DES MOINES (AP) — Iowa Gov. Terry Branstad has sparked a pension discussion about whether a switch to a defined contribution plan would meet public employee needs and better protect taxpayers.
Democratic State Treasurer Michael Fitzgerald said public employees in the state should be concerned about the potential to do away with the Iowa Public Employees’ Retirement System, also known as IPERS. The system has 350,000 members.
Fitzgerald said the problem with defined contribution plans, similar to 401(k) plans, proposed by some lawmakers and organizations is that they place the financial risk on employees who are stuck with high fees for investments.
“We want our second grade English teachers to work on being second grade English teachers,” Fitzgerald said. “They don’t have any skills in managing asset allocation and all those kinds of things.”
The contribution program is considered less risky for employers because there’s no promise of a specific benefit when a worker retires. In 2015, an actuarial study by Cavanaugh MacDonald Consulting LLC found that IPERS had long-term unfunded liabilities of almost $5.5 billion.
The Iowa Chapter of Americans for Prosperity, Iowans for Tax Relief and the Public Interest Institute in Mount Pleasant have endorsed shifting IPERS to a defined contribution plan.
“For us, it’s one way that we can protect taxpayers,” ICAP state director Drew Klein said. “This is even more important because there seems to be differing opinions on what kind of interest we can expect on those IPERS’ investments.”
“I am open to considering changes, but I want to assure people that we are not looking at eliminating anyone’s benefits or changing it in a way that would create financial hardship,” Branstad said. “So it is a complex, a difficult issue.” Branstad added that changes in the IPERS’ system should be carefully studied before making any decisions.