Iowa Coalition: Reform Pensions Now, Avoid Pension Problems Later

Published March 12, 2015

A grassroots coalition of activists is pressing Iowa lawmakers to begin work on reforming the state’s five public pension programs and eliminate those programs’ unfunded liabilities.

In Des Moines, the Taxpayers Association of Central Iowa hosted an event headlined by former Utah State Sen. Dan Liljenquist (R-Bountiful), to discuss the need for pension reform with local business owners and community groups.

As a state senator, Liljenquist pushed through reforms to his state’s public pension program, including moving Utah’s pension system from a traditional, fully defined-benefit system to a hybrid system incorporating elements of a defined-benefit pension system and defined-contribution system, like pension programs found in the private sector.

Keeping Promises to Workers

According to State Budget Solutions (SBS), a nonpartisan public policy organization focusing on local and state budget issues, Iowa’s pension programs have promised more benefits than they will be able to deliver.

Jonathan Williams, director of the Tax and Fiscal Policy Task Force at the American Legislative Exchange Council, says Iowa’s overpromising threatens the interests of both government employees and taxpayers.

“Unfunded liabilities in government-run pension systems pose significant challenges for government workers, taxpayers, and policymakers nationwide,” he said. “The best way to keep promises to current retirees and workers is by making annual pension payments and giving future workers a more portable, defined-contribution retirement plan.” 

Unfunded Liabilities

Williams cited research showing the magnitude of Iowa’s pension problem.

“According to the nonpartisan watchdog group State Budget Solutions, and using a market valuation of pension liability, Iowa’s current unfunded pension liability now exceeds $39.5 billion. Those SBS numbers show the current funded [level] of Iowa’s pension system is 41 percent. The unfunded liability equals $12,807 per Iowa resident.”

Dannie Mahoney, director of state data labs at Truth in Accounting, says changing Iowa’s five pension programs is a commonsense move for lawmakers.

Giving Workers Control

“From the financial point of view of the state, it seems there is no reason to keep pensions for state workers as defined-benefit,” she said. “Switching to defined-contribution helps Iowans by relieving the state of the costly pension burden and allowing state workers to have more control over their own individual retirement plan.”

Mahoney says addressing the problem now, instead of later, is the best course for Iowa lawmakers.

“Pension costs for Iowa haven’t reached the crisis level that states like Illinois and New Jersey are seeing. It’s very proactive of Iowa to want to reform pensions in the state now, so future generations are not saddled with debt from something they did not even see the benefit of, paying state workers who worked long before the future generations were old enough to pay taxes.”

Alexander Anton ([email protected]) writes from Palatine, Illinois.

Internet Info:  

“Defined Contribution Plans, Defined Benefit Plans, and the Accumulation of Retirement Wealth,” James Poterba, et al.,