State budget guru recommends Idaho switch to a defined-contribution pension system (video)
(Note: This is the part 1 of a three-part interview with Bob Williams, president of State Budget Solutions.)
Bob Williams, president of State Budget Solutions, a think tank committed to promoting fiscal security among local governments, says Idaho needs to switch its pension system to ensure healthy state finances.
Williams, in Boise Tuesday to discuss pension reform with state legislators, told IdahoReporter.com that Idaho’s retirement program is hurting taxpayers, who can’t afford to contribute to their own nest eggs. “The day of reckoning has come,” Williams said in an interview. “Taxpayers can’t afford this.”
For most state workers, Idaho offers a defined-benefit plan, meaning the state pays out a defined amount in retirement based on employee wages and duration of time in public service. Employees contribute about 6 percent of their wages to the system and the state pitches in an additional 10 percent.
Instead of that model, Williams is advocating Idaho move to a defined-contribution system, in which workers and the state contribute a set amount each month to a market-based 401(k) investment account.
Critics of the defined-contribution system argue that it’s too volatile and has no guaranteed outcomes, while those opposed to the defined-benefit program say it’s too expensive and unfair that public workers receive better retirements than their private sector counterparts.
Williams agrees with the argument that retirement risks shouldn’t be on the backs of private sector workers. “You can’t expect the state and taxpayers to assume 100 percent of the risk,” Williams warned. “You can’t do that.”
Idaho’s retirement system currently is about 90 percent funded, but has an unfunded liability of at least $1 billion. While the program, known as the Public Employee Retirement System of Idaho (PERSI), had its best year of returns in 2011, achieving 20.9 percent back on its investments, the system is down more than $400 million this year.
Some of Idaho’s public employee unions, including the Idaho Public Employee Association and the Idaho Education Association, are on record against switching to the defined-contribution program because they, like others, see it as less stable than the defined-benefit program. Williams says the switch, already made in many higher education institutions across the country, would likely mean more money for teachers – especially classroom veterans – overall.
“You never hear any complaints from higher ed over their pension system,” Williams said. “It’s amazing.”
A number of lawmakers, including Reps. Jeff Thompson, R-IdahoFalls, and Ken Roberts, R-Donnelly, have pondered switching over to the defined-contribution system. Others, like Reps. Dennis Lake, R-Blackfoot, and Fred Wood, R-Burley, believe the system is fine as is.
Coming Wednesday: Williams discusses how to prevent abuses of a pension system. Video for series by Mitch Coffman, IdahoReporter.com.