The state’s pension system wants to take more money from Idaho classrooms and government workers to shore up its struggling finances.
The Public Employee Retirement System of Idaho (PERSI) oversight board voted last week to increase contribution rates that government employers and employees pay to keep the fund solvent.
Rates will increase by a total of one percent, that is, if Idaho lawmakers accept the board’s recommendations. Lawmakers might not have much of a choice: Idaho law dictates the government keep the retirement account funded at a certain level and take action when it drops below a certain amount.
The program, which has struggled to achieve its investment return projections in the last few years, has dropped past the law’s allowable lower limit.
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 seven percent return on its investments each fiscal year, but has not hit that projection for three years.
The system is on track to miss the 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 pension system 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.
If Idaho legislators accept the board’s suggested rate hike, they will continue the trend of spending more every few years to prop up the pension program. The state has increased the contribution rate five times since 2000 when employers paid 9.80 percent of a worker’s salary toward her pension, and the employee paid 5.86 percent.
Government employers now pay 11.32 percent, while employees pay 6.79 percent into their retirement accounts. Those rates will increase should Idaho lawmakers approve the PERSI board’s recent suggestion.
Idaho last hiked public employee contribution rates in July 2013. That rate increase cost state and local governments more than $50 million in fiscal year 2014. As a result, Idaho schools paid about $7 million more in retirement costs that year.
It’s unclear how much the proposed contribution rate hike would cost workers and taxpayers.