In North Dakota, public employees are the backbone of the community. Every day they get up in the dead of winter and serve the people with dignity. They plow the roads, protect you from fire and crime, and manage essential initiatives like flood mitigation. Most importantly, they’re your neighbors, perhaps your kids' hockey coach or a dedicated customer at your business, and many likely sit in the next pew over on Sunday mornings. They’ve dedicated their working careers to bettering North Dakota.
This year, lawmakers in Bismarck are considering HB 1040, which would have a disastrous effect, taking away future employees' defined-benefit pensions. Doing so is fiscally irresponsible. The bill will harm the recruitment and retention of public employees, jeopardize the retirement security of career public servants, and threaten the state's economic stability and, with it, the North Dakota way of life.
For the last year, lawmakers have been studying switching future employees from participating in the North Dakota Public Employees Retirement System (NDPERS), a defined-benefit pension plan, to a defined-contribution 401(k) retirement plan. The bill would cost $5.5 billion. North Dakotans cannot afford this risky gambit.
Lawmakers are seriously talking about spending $5.5 billion in taxpayer dollars over 20 years to destroy the kitchen-table finances of North Dakota's hard-working educators, nurses and public employees. States like West Virginia made a similar switch and saw their pension funds' unfunded liability skyrocket.
After decades of underfunding, West Virginia closed their teachers' pension system and moved all new teachers to a 401(k)-style system. Ten years after the switch, the funding of their legacy pension system sank to 25%. A thorough 2005 evaluation then led the state to reboot the pension plan. Reversing the course, though, is very costly. If the Legislature chooses this course, future costs to reopen the plan will come on top of today’s already huge $5.5 billion price tag.
ADVERTISEMENT
Beyond the significant fiscal impact, this bill would further worsen North Dakota's ability to recruit and retain vital government workers. This year, Oklahoma and Alaska are considering reopening closed pension plans because they've failed to onboard enough public workers, undermining core public services.
On average, public employees make less money than their counterparts in the private sector, and a pension is one way to lure capable individuals to the public sector and keep them. Also, what will prevent future state employees from Fargo, Grand Forks, Ellendale or Williston from receiving their training in North Dakota, and then working in Minnesota, South Dakota or Montana, where public employees are promised a pension?
North Dakota is justifiably known for its high quality of life, evidenced by numerous national rankings. Public employees and public employee pensions support this culture directly and indirectly. The National Institute on Retirement Security found that in 2020, state and local pensions yielded $598.5 million in total economic output, 3,725 jobs, and produced $63.8 million in federal, state, and local tax revenues.
Legislators have a choice. Do they want to support Game and Fish workers, education support professionals, and nurses who maintain and protect the Peace Garden State quality of life? Or will they choose the West Virginia approach, emulating a state that ranks near the bottom of the same livability metrics North Dakota now touts?
HB 1040 is wrong for North Dakota. It is fiscally irresponsible, worsens the state's existing public sector recruitment and retention crisis, and harms the economy. North Dakota should heed the warning of peer states that have made this terrible decision in the past – it will only make things worse and hurt the state's hard-working public employees.
Killian is executive director of the National Public Pension Coalition.
The Trust Project
