It appears that Idaho’s pension program may be one of the most solvent in the nation, based on a study released last month by the Pew Center, a national research and polling institution.
The Pew study says the average state pension sits about 75 percent funded as June 30, 2010, though there are wild variations among the states included in the report. New York State’s pension fund, for example, was funded at about 101 percent, while the state of Illinois was at 51 percent.
As of April 28, Idaho’s pension fund is at a 91 percent funding level, the highest point in the past few years. The goal for a fund like Idaho’s is 100 percent. The fund is now estimated to be worth about $12.1 billion. According to Patrice Perow, communication director for PERSI, the fund is enjoying a 21.5 percent rate of return on investments. That is one of the highest rates the agency has seen since the 1980s.
That amount is a rebound from losses taken due to a down economy in the past few years. On April 28, 2009, the fund was at $8.5 billion and experiencing a negative rate of return of more than 20 percent on market investments.
Even with the improvements, an unfunded liability remains. The state is still short about $1.15 billion for the program, though that pales in comparison to some states. Research suggests that the funding gap in Illinois is approximately $82 billion, a number that could reach $130 billion by 2030 if no reforms are implemented.
The rates paid by the state and local government to fund employee pensions are scheduled to be hiked through the next four years, but the increases could be delayed or eliminated altogether if the fund improves, a move that would save Idaho taxpayers money.
Hikes are pricy for government entities and ultimately the taxpayers who fund them. The first increase, scheduled to take place July 1, 2011, before it was delayed due to a request from Gov. Butch Otter, was projected to cost the state $15 million. Cities, counties, and other local governments would have also been forced to fork over an additional $25 million to fund pensions.
The hike that was supposed to take effect July 1, 2011, was pushed back in December 2010 after Otter asked the board to do so thereby helping the state balance its budget.
“Since a one-year postponement of the PERSI rate increase would assist the executive and legislative branches in balancing the state’s budget for fiscal year 2012, I am today formally requesting that the PERSI board take that action,” Otter wrote to panel chair Jody Olson on Dec. 1, 2010.
The board has given no indication that it is considering delaying or eliminating the scheduled rate hikes. Board trustee Joy Fisher of Moscow told IdahoReporter.com Tuesday, “We have not had that discussion,” Fisher said. “They’re (the rate hikes) on the books.”
Don Drum, PERSI’s executive director, said that though the board takes outside influences into the equation when considering action on the fund, final decision comes from its trustees.
“That’s what their role is,” Drum explained, “to protect the health of the fund at all costs and regardless of political pressure.”
Drum said that if the fund had not been healthy enough to sustain a delay in the rate hikes, that trustees would not have gone that direction last December. “They feel they act independent of the political process,” he explained.
But Otter and his team want investment returns to close the gap instead of the rate hikes. The governor’s office has expressed hope that the rate hikes would never take effect if the market rebounded appropriately. Rep. Fred Wood, R-Burley, a member of the budget-setting Joint-Finance and Appropriations Committee, has said that at the current funding levels, the state can invest its way out of the unfunded liability.
Wood told IdahoReporter.com that he is happy with the performance of the retirement fund. “I think it’s very well-run and very conservatively-run,” said Wood. “I’m not concerned about it at the 95 percent funding level.”
The Burley Republican avoided taking a position on if the rate increases should be delayed again or eliminated altogether. “I would have to rely on them to determine that,” Wood said of the PERSI board. He did say that the improving health of the fund would give PERSI trustees more flexibility in deciding if hikes should eventually be implemented. “It just gives them added time to see if they are needed,” Wood explained.