Iowa pension fund said to be facing shortfall
DES MOINES, Iowa -- A consultant says the Iowa Public Employees' Retirement System faces a $1.2 billion long-term shortfall and needs a 40 percent increase in annual contributions to avoid slashing retiree benefits.
"There is a problem here. If we look at the actuarial balance sheet, it doesn't work," said Patrice Beckham, a consulting actuary with the Omaha office of Milliman USA, which examined Iowa's public pension system.
Consultants told Iowa officials this week the pension fund is not in immediate danger of defaulting on payments for retirees, the Des Moines Register reported in a copyright story today. But consultants warn the fund's ability to pay future pensions will only worsen without increased contributions.
The consultants offered several options, but Iowa pension officials said they are focusing on raising contribution rates paid by taxpayers and public employees. The current contribution rate, which has been unchanged since 1979, requires government employers to set aside 5.75 percent of their payrolls for pensions. Public employees contribute 3.7 percent of their wages for a combined total of 9.45 percent.
Iowa pension officials are studying the possibility of gradually increasing the contributions to 13.25 percent over three or four years. Government employers would contribute 7.95 percent, while public employees would pay 5.3 percent. State and local governments and schools would pay an additional $108 million annually, while public employees would pay an extra $72 million per year.
A public worker earning $50,000 a year would contribute $2,650 instead of $1,850 when the contribution rate increases are phased in. A public employee earning $35,000 would contribute $1,855 a year instead of the current annual contribution of $1,295.
"That's too high. I can't afford it because I am just a single parent," said Janet Collins, a 44-year-old vital-records clerk for the Iowa Department of Public Health in Des Moines. She has a child in college and one in junior high.
Collins is one of about 325,000 members of the Iowa Public Employees' Retirement System. They include employees from state and local governments and schools, retirees and former employees.
Tim Young, 48, a chemist for the Iowa Department of Agriculture and Land Stewardship in Des Moines, said he's counting on his state pension for his retirement years. He said he's willing to pay more to keep the Iowa pension fund financially healthy.
"It would be worth it to me. I already have 30 years in, and I am looking forward to it. After you put in enough time, you start to think about these things. If you only have three or four years in, you don't really care," Young said.
Iowa House Speaker Christopher Rants, a Sioux City Republican, said it will be extremely difficult for the Iowa Legislature to increase the state's pension contributions when it convenes in January because of increased costs for employee wages and other spending issues.
"But this is not a problem that we can postpone for five or 10 years. As you get farther down the road, if you are not putting
that money in, you are looking at even higher contributions," Rants said.
The Iowa Public Employees' Retirement System provides a "defined benefit" pension plan, which means an employee's retirement benefit is set in state law. The average benefit for retirees is $9,108 annually for people who have an average of 21 years of service at the time of retirement.