TRA board OKs legislative proposal despite concerns

The TRA Board of Trustees on Wed., Nov. 16, approved a legislative proposal that would lower the annual cost of living adjustment (COLA) for retired teachers from 2 percent to 1 percent for 10 years and 1.5 percent thereafter.

The proposal also calls for a 2 percent increase in the employer (school district) contribution rate, from 7.5 percent to 9.5 percent, phased in incrementally. The employer contribution rate increase would be offset by a request for state aid to cover school districts’ pension costs. The active-teacher contribution rate would remain unchanged at 7.5 percent.

Representatives of the Retired Educators Association of Minnesota and Education Minnesota Retired said they were disappointed with the decision to lower the COLA to 1 percent for 10 years and said they could not support the proposal.

Another major area of contention around the package was the board’s decision to not increase the active-teacher contribution rate. Groups representing employers argued this should be an element of the proposal.

Board member Mary Supple, who teaches in the Richfield School District, said she “cannot in good conscience support raising the active portion.” Supple said she was speaking as one of the few active classroom teachers on the board who deals with the pressures teachers face every day. She said that she was teaching when the Rule of 90 early-retirement option was eliminated, and she has seen first-hand the toll it has taken on teachers forced to work past the point of burnout.

“I do not think it is in the interest of this state to continue to dump on young teachers, to continue to drive people out of the profession,” she said. “I work with these people every day. Some of us are just hanging on until we can retire. … Actives have been paying their fair share and continue to pay their fair share.”

At 7.5 percent, Minnesota teachers pay a higher amount than the average nationwide, which is 6 percent. Minnesota school districts currently contribute 7.5 percent to TRA for their teachers’ pensions, compared to an average 12.9 percent nationally.

School boards representative Kirk Schneidawind expressed serious concern with the proposal to raise employer rates by 2 percent. Schneidawind said that it’s unclear whether state funding will be available for districts to shoulder the increased pension costs, and school districts need to know that their operational and programming budgets will be held harmless.

He said the last time TRA sought major financial adjustments in 2010 it was more of a “full partnership.” Even though there was no state aid involved, active teachers did contribute more at that time. (Active teachers’ contribution rates rose from 5.5 percent to 7.5 percent, phased in over four years.)

In 2010, retirees accepted a two-year COLA freeze as well as a permanent reduction in the COLA from 2.5 percent to 2 percent, and Walt Munsterman of Education Minnesota Retired said the new proposal means retirees “are getting nailed again.” Curt Hutchens of the Retired Educators Association of Minnesota (REAM) said that since he retired in 2005 there have been more benefit “take-aways” than benefit increases, and retiree buying power is deteriorating.

Added retiree Tim Moynihan: “I understand the gravity of the decision, but this is not a good day for retirees. … Please try to find a way to do better than this.” REAM and EdMN-Retired member Joan Beaver noted that this package will be “a very tough political push.” “I don’t know how we’re going to rally our members to get behind this,” she said.

The board’s effort to settle on a financial proposal was prompted in part by pressure to lower the fund’s assumed rate of return on investments. Lowering this assumption from 8 percent to 7.5 percent has the effect of worsening TRA’s funded status and prompting the need for lower benefits and higher contributions. This comes on the heels of economic and demographic assumption changes – such as longer member life expectancies – that also negatively impact TRA’s financial status.

At its Oct. 24 meeting, the board discussed the investment return assumption, which is used to project TRA’s long-term financial trends. The board voted to lower the investment return assumption to 7.5 percent for three to five years while a study is conducted; then the rate reverts to 8 percent. Also, the study would evaluate processes and governance structure for changing the investment return assumption.

A proposal last winter that had the support of all of TRA’s stakeholder groups failed to win legislative approval – in part because of the lack of state funding to cover increased costs to school districts. A stopgap bill that would have cut the retiree COLA without any employer or employee contribution rate increases was vetoed by Gov. Dayton.

Shortly thereafter, the fiscal year ended with a poor investment return logged into the books.

