In a previous column I mentioned the challenge facing Idaho because of the unfunded liability of the Public Employee Retirement System (PERSI). This is a defined benefit plan much like Social Security in which the employee and employer make a contribution to the plan and there will be a lifetime benefit at retirement that will also include cost of living adjustments.

The problem is that the employer is obligated to a payment to the employee for a lifetime retirement benefit and the employee can include the spouse for this lifetime coverage. When Social Security was adopted, the average life expectancy was less than age 65. Now it is more than a decade longer. We know the fiscal mess we are facing with Social Security.

Corporations almost universally have discontinued defined benefit plans for obvious reasons. The few companies that continued these plans have found themselves in their own crisis - take a look at General Motors, which turned into a pension and health care company that also produced cars. This was a key cause of their bankruptcy.

States adopted these plans to protect certain professions such as firefighters and police officers who faced physical demands that could shorten their career. It didn't take long to have these plans expanded and as a benefit to groups like teachers who in past years were clearly underpaid. Now we are faced with a much larger number of public employees who are all covered by PERSI and being compensated at levels equal to or higher than the private sector.

Unlike Social Security, PERSI actually has an account with funds in it for future retirees. That is the good news. However, the bad news is that is only funded by 85 percent, which is about a $2.5 billion shortfall. This is better than many states that are less than 50 percent funded and their solution (Illinois and California) is to issue bonds and debt to keep paying benefits. Common sense says that when you are in a hole, stop digging.

Currently employers contribute 10.39 percent of pay to PERSI while the employee contributes 6.23 percent. We can expect to see the employer contribution increase in July to 11.5 percent. For the state general fund alone, the cost will top an extra $15 million. PERSI tells us there is no problem because with low inflation and a 7.5 percent return, they can grow the shortfall.

I am not sure the taxpayers should bet future taxes on this scenario. Consider that in 1966 the market (Dow Jones Industrial Average) reached 1,000 for the first time and in 1982 it reached 1,000 for the last time. For 16 years the market was basically flat and we had inflation at the same time - those "stagflation" years. Are we facing this same type of scenario? I don't know but we are seeing the specter of inflation and low growth.

Most employers have gone to a "defined contribution" plan, meaning that the employer provides a percentage that goes into an employee account with no specific benefit in the future. The retirement account is the responsibility of the employee. The majority of companies contribute 3 percent while the employees contribute 6 percent (although employees can contribute more than that). Providing that type of plan makes sense and makes individuals responsible for their own retirement.

The financial earthquakes that states like California, New York, Illinois, Wisconsin and others are going through are directly related to these defined benefit plans. Idaho hasn't reached this crisis point yet but this is the time to avoid it. Obviously we have made a commitment to our current employees and can't change the rules for those employees now. We can offer a defined contribution plan for new hires and consider doing what Washington state did and offer a "buy out" that might be attractive to younger employees.

Joel Klein, the former Democratic Chancellor of the New York City schools, put it this way:

"You would think that such a costly program, even if underfunded, would at least make sense. But while defined benefit pensions sound good in theory - retirees should have security for their later years - they actually create incentives that impede hiring and keeping the best teachers. To begin with, these pensions make the total compensation package much too back-loaded: Pay in the early years is needlessly low, so we lose good people who don't find the generous benefits at the end worth a lifetime commitment. On the other hand, because employees typically get a significant lifetime pension only after working 25 or 30 years, there comes a point at which almost no one leaves the system. Quite a few of these senior teachers admit they're burned out, or would want to try something else, but they stay simply because they cannot afford to forego the pension."

When schools and local governments cut programs to keep the system funded it will be a reality that we can't ignore.

Will we look at responsible change in Idaho before it's too late? None of this will be easy. We see what is going on in Wisconsin and other states. It's easy to give in to the teachers' union, for example, rather than create the headlines and AP stories that Tom Luna, Governor Otter and the Legislature are "anti-teacher" and "union busting." Sometimes it is too easy to kick the can down the road and do anything for "peace."

Take a look at the Coeur d'Alene district labor agreement with the Coeur d'Alene Education Association union: the local union president receives the equivalent of two days a week to conduct union business. I know what you are thinking right now - how can that person conduct union business the other three days a week if they have to teach? Well, no problem. The contract also says that the district will provide the union president with a cell phone to receive and make calls. When money is tight, paying for 40 percent of a teacher's time to conduct union business may be a luxury. Change won't be easy; if you try it you're anti-teacher and a union buster!

Bob Shillingstad taught in high schools in Montana for 13 years, then assisted Montana school districts with labor relations and personnel issues for two years. He then spent a career as a partner with a multi-national firm prior to retiring. He resides in Kootenai County.