February 20th, 2015 Is Pension Reform Dead? Pension reform is an issue that has been a hot topic since the market collapse of 2007-08 left the state

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February 20th, 2015


Is Pension Reform Dead?


Pension reform is an issue that has been a hot topic since the market collapse of 2007-08 left the state’s pension retirement funds hurting. The momentum was not there to reform the plans because the shortfall was so high and legislators, even if they wanted to reform the plan, did not want to spend the money needed to prop up the current plan to ensure that people got the benefits they were promised.

It’s pretty clear by the actions of the legislature this session that pension reform is not in the cards – at least until the next market collapse.

Senate Bill 2038 was part of an attempt to close the door on the current pension plan and have new state employees put into defined contribution plan (as much of the private sector had done in previous decades). Unfortunately, it was part of a fairly convoluted funding scheme tied together with school construction funds, so the Senate defeated the bill which only got 8 votes in favors of it.

Everyone knew such a reform would be tough since the effort to do the same thing in 2011 failed by a single vote in the House (and the House is the more conservative of the two chambers).

But to make matters worse and put a large nail in the coffin of pension reform, House Bill 1154 would have allowed those employees who already voluntarily moved to the Defined Contribution plan to return to the Defined Benefit plan. Passage of this bill would have been a significant step backwards for the cause of pension reform.

HB 1154 failed in the House by only 8 votes – receiving a significant number of Republican votes, which is rare for a Democraticly sponsored bill to do – especially in the House.

The state PERS Plan has "improved" to 78% solvency (Page 50 of the most recent CAFR which is a good improvement from where it was in

("Improved" in quotes because it means the situation is less bad than it was, but certainly not "good" yet.)

However, these numbers are from June 2014 - and NDPERS is heavily exposed to the foreign currency markets (Page 37 of the CAFR) -which have been in turmoil since the report's close date.

Just how exposed is PERS to the foreign currency markets?

From 2013 to 2014 the fund's overall Net fiduciary Position increased from $1.957 billion to $2.281 billion - an increase of $324 million.

The plan's Foreign Currency position grew from $394 million to $596 million - an increase of $202 million - a full 62% of the entire funds increase.

Since June 2014, as anyone watching the market knows - the US Dollar has surged because the major foreign currencies have lost big time against the dollar. This is why oil prices have fallen so much.

If the fund managers did not take appropriate steps during the US Dollars' surge, then the gains of the previous year could have been wiped out since the currency situation started the month after the closing date on the report.

Have legislators asked fund managers about this?

In any case, while the need for pension reform remains, the will to do it is less than ever it seems.

It looks like it will take something very bad to make that happen.


-Dustin Gawrylow, Managing Director

North Dakota Watchdog Network

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