Courtesy of Minn TRA Communications

Pension veto still bugs House Republicans

By: Kevin Featherly, October 3, 2016, Politics in Minnesota Capitol Report

It may seem like old news, but House Republicans still fume that Gov. Mark Dayton last May vetoed a pension reform bill with nearly unanimous support.

“Normally a bill that has a 75 percent or bipartisan vote, the governor will not veto,” said 11-term Rep. Bob Gunther, R-Fairmont. “This one had all but four members voting for it. Yet he vetoed it. I couldn’t understand it.”

It was a little noticed in all the chaos and drama at the end of last session, but Dayton did in fact reject a widely supported omnibus pension bill, Senate File 588. In his veto letter, he explained that the bill co-authored by Legislative Commission on Pensions and Retirement chair Rep. Tim O’Driscoll, R-Sartell, and vice chair Sen. Sandy Pappas, DFL-St. Paul, failed to spread the pain of reduced benefits equitably.

The one-time, one-year fix would have lowered automatic cost of living adjustments for most retired state agency workers from 2 percent to 1.75 percent and for retired teachers from 2 percent to 1 percent. It represented a one-time savings of about $81.5 million. Of that, roughly $18 million would have come from reductions in retiree benefits managed by the Minnesota State Retirement System. It administers most state agency worker retirement plans, plus some University of Minnesota and Metropolitan Council plans. The remaining $63.5 million in savings would have come from a one-year cost of living adjustment reduction for retired teachers; the Teachers Retirement Association manages those benefits. A third major retirement plan administrator, the Public Employees Retirement Association of Minnesota, was not involved.

The deal-breaker for Dayton was that the bill required no increased pension fund contributions either from active employees or employers. “It is not fair and I cannot agree to it,” he wrote.

The veto came despite broad legislative support. In the House, only Rep. Joe Atkins, DFL-Inver Grove Heights, Rep. Linda Slocum, DFL-Richfield, and House Minority Leader Paul Thissen, DFL-Minneapolis, voted against the bill. Sen. Eric Pratt, R-Prior Lake, was the Senate’s lone no vote.

“I was really stunned,” Rep. Greg Davids, R-Preston, said of Dayton’s veto. Davids, the chair of the House Taxes Committee, said pensions are constantly monitored by the Legislature. When pension bills are brought forward, they generally are bipartisan measures that pass and are signed almost automatically. “It’s kind of a no-brainer,” Davids said.

Pappas said she expected some pushback when she co-authored the bill, but assumed everyone involved would understand that the measure was meant merely as a first step toward a more complete pension fix to be tackled in 2017.

“I wanted to get a head start on the savings from the [cost of living adjustment] cuts,” Pappas said. “I was very disappointed.”

 Newly issued actuarial tables show that Minnesotans are going to live, on average, two years longer than actuaries projected less than a decade ago. (Source: Minnesota State Retirement System)

What might have been

This might disappoint even more people: By pushing forward only the one-time fix to retirees’ cost of living adjustments, the commission responsible for vetting pension legislation passed up an opportunity to save much more money.

Executive directors for both the Minnesota State Retirement System and the Teachers Retirement Association say that earlier in the truncated 2016 regular session, they helped craft a much more comprehensive proposal that would have put pensions on a sounder long-term footing. That package was never forwarded to committee by the pensions commission.

Their plan would have reduced pension liabilities by a combined $1.5 billion over 30 years, or roughly $50 million a year. Administrators say it had buy-in not just from the funds’ boards, but also labor unions and other stakeholders.

“Non-passage of the comprehensive proposal was a big deal,” said Dave Bergstrom, executive director for the Minnesota State Retirement System. “It would have made a big funding difference, no doubt.”

As it happens, Bergstrom’s pension fund is in relatively good shape. As of June 30, 2015 (the beginning of fiscal year 2016), the Minnesota State Retirement System reported accrued liabilities of $13.1 billion against $11.6 billion in assets. In other words, it was 88.9 percent of the way toward full funding of its anticipated long-term pension payouts.

Things are a little tougher at the Teachers Retirement Association. On June 30, 2016, it reported $19.7 billion in assets against $25.6 billion in actuarial liabilities—the amount of money needed to pay benefits. So it is only 77 percent funded.

