North Dakota's teacher pension fund should be strengthened by legislation that raises school boards' benefit obligations while offering newly hired teachers a smaller retirement payment, lawmakers say.

The proposal, which was based on a rescue plan crafted during the last year by lawmakers, education interest groups and the state Retirement and Investment Office, won final legislative approval after House critics tried unsuccessfully to derail it. It now goes to Gov. John Hoeven for his review.

"I think that this is a modest approach to strengthening the fund," said Rep. C.B. "Buck" Haas, R-Taylor.

Representatives approved the legislation 57-27 Friday night, hours after the North Dakota Senate unanimously endorsed it.

Teachers and school boards now pay a 7.75 percent share of each teacher's salary into the Teachers' Fund for Retirement. Some school districts pay both shares, because a pension fund contribution does not count as taxable income to a teacher.

The legislation boosts the school boards' share to 8.25 percent, beginning in July 2008. The extra payment would expire if the teachers' fund reaches 90 percent of what it needs to satisfy its obligations. It is now at 75 percent, and needs to close a gap of about $500 million.

It also creates a two-tier pension system. Teachers hired after July 1 would have to work five years, rather than the current three, to qualify for benefits. They would have to work longer before they were eligible for a full pension, and the method for calculating the final benefit is less favorable.

The Teachers' Fund for Retirement's investment returns took a serious hit in 2001, and there are fewer North Dakota public school teachers to pay into it.

Its financial performance has recovered in recent years, which prompted some lawmakers to argue Friday that the pension assessment increase on school boards wasn't needed.

"This fund is not in trouble," said Rep. Matt Klein, R-Minot. "At 75 percent funded, we are well in the upper half of all nationwide retirement funds."

Rep. David Monson, R-Osnabrock, said the increase would cost schools $4.5 million every two years, but would make little difference in the speed of the fund's recovery.

"What really heals this fund is good, solid economic growth," he said.

Rep. Gil Herbel, R-Grafton, said the increase was necessary.

"I realize that the fund is doing well right now, but we haven't recovered from the hit we took in 2001," Herbel said. "This really is a modest approach to making the fund solvent."

Rep. Bette Grande, R-Fargo, said she disliked the bill's two-tier pension system.

"Causing this type of disparity inside this plan is not a good thing, and it's not going to help in the recruitment of new teachers," Grande said.

The bill is SB2046.