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Now is a perfect time to talk pension reform

Now is a perfect time to talk pension reform

Wayne Hoffman
July 29, 2016
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July 29, 2016

Whether a government employee or a taxpayer, you should be concerned Idaho’s pension system isn’t meeting investment goals.

An underperforming pension system could result in taking more money from employees’ paychecks to pay for retirement benefits. For taxpayers, it may mean higher taxes, reduced services or both.

The pension system, PERSI, disclosed recently the just-concluded fiscal year generated a dismal 1.53 percent return on investments. The target return is 7 percent. It’s the second year of performance misses. The 2015 fiscal year brought in a little more than 3 percent fund growth. Prior years have more than met investment expectations, offsetting the headache a bit.

But two years of less-than-stellar investment performance means government agencies are starting to worry they’ll have to put more money toward retirement. Taxpayers already contribute more than 11.3 percent of payroll for general government employees. Increasing that contribution rate would force local taxing units to collect more from residents or reprioritize other needs.

For employees — most of whom contribute, 6.79 percent of their salaries to the pension system — take-home pay could go down if mandatory contribution rates go up. The most recent increase in contribution rates came three years ago.

Idaho officials like to boast that their pension system is among the best-run in the nation, and it may well be. But it’s an expensive affair, a burden shouldered by taxpayers and government employees.

Changes to the retirement system can be made so that promises made are promises kept — for existing employees and retirees who were long ago guaranteed a pension check. For new employees, changes can mean more choices on how to invest retirement savings — whether to remain in a pension program with lower net pay and a set retirement benefit calculated on years of service and salary history. Or they might opt for a more portable 401(k), with higher take-home pay and benefits based on the health of an individual’s investment account.

Utah and Oklahoma not so long ago made well-received changes to their pension approaches, providing greater choices to government workers regarding retirement options and increased net pay. Arizona also recently modified its pension system. Government workers and pension reform advocates hailed the changes because they protected employee benefits while improving the long-term financial viability of the pension system.  

State lawmakers are just beginning a summer review of state employee benefits. While mainly focused on rising health insurance costs, they’re also supposed to address related factors impacting employee compensation. That, of course, should include retirement benefits and possible changes to the pension system that’s been in existence for more than 50 years. The beneficiaries of that discussion are retirees whose state pension fund will be strengthened, government employees who might get to realize higher take-home pay and more options on how to save for retirement.

Taxpayers could save millions dollars from a modernized retirement plan. Sounds like something worth discussing, regardless of how good or how disappointing PERSI’s most recent annual return on investment may be.

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