However, as often occurs in the pension world, things recently got more complicated. Newly issued actuarial tables show that Minnesotans are going to live, on average, two years longer than actuaries projected less than a decade ago.

J. Michael Stoffel, the Teachers Retirement Association’s deputy executive director, said that increased life expectancy means the fund’s $20 billion in assets must now be stacked against liabilities of $30 billion. Minnesota State Retirement System liabilities likewise ballooned, from $13.1 billion to $13.8 billion, with no corresponding increase in assets.

Making matters worse, pension funds’ ongoing investments are down from their 1990s heyday. After several consecutive years of worse-than-expected returns, pension fund earnings for fiscal year 2016 will likely be nil or even slightly negative, said Minnesota Management and Budget Commissioner Myron Frans.

Those factors are what led the two pension plans, backed by various stakeholders, to pitch their $1.5 billion pension reform package to the commission, to reduce liabilities and move toward full funding, administrators said.

Richard Kolodziejski, public affairs and communications director for the Minnesota Association of Professional Employees, said his union supported the reforms even though it would have meant workers would have to dedicate bigger chunks of their present paychecks toward future pensions.

“One of our major legislative initiatives is to maintain the sustainability of these funds,” Kolodziejski said. “We want to be a participant at the table, to make sure that these funds are healthy. That is always going to be our position.”

A case of heartburn

O’Driscoll’s 14-member commission is split evenly between Democrats and Republicans. Because the Republicans have a House majority, there are five Republican and two Democratic House members on the panel. Likewise, because DFLers own the Senate majority, the commission has five DFL senators versus two from the GOP. During the 2015-16 biennium, the panel’s chair gavel belonged to the House. Next year the Senate will have it.

O’Driscoll said the comprehensive plan he received for consideration gave several House Republicans a bad case of “heartburn.” The problem, he said, is that while the Minnesota State Retirement System fund would have increased both employee and employer contributions, the same was not true of the teachers’ pension. Only school districts’ contributions would have increased under the original plan, not teachers’.

That made it a nonstarter for O’Driscoll’s GOP colleagues, he said, and not just because teachers weren’t willing to take the same financial hit as their employers.

Perhaps the bigger reason, he said, is that the school districts themselves were unwilling to pony up without help. For the comprehensive proposal to work,  increased school district contributions would have to be offset with school aids from the state’s general fund.

In other words, the state would have been on the hook to the tune of $48 million a year, forever, O’Driscoll said, had the original plan gone forward. That would have cost Minnesota an extra $1.3 billion over 30 years in general fund revenues.

When it was obvious that idea was going nowhere, O’Driscoll said, Pappas led efforts to craft a pared-down version that included only short-term cost of living adjustment cuts for current retirees. That was the version the Legislature passed and Dayton nixed.

O’Driscoll still can’t believe it. “It was a strong, largely bipartisan piece of legislation,” he said. “I mean, it blows my mind.”

Possible revival

Tomorrow is always another day, of course, and despite the collapse of this year’s efforts, comprehensive pension reform may not be a lost cause.

Pappas said she likely will be handed the pension commission gavel in 2017 as its senior DFL senator. If so, she said she will put forward a long-term pension fix. If Dayton puts comprehensive pension reform into his budget, and Democrats advocate forcefully enough for more state aid to cover school districts’ raised contributions, she thinks it could pass as early as January 2017.

Minnesota Management and Budget’s Frans said that the time might be right. “I believe that we have got some really good information about where we are,” Frans said. “We should take this opportunity to reduce the unfunded liability and make these plans more sound.”

O’Driscoll’s feelings are less sunny. The pension veto, after all, was not the only one last session. Coupled with Dayton’s tax bill veto over what amounted to a typographical error, O’Driscoll said, the pension veto demonstrates Dayton’s lack of good faith. House Republicans will not likely soon forget that, he said.

Does that mean they would resist Dayton should he move forward on comprehensive pension reform? “I don’t know,” O’Driscoll said. “I’m just saying that some legislators are going to say, ‘We tried to do our part. Why didn’t the governor do his part?’”

Vote early in person

You can vote early with an absentee ballot at your local elections office. If you are not registered, you can do so in person if you show proof of residence.


