Helmut Schmidt, Published January 03 2011
School districts brace to shore up fundA possible fix for North Dakota’s depleted Teachers’ Fund for Retirement calls for employer and employee contributions to rise 4 percent annually over the next two bienniums.
The cash-infusion plan is a leading contender to stabilize the fund going into the legislative session.
But local school administrators say it could also make teacher contract talks tougher.
The fund was badly eroded by the 2008 and 2009 market meltdown.
Other potential fixes for the fund include changing retirement eligibility rules, though adding state money to the pot didn’t get a favorable review from a legislative interim committee, says Fay Kopp, deputy director and retirement officer for the state Retirement and Investment Office.
“It’s going to be a difficult pill for everyone to swallow,” Kopp said of the costs.
In 2007, TFFR had a market value of more than $2 billion and could pay 80 percent of its obligations, Kopp said. It was healthy.
But when the markets slid in 2008 and 2009, so did the fund, its worth sagging to $1.3 billion before clawing back to $1.4 billion this summer, Kopp said.
TFFR now has less than 70 cents on the dollar to pay debts. That drops to 50 cents in four years without changes, Kopp said.
If nothing is done, the fund will go belly up in less than 30 years, she said.
“We have to bend that curve back” to get back to adequate funding levels, Kopp said. “It certainly is a challenge, but it is not insurmountable.”
Several plans studied
The interim Legislative Employee Benefits Programs Committee reviewed several plans this year.
The leading fix is Interim Study Bill 54, Kopp said.
Its components include:
- Raising employee (teacher) contributions 4 percent over two bienniums from its current 7.75 percent. The rate would go to 9.75 percent in July 2012 and to 11.75 percent in July 2014.
The employer (school district) rate, now at 8.75 percent, would rise to 10.75 percent in 2012 and 12.75 percent in 2014.
The rates would roll back to current levels once TFFR hits the 90 percent funded mark, Kopp said.
- Requiring re-employeed retirees to pay employee contribution rates starting in July 2012.
- Tightening some requirements for disability benefits.
- Modify unreduced retirement benefits and the reduction factor for reduced retirement benefits.
It would bring the TFFR funded level back to 80 percent over 30 years, Kopp said.
A similar bill includes the same changes, plus a request for $75 million from the state general fund.
It would bring the TFFR funded level to 90 percent in 30 years, but it did not get a favorable review.
Several other bills suggest changing retirement eligibility rules, or even the type of plan offered, for new hires, Kopp said.
Tougher teacher talks?
Dakota Draper, president of the North Dakota Education Association, said his group helped craft Bill 54.
“We’re for that. We realize it’s something we need to do. We think it’s (TFFR) worth saving and it’s a good fix,” Draper said.
It’s good for the economy, too, he asserts, saying every dollar in a defined benefit plan returns $9 in economic development.
But he said he’s unsure how it will affect contract talks.
For example, West Fargo School District pays both sides’ share of the cost, while in Fargo, each party pays their own share, Draper said.
The top administrators for Fargo and West Fargo schools say if the contribution rates rise that it will affect talks.
If much of any new K-12 funding from the Legislature is consumed fixing TFFR, that could cut into what is available for other compensation, West Fargo Superintendent David Flowers said.
“That doesn’t make for pleasant negotiations,” he said.
“That would take a big bite of the available funds to provide any increases in compensation if that were to happen,” said Rick Buresh, Fargo’s superintendent.
“It sounds like 2 percent and 2 percent. Well, who couldn’t absorb 2 percent? But that’s really a 50 percent increase in contributions (over four years). So it would be a significant impact on both the faculty and the School District if we have to do it.
“If we have to do it, we’ll make it work. But I guess I’m looking forward to seeing a number of different proposals,” Buresh said.
Flowers said 41 percent of the state’s school districts pay both halves of the retirement contributions for their employees like West Fargo, he said.
With increased TFFR rates, the cost to those districts approaches 25 percent of each employee’s salary, Flowers said.
“That’s a bit alarming. However, we do think this is going to take some pain,” he said.
Buresh said he’d like to see a combination of funding increases and changes to benefits “that would be equitable and fair and something we could all afford,” before committing to any one plan.
Readers can reach Forum reporter Helmut Schmidt at (701) 241-5583