January 2012 Policy Study, Number 12-1

Iowa's Privileged Class: Time for a Change!

The IPERS Board, in consultation with various financial advisors, invests the pension funds – both from the employee and from state government. The goal is to make a large enough return on the funds – without losing money – to pay all future benefits.

Interestingly enough, in the “Facts” section of the IPERS Website, following the question, “Do I decide how to invest my contribution or worry if stocks go down?” the IPERS staff state in response, “IPERS makes all investment decisions and IPERS, not individual members, bears the investment risk.”[46]

This is not a completely accurate statement of what actually happens. Because the pension benefit is guaranteed to the worker by union negotiation and Legislative action, the taxpayer actually bears the investment risk.

Even if the investments chosen by the IPERS staff and their investment advisors prove completely unsound and the money is lost – as much was during the 2008 recession – the government of the state of Iowa and the taxpayers who fund that government are required to pay the pension.

A negative aspect of the DB plan for workers is that the money held on their behalf may only be issued to them as a pension, disability, or death benefit. For example, personal contributions may not be withdrawn in a hardship situation such as serious illness or family catastrophe, and may not be used as collateral for loans.[47]

In contrast, funds held in other personal and private DC retirement plans such as IRAs, 401(k)s, 403(b)s, or the federal government’s Thrift Savings Plan accounts may be accessed or borrowed against for a wide variety of reasons.

These include home purchases, education, or a general purpose. In the case of needing to borrow against a retirement account, the worker does not lose the opportunity for those funds to continue growing, as the interest paid on the loan is credited back to their individual account.[48] They in effect pay themselves.