Iowa Faces Public Pension Cost Hikes

September 26, 2003 (PLANSPONSOR.com) - The state of Iowa's public pension plan has joined a number of such programs facing the prospect of dramatically upping their annual contribution rates to maintain their long-term fiscal stability.

Actuaries have told state pension officials that the Iowa Public Employees’ Retirement System (PERS) faces a $1.2-billion long-term shortfall and needs a 40% hike in the money it gets both from government employers and public workers, according to a Des Moines Register report.

“There is a problem here. If we look at the actuarial balance sheet, it doesn’t work,” Patrice Beckham, a consulting actuary with the Omaha office of Milliman USA told the Iowa officials.

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Officials of the $15.4-billion fund are studying the possibility of gradually increasing required pension contributions to 13.25% of payrolls over three or four years. Government employers would contribute 7.95%, while public employees would have to pick up 5.3% of wages. That compares to the current rate, unchanged since 1979, requiring government employers to set aside 5.75% of payrolls with public workers chipping in 3.7% of wages for a combined total of 9.45%.

Under the plan being studied, 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.

The Iowa fund is 53% invested in stocks with 34% in investment grade bonds, 3% in high-yield bonds, 5% in real estate and the rest in other investments. PERS has about 325,000 members.

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