Gronstal on IPERS shortfall

Senate Majority Leader Mike Gronstal (D-Council Bluffs) is fond of telling a story about a childhood bicycle accident that sent him to the doctor’s office. As Gronstal sat on the examination table, the doctor asked Gronstal’s dad:  “Do you have good insurance?”

As Gronstal tells this story in the context of the health care reform debate, Gronstal reveals that he is the son of a banker and his family did, indeed, have good insurance and as a child he knew enough to be relieved that they did.  But in the context of a current debate about the state of the Iowa Public Employees Retirement System, it may highlight one of Gronstal’s wonky qualities: this son of a banker is good with numbers, statistics, and investments.

It’s one of the reasons Gronstal was the floor manager of a bill back in 1996 which made some major changes in the Iowa Public Employees Retirement System. (Click here to read that bill! Thanks to Ed Cook of the Legislative Services Agency & Eric Bakker of Gronstal’s office for finding the bill online.) Gronstal called into the Radio Iowa newsroom this afternoon and I’ll share some of our conversation about the consultants hired by IPERS which reported the fund is in trouble.

“The same people who are suggesting we have a long-term funding problem here are the folks that recommended a dozen years ago,” Gronstal began before he started citing actuarial tables. “…This is immensely complicated and there’s no way it will end up on the radio

“What they said 12 years ago was we had this unreasonably low actuarial assumption of investment returns and at the same time we had this unreasonable assumption that the covered wage base would never rise.  So, on the one side of the ledger we had unrealistically low expectations and on the other side of the ledger unrealistically highexpectations. We brought those two in line in 1996 and this most recent economic downturn has been sharper than those in the past and it’s provided a real challenge so we’re going to evaluate that, but making decisions about a system that’s got a 40-year life span — making decisions in any one year are exceedingly speculative.

“We will evaluate the recommendations they (the consultants & the IPERS advisory board) come to us with.  We will make a reasoned judgment about which of those options to choose from but I want to repeat: I don’t think we are going to do anything that is precipitous, that is going to dramatically impact the decisions of people who are at or near retirement age. There — that’s about 27 minutes of this that you can’t use on the radio.”

Ah, but there is the blog.  If you’ve made it this far, there’s more!I asked Gronstal if another complication for the IPERS fund would be that people aren’t retiring as early,so they have more of those “high-wage” years and their pensions are larger.

“No,” Gronstal replied.  “The fact that people are staying longer actually helps the system.  In the first 30 years you get two percent service credita year, so if you retired after 30 years, two percent times 30 is 60 percent and you retire on 60 percent of your high three (the three years in which you earned the most) and you contribute based on that.

“In the last five years, you get one percent service credit a year which means you can get up to 65 percent retirement but at the same time you’re paying in that last five years at the full rate, so the system picks up resources if people stay beyond 30 years in the system.

“And if they stay beyond 35 year, the system still requires them to contribute to IPERS, but they get no added benefits other than the very small increase in their average wage…Those folks are adding to the system.”

Gronstal’s basic message to retirees who are getting pensions from IPERS today:  nothing will change.  His message to those who are within 15 years of retirement:  nothing will change.  But legislators may consider changes for those who are farther from retirement age.

“We have already gained back substantial amounts of what was lost during the market decline,” Gronstal said.  “We’ve not going to do anything precipitous.  While I understand people being nervous, we want to assure them we’re going to go through a deliberative process.  We’re going to listen to folks. We’re going to listen to the recommendations of IPERS and try, just as we have always, to maintain the long-term solvency of our system.

“…We did make changes to the IPERS system two years ago and those changes involved things to make the system solvent, including increasing the contribution rate so we’re going to continue to work to make sure this system stays solvent and to provide full security for employees. We used to have one of the worst systems in the country in terms of benefits. We now have, I would describe it as a decent system, not a generous system.

“The problems we face are the kinds of problems that we can put together a plan to get past those problems in the long-term.  It doesn’t have to be a set of precipitous decisions.  We can come up with a set of recommendations that will sustain the system over the next 10 or 20 years.”