Hartgen defends increasingly expensive government pension system

Hartgen defends increasingly expensive government pension system

by
Dustin Hurst
November 3, 2016
Dustin Hurst
Author Image
November 3, 2016

On Wednesday, Rep. Stephen Hartgen, R-Twin Falls, defended Idaho’s increasingly expensive government-employee pension system.

Hartgen serves as a key legislative voice on the issue. As chairman of the House Commerce and Human Resources Committee, Hartgen holds the power to block any fiscally responsible reform to the costly Public Employee Retirement System of Idaho (PERSI).

In response to a KTVB news article questioning the pension program’s finances, Hartgen wrote in a social media post, “The state retirement system of Idaho is considered one of the best managed in the nation, and I'm chair of the House committee which oversees it. The PERSI site is transparent and the fund's resources are there for anyone to see.”

KTVB reported Tuesday, the pension system will ask state workers and taxpayers to spend even more to keep the struggling fund flush with resources. At its October meeting, the PERSI oversight board voted unanimously to increase pension contribution rates, from employers and employees, by a combined total of 1 percent.

That means the state, cities, counties and school districts will have to find more money to cover pension costs if Idaho lawmakers accept the PERSI board’s recommendation.

According to KTVB, taxpayers would spend an extra $27 million on pensions under the proposal. Government employers would bear $17 million of that, while employees would pitch in about $10 million from their paychecks.

Of the $17 million, $5.5 million of that would come from Idaho school budgets.

This is the second time in as many years that the state pension system has hiked rates, thus grabbing money from programs and schools. The most recent rate increase, which took effect in 2014, cost governments about $50 million a year. Of that, schools were forced to pay about $7 million more per year for pensions.

Still, Hartgen denied that pension contribution rate increases take money from Idaho classrooms.

“It doesn't take money from ‘classrooms and teachers,’ but provides more than 780 employers, including cities, counties, irrigation districts and many schools a way to secure their employees' retirements,” Hartgen wrote.

He further defended the 1 percent rate increase, characterizing them as necessary for the fund’s health.

“Rate adjustments from time to time keep both the inflow and outflow in line,” Hartgen added. “We've had a number of those over the years and they're transparent to all, as is this proposal.”

PERSI’s adjustments have only created a more expensive system.

According to actuarial giant Milliman, PERSI has increased its contribution rates four times since 2003, bumping government employer contributions from 9.8 percent that year to 11.38 percent of a worker’s pay this year.

Government employee rates jumped from 5.86 percent of pay in 2003 to 6.79 percent this year.

If lawmakers accept the PERSI board’s proposal, government employers would pay nearly 12 percent, while employees’ contributions would top 7 percent of pay.

PERSI, which holds more than $15 billion in total assets, boasts an unfunded-liability gap of more than $2.21 billion. As of June 30, 2016, auditors say the system was only about 86 percent funded.

Investment returns this fiscal year, which started July 1, 2016, have done nothing to help the shortfall. PERSI plans a 7 percent return on its investments each fiscal year, but has not hit that projection three years in a row.

The system is on track to miss its investment return target again this year. As of last week’s meeting, PERSI investments have returned 1.9 percent for fiscal year 2016, but dropped by 1.4 percent for the month of October.

Like many other government pension systems across the country, PERSI suffered significantly during the 2009 recession, when the program’s funding gap reached more than $3 billion. By 2015, investment returns and wage growth chiseled that gap down to $1.56 billion, before it shot up to $2.21 billion this year.

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