MINOT, ND — Dear readers, I would like to tell you about a very interesting meeting of the House of Commons Government Operations Committee held today in Bismarck. But before we get to the point, we need to explain some backstory. Because the fight over pensions going on in Bismarck probably isn’t on your radar.
Making policies such as pensions is a moral hazard. This is largely because those who set policy are, temporarily speaking, far from the consequences. The financial choices being made today may not be felt until years or even decades from now.
Imagine a slow-moving ship. One captain and crew decides to start the turn, but by the time the turn occurs, there is an entirely new captain and crew. There is a lot of temptation for current leaders to make appropriate and politically expedient decisions here and now, knowing that the effects will fade as soon as they appear.
Being able to trust politicians to be reckless and short-sighted is one reason why North Dakota must move away from defined benefit pension plans for workers.
These plans guarantee workers specific retirement benefits and make them politically popular, at least when they are launched. However, these guarantees are based on uncertain returns.
When the economy slows down, the stock market crashes or the government makes unwise investments
Taxpayers get bogged down in pension relief.
There is a discussion in Bismarck represented by
Over moving the civil service retirement pension plan from defined benefit to defined contribution, the kind most of us in the private sector have. While this is easy for new hires, dealing with employees who are already in defined benefit plans can be cumbersome.
Pensions use contributions from young workers and investment returns to pay benefits to retired workers. But if younger workers don’t join the system, funding will need to come from somewhere to maintain commitment to workers already in the system.
This is where today’s Government Steering Committee meeting comes into play.
Rep. Cory Mock, a Democrat from Grand Forks who recently had to say he’s no friend of the transition from defined benefit pensions, said:
(Budget of the Office of Management and Budget) This should have done two things.
First, we will fund $20 million for amendments to HB 1040 that create incentives for recently hired workers to transition from defined benefit to defined contribution pensions.
Republican Rep. Robin Wise put that amendment into the bill, and it’s a smart move (I couldn’t help it). Unfortunately, the sensible Wise Amendment (sorry) was not funded. Mock’s revised proposal puts its money into it.
Another thing the Mock Amendment would do is begin the process of funding benefits for workers remaining on defined benefit pensions through 2024 instead of 2026. This is important. Once you start the process of funding the transition, that money will start earning interest sooner, making the entire transition cheaper for taxpayers.
Mock is comparing a 20-year mortgage rather than a 30-year mortgage. The monthly payment is cheaper on the latter, but the overall cost of the loan is cheaper on the former.
However, during an early morning meeting with House Republican leadership, the mock amendment was dropped, according to Rep. David Monson, chairman of the committee, at an 8 a.m. meeting of the Government Steering Committee. given reason? Monson said House leaders said it was “not necessary.”
Mock was the only member of the committee who opposed the removal of the Amendment. He said delaying lawmakers to fill the revenue gap left by workers moving out of the system would “add $500 million to the cost of shutting down the entire program.” claimed.
Politics at play is interesting.
Opponents of this transition, Mock, are concerned with exposing its costs to make it politically unacceptable. The higher its cost, the easier it is to claim expedient relief from the status quo.
Pension reform advocates are interested in downplaying these costs. However, this is a dangerous game. Because the cost is real. The math mock based on his modification is correct. Carrying out the transition from defined benefit pensions means that current lawmakers must rely on future lawmakers.
Again, given that politicians tend to look for the easy way out, getting caught off guard by unexplained costs to these politicians will stall this transition and cost taxpayers even more. It may take
I understand the political argument for manipulating timelines to hide some of these costs. It’s good politics, and it may make HB 1040 easier to pass now, but good politics often doesn’t make for good in the long run. policy.
