Politics and Pension Governance: What’s Happening in North Dakota?

• By: admin
• On: 08/07/2023 13:33:24
• In: Pension Defense
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By: Bridget Early, Director of Membership & Strategic Alliances, NCPERS

Earlier this year, state lawmakers passed and Gov. Doug Burgum signed into law two major bills that will cause significant changes to the North Dakota Public Employee Retirement System (NDPERS). The first, HB 1040, levies significant costs to the North Dakota taxpayers and threatens the state's ability to recruit and retain employees. The second, included in the state's budget bill, stacks the board of trustees with lawmakers. Both changes are cause for concern for how lawmakers and public pension systems interact.

HB 1040, which closes NDPERS' defined benefit plan to new employees beginning in 2025, was lawmakers' ‘solution' to the systems' $1.9 billion unfunded liability. It is considered the most expensive bill passed in the state's history with an estimated price tag of nearly $5 billion over the next 30 years. Closing the system to new employees means a loss of dollars from their contributions, and the dollars needed to fully fund the system and pay out benefits is now passed off to the taxpayers.

This is yet another example of the dangers of relying on funding ratios as the sole measure of pension health. Funding ratios only convey a one-dimensional, single point-in-time measurement and do not provide trends and other important context. In the case of HB 1040, policymakers' flawed analysis of the health of NDPERS will have long-lasting implications for thousands of North Dakotan public servants and their families. It also makes the state a less attractive employer, which will make it harder to recruit and retain employees. States such as Alaska and West Virginia experienced these issues firsthand when closing their defined benefit plan.

In addition to the challenges the system will face trying to ensure there is enough funding to pay out plan participants, the legislature moved to make significant changes to the board makeup that defy governance best practices. As part of the state's budget bill, four of the 11 board members are now state lawmakers appointed solely by the majority leaders of the House and Senate. For comparison, only three are elected by active participating members of NDPERS.

In the case of North Dakota, can a board member serve the legislative branch as a state lawmaker and the executive branch as an appointee to the NDPERS board without violating the separation of powers held in the state's constitution? That is what is at the center of a lawsuit brought to the state's Supreme Court by the NDPERS board. Good governance practices are imperative to plan health. When several board appointees have a duty to one branch of government, sitting on a board for another branch creates a conflict of interest that puts the fund at fiduciary risk.

The intersection between pension funds and lawmakers will always exist. What is vital is that these systems work together to drive solutions that protect the health of the fund and not the ideological views of elected officials. When it comes to public pensions, fiduciary responsibilities should always be the primary goal, not politics.