Is The IPERS Cake Baked?

Tres Leches Cake Photo Credit – Stu Spivack, Wikimedia Commons

The Cedar Rapids Gazette was sitting on the break room table last week at the home, farm and auto supply store, open to an article about IPERS, Iowa’s public employee retirement plan.

Written by Matt Sinovic of Progress Iowa, the first sentence asserted more of the usual fare from the progressive group, “Once again, Republicans in the Iowa Legislature are inviting an out-of-state attack on the economic security of Iowa families.”

Thanks, but I’d already had my allowable dose of confirmation bias that morning. I closed the paper and started my shift.

That would have been that, except my state representative, Bobby Kaufmann, raised the article in a July 21 update to his legislative newsletter list.

Finally, I want to address the conversations being had regarding IPERS. I want to ensure (sic) everyone that your retirement is safe and will continue to be. There was an unfortunate editorial in the Gazette. I am being complimentary when I call it misleading and partisan. Every two years a committee meets to ensure our retirement fund is solvent. That is all that is happening. Every two years members of both parties get together and examine our retirement system to make sure our promises can be kept. I have said it before and I will say it again: I am a HELL NO on any bill that would negatively impact the retirement promise that has been made to you.

“Sh*t,” I said to myself. “Now I gotta go read that stinkin’ article.”

A long-standing complaint of Blog for Iowa is the legislature does little to address long term plans for IPERS.

“As it stands, there is no long term plan for educational financing, Medicaid, IPERS or property tax reform,” Chad Thompson wrote May 24, 2005. “What we did get was some reshuffling of bank accounts and a further drain on the reserves we do have.”

When Lieutenant Governor Kim Reynolds brought up the idea of a task force to evaluate modification of IPERS last January, my nerves tensed.

Reynolds, who soon will become the state’s governor, said in remarks at a Scott County Republican Party fundraiser Jan. 26 (reported by Ed Tibbetts of the Quad City Times), that commitments already made to IPERS members would be honored. “I feel very strongly about that,” she said. However, she also raised the possibility of moving toward a “hybrid” system that would include the current defined benefit pension arrangement as well as a defined contribution component. The latter is akin to a 401(k) system that is common in the private sector.

While Reynolds’ statement garnered attention, IPERS did not seem like a high priority on its own.

Iowa Treasurer Michael Fitzgerald was quick to respond to Reynolds.

On January 30, 2017, I issued a statement telling IPERS members they should be concerned about the future of their benefits.

Since that time, my concern has continued to grow. After witnessing how quickly the legislature and governor were willing to move without input from the people would privatize the investment of employees’ and retirees’ pensions. Individuals will pay more and private companies will reap the benefit.

We have made adjustments over the years to ensure the success of IPERS. We do not need to tear this plan apart, but rather continue to manage it well.

In the context of Governor Reynolds’ and Treasurer Fitzgerald’s January statements, Kaufmann’s assurances raise a flag.

I read Sinovic’s article and one of his issues is the Reason Foundation will be involved with the biannual review Kaufmann referenced.

What should we care who reviews IPERS?

The Reason Foundation, established in 1978, is part of a dark money network of wealthy libertarians that has been at work in our recent elections, according to Jane Mayer, author of Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right. “Reason Foundation advances a free society by developing, applying, and promoting libertarian principles, including individual liberty, free markets, and the rule of law,” according to their web site. Their tagline is “free minds and free markets.”

Fitzgerald and Sinovic are saying the cake is baked regarding the IPERS solvency review. We don’t know the result, but can get a taste of what to expect by reviewing the law Michigan Governor Rick Snyder signed this month. Here are some key features of the new Michigan public pension plan reported by the Reason Foundation:

  1. New hires will be auto-enrolled in a defined contribution retirement plan (DC Plan) that has a default 10% total contribution rate. DC Plans inherently have no risk of unfunded liabilities, and the maximum employer share for the plan (7%) is less than what employers should be paying for the current plan.
  2. However, if new teachers would prefer a defined benefit pension plan (DB Plan), they will have the choice to voluntarily switch to a new “hybrid” plan that, unlike the current “hybrid” plan offered to teachers, uses very conservative assumptions and short amortization schedules and splits all costs 50-50 between the employee and employer.
  3. Uniquely, the hybrid plan will have a safeguard mechanism that would trigger closure if the funded ratio falls below 85% for two consecutive years.
  4. And to top it off, the reform design improves certain actuarial assumptions and infuses the plan with $250 million in additional contributions to chip away at the pension debt.

Sound okay? Obviously any change will be viewed with suspicion by IPERS participants. I don’t agree with Sinovic that the Reason Foundation’s involvement is an “attack on the economic security of Iowa families.” What will annoy people is if Republicans try to slam through a hybrid plan similar to Michigan’s as Fitzgerald feared they might.

If, as Rep. Kaufmann indicated, the biannual review is simply to produce solvency, then good job for relieving unnecessary worry. As Fitzgerald indicated, “as state treasurer, an IPERS board member, and trustee of the Fund, I can tell you that Iowa has worked hard over the years to ensure IPERS is on solid ground. And we are.”

If, as Fitzgerald and Sinovic believe, the end result will be major changes to IPERS similar in scope to the Michigan law, that’s something else entirely. Time will tell. Current IPERS participants are forewarned to pay attention.

Sinovic is free to publish his opinion about whatever he is paid to advocate. However, when he posts an article like the Gazette piece he does no favors for Democrats hoping to win back seats in the Iowa legislature in 2018. Readers can see straight through the hyperbole and associate his comments with the Democratic Party. Democrats become defenders of the status quo by default, a status quo Blog for Iowa has been complaining about for 12 years.

And seriously Republicans. You have to pick a Koch network think tank for the solvency review? One that while claiming to be non-partisan favors a certain outcome?

What’s needed in public discourse is a statement of what progressives are doing to ensure IPERS is solvent. We also need a chance to win elections, something Sinovic’s article didn’t help.

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