New Report Says Iowa Pension Fund in Good Shape

By James Lynch, Reporter

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By Aaron Hepker

DES MOINES, Iowa - Iowa public employee pension systems are financially sound, however, the Legislature should “top off” those funds to ensure the state meets its obligations, according to a report from an Iowa City-based think tank.

Iowa, like most state, has generally healthy and well-managed plans built to provide retirement benefits to Iowans who retire from state and local government jobs, according to an analysis by the Iowa Policy Project. The researchers said Thursday they found no likeness to highly publicized pension problems in Detroit and Illinois.

“Our system is strong. That’s the final word,” IPP researcher and former legislator David Osterberg concluded.

In Iowa, Imran Farooqi, an economist who teaches at area colleges and lead author of the report, public employee retirement systems serve a number approximately equal to 10 percent of the state’s 3 million residents.

“So if anything happens, there is a huge overall impact on the state,” he said, adding that appears unlikely to happen.

“Our central finding,” Farooqi said, “is these systems are financially very strong and are doing the job they were designed to do.”

Despite two steep declines in the stock market over the past decade – the dotcom bubble and the Great recession, Iowa pension systems “have weathered the storm,” Farooqi said.

He was not concerned by the unfunded liability of the pensions, but advised the Legislature to shore up the Municipal Fire and Police Retirement Systems of Iowa, the Peace Officers Retirement System and the Iowa Judicial Retirement Systems, which, unlike the Iowa Public Employees’ Retirement System, are not considered fully funded.

IPERS is about 81 percent fully funded, which in actuarial terms is fully funded. The Peace Officers fund, for example, only is 61 percent funded.

Earlier this year lawmakers’ approved a $109 million plan to bring all the funds up to approximately 80 percent, but that was vetoed by Gov. Terry Branstad, who said he wanted to see “significant reforms.”

Although he made no recommendation, Branstad noted that defined benefit pensions are being abandoned by private sector employers.
The Iowa Policy Project recommended against that.

In many cases, explained the think tanks’ research director and economist Peter Fisher, public employees bargain for wages and benefits, accepting slightly lower wages for better benefits down the road.

Abandoning defined benefits pensions in favor of defined contributions plans may cost employers less, but shifts more cost and more risk to the employees, added Osterberg.

In a defined contribution plan, he said, if an employee’s retirement coincides with as downturn in the stock market, “you are really in bad shape.”

“That doesn’t happen to Iowa public employees,” he said.

It makes sense for the state to bear that risk, Farooqi said, because the state “has the ability to pool the risk with much larger resources.” In Iowa, he noted, pension spending constitutes only 2.2 percent of state and local government expenditures. Forty states spend more.

“At some point we have to stand up, as Iowans, for the obligations undertaken in our name,” Osterberg said. “State, local and school district employees enter public service in good faith, with an understanding that some of their compensation is deferred, or ‘loaned’ to an employer-managed pension account which they should expect to later access in retirement.”

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