearly fumbled on an issue with massive implications for taxpayers. It happened Wednesday when the House State Affairs Committee voted 13-5 to reject a proposal to block a 1 percent cost-of-living increase for retirees on the state’s pension program, the Public Employees Retirement System of Idaho (PERSI).
The lawmakers on the committee were ill-informed about the severity of the pension program’s ongoing financial issues. After learning the full scope of the problem, the panel came back the following day, reversed course and agreed to block the cost-of-living increase.
The vote threw a spotlight on an issue seldom discussed around the Statehouse. PERSI had a $3 billion unfunded liability as of July 1, 2009, due to investment loses and insufficient contributions relative to benefits.
The pension fund has bounced back somewhat since last summer, thanks to a resurgence in the stock market, but the unfunded liability is still at roughly $2.6 billion — the size of the entire state general fund budget. Public employees and taxpayers funnel nearly 17 percent of combined government payrolls into PERSI. Of that amount, taxpayers contribute 10.44 percent.
Here’s where the pain comes in: According to PERSI’s independent actuaries, the state would need to increase both employee and employer contributions in order to keep the fund solvent under state statute.
“The current contribution rates are not sufficient to pay the interest accruing on the (unfunded liability). This does not meet the 25-year amortization period limit required” under Idaho law, Robert Schmidt, Mark Olleman and Geoff Bridges wrote in their report to the PERSI board last summer. A contribution rate increase of more than 4.5 percent, they calculated, would solve the problem. Such an increase would cost more than $127 million just this year, to be borne by employees and taxpayers, with the bulk being subsidized by the latter.
Stopping the state’s 33,000 retirees from receiving a 1 percent cost-of-living increase on their pensions aspires to just scratch the surface of the problem. Rejecting the increase would potentially reduce the unfunded liability by a mere $60 million.
But some folks might consider $60 million real money, and they’d be right. Moreover, the state’s pension system is in better shape than some others across the country, but the fund’s hurting-but-better-than-the-rest financial condition comes at great expense to taxpayers.
Forcing taxpayers to subsidize employee retirement programs to the tune of 10.4 percent of public payrolls a year is unsustainable. Private sector retirement contributions are nowhere near as unsparing.
It is because the PERSI retirement benefits are overly generous and the necessity to be actuarially sound that taxpayers pay so much. And because the payment by taxpayers is insufficient to get the job done, taxpayers will at some point in the very near future be asked to pay out even more. (The actuary recommends the state pay 12.99 percent of payroll).
A smarter approach would be to convert the state’s defined benefit plan to a defined contribution system where the state is contributing a set percentage to each employee’s retirement investment, and it’s up to each employee to maintain the fund.
If that course of action isn’t obvious yet, it soon will be, especially if taxpayers are asked to take another bullet for the state’s retired public employees.
- Wayne Hoffman is the executive director of the Idaho Freedom Foundation, a nonprofit, non-partisan think tank. E-mail him at wayne@idahofreedom.net.
Comments
PERSI and Compensation for Govt WorkersSubmitted by bdaniel230 (not verified) on Sat, 03/06/2010 - 12:19.
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I am so very sick of government employees telling people that they deserve or that they want or that they feel they are being singled out. It is garbage that they don't make commensurate wages when compared to the private sector. If that were true they would work for the private sector. In fact government jobs pay more, much more when you factor in the paid time off, health and dental insurance and other benefits including PERSI.
Most of the private sector jobs have had cuts and elimination of benefits yet government jobs see pay increases and increases in benefits and if the taxpayers complain we are told we are ungrateful! Garbage!
I know for a fact that in my job I am paid well, not great but well, for my talent level and experience. The state employee with the same qualifications and experience is being paid 20% more in hourly wage. I have taken a hit in benefits, insurance and paid time off, but when the government employees are given the hint there may be time off they whine line ten year old children that haven't had a nap.
It is time that the government employees get the picture and realize the taxpayers are being squeezed much harder than government and we are paying their wages. The argument of they are paying their own is ridiculous! If they were being paid just what they contributed they would be better off flipping burgers at a fast food restaurant.
And don't get me started on teachers and their "low paying" part time jobs. Teachers are getting paid $25-60K, depending on tenure and time in grade, for 180 days of work and on top of that get insurance and paid time off they are making much more than their salary.
PERSI must either go private or we need to reduce the amount the state contributes to less than 50%. Private sector employers do not contribute more than single figure percentages of an employees wage or contribution, depending on the plan, but the PERSI is receiving double digit percentages!
Either PERSI comes to a reasonable, in line with private sector plans, funding or it needs to be abolished! Thanks to a government worker I lost my entire retirement plan 10 years ago and I had no right of appeal or avenue of grievance! I will probably only receive social security IF ANOTHER GROUP OF GOVERNMENT WORKERS DOESN MESS THAT ONE UP FURTHER!
STATE EMPLOYEE RETIREESSubmitted by Francis525 (not verified) on Wed, 03/03/2010 - 01:06.
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We shouldn't be giving state retirees a COLA when the Social Security formula for us poor people feels we don't need or deserve a COLA for 2010 or 2011. I am tired of the common man carrying government workers on our bloodied backs until they are dead. They need to suck it up and do with what they get like the rest of us.
Score One for the little peopleSubmitted by Spammer (not verified) on Wed, 02/24/2010 - 10:42.
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While the staff of the Idaho Freedom Foundation continue to hide their balance sheet and contribution records, the day-to-day line worker, both past and present can take a small victory here. A special thank you to Sen. Andreason for realizing that PERSI has PROFESSIONALLY TRAINED financial experts that have the know how and desire to look after the best interest of the retirement system of the employees that PERSI represents.
While I am sure that the Idaho Freedom Foundation would give anything to see that the entire PERSI fund, both employer contribution and employee contribution completely dissolved and sent back to the State General Fund (over $10 billion), I can feel safer that for at least one more day, my retirement package will not suffer the same fate as Social Security.
I would consider the Idaho Freedom Foundation to be a lot like high-priced defense attorneys. They seem to take great pleasure by making money from a few people to ensure the pain of many. It would be easier and a lot closer to full disclosure if Mr. Hoffman would simply say that he has nothing but disgust for each and every government employee at every level of government. At least then, we would ALL know the obvious truth.
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