For most elections, you can vote in person at your county election office. Some cities and towns are offering in-person absentee voting for the 2016 primary and general elections.


For most elections, absentee voting locations must be open during their normal business hours starting 46 days before the election. In addition, locations offering absentee ballots for federal, state or county elections must be open:

  • The last Saturday before Election Day (10 a.m. — 3 p.m.)
  • The day before Election Day until 5 p.m.
  • This does not apply to school districts holding standalone elections.

Some local jurisdictions may provide additional absentee voting days or hours beyond the above required days and times. Call your jurisdiction for more information.

2016 Dates


First day to vote early in person  Friday, September 23
Last day to vote early in person Monday, November 7

Have an agent pick up your ballot (agent delivery)

In special situations, you may ask an agent to pick up and return an absentee ballot for you. This is called ‘agent delivery.’

To qualify for agent delivery, you must live in a:

  • nursing home
  • assisted living facility
  • residential treatment center
  • group home
  • battered women’s shelter
  • or, be hospitalized or unable to go to the polling place due to incapacitating health reasons or a disability.
  • Your agent must be at least 18 years old, have a pre-existing relationship with you and cannot be a candidate. An individual cannot be an agent of more than three voters in an election.

Give your agent a completed absentee ballot application and a request for agent delivery of absentee ballot form. Have your agent take both forms to the local election office to receive your ballot.

Your agent can pick up your ballot starting seven days before the election until 2 p.m. on Election Day. Your agent or someone else you designate must return your ballot by 3 p.m. on Election Day. You can also return your ballot by mail. Election officials must receive your ballot on or before Election Day.

Office Of The Minnesota Secretary Of State, Steve Simon

Divided We Fall

The political expedient of offering a free lunch leads government authorities to make commitments they cannot support in the long term without assessments and tax increases–both political suicide. The get hit in their campaign funds and hit at the polls. The American wealthiest and their corporate empires assume a 19th century uber-privilege, owing nothing to the societies that fed their greed and freely buying the politicians to insure that. American voters meanwhile have been convinced that they deserve to have the amenities but not pay for them.

Then, when the bills come in, the authorities, beholden to their wealthy benefactors, look for excuses and scapegoats rather than biting the bullet, correcting tax law, and convincing tax-payers to pay up or give up the things they’ve come to expect. So the result is that they go after two of their own big expenses–the public workers, who make our society civilized, and the neediest, who don’t pay much tax and often don’t vote. Breaking the life-long promise of a pension to public employees, cutting funding to schools, and reducing the public work force, government chews off its own leg to free itself from the trap of its own design. Cutting off the needy is simply barbaric.

America has been effectively marketed a dream that everyone deserves a life that is fun and feels good. Watch almost any TV ad. Americans are discouraged from thinking about how that could be true when we know that life includes effort and pain. Only when enough of us look around and think will we begin to reverse the seemingly inexorable trend toward a country of 350,000,000 individuals, each at the center of her or his own universe, and start to reestablish America as a united society, who share common needs despite individual differences. If “divided we fall” has not been apparent before, certainly watching the human pieces of our civil society fall away over the years should alert us to the future we will leave our children and grandchildren.

Every thoughtful person must stand up, speak out, help out and vote.

House passes 2016 Omnibus Pension Bill

The Minnesota House of Representatives on Sunday passed the 2016 Omnibus Pension Bill (SF588) on a vote of 129-3. The bill now goes to Gov. Mark Dayton.

Legislative Commission on Pensions and Retirement (LCPR) chair Tim O’Driscoll (R-Sartell) summarized the provisions of the bill, whose major changes call for the investment return assumption for Teachers Retirement Association (TRA) to be lowered to 8 percent, and for the cost-of-living adjustment for retirees of TRA to be lowered to 1 percent for one year and for the Minnesota State Retirement System (MSRS) to be lowered to 1.75 percent for one year beginning Jan. 1, 2017.

The bill also contains a half-percent employer contribution rate increase for the St. Paul Teachers Retirement Fund Association (SPTRFA) as well as changes to provisions dealing with disability eligibility, Minnesota State Colleges and University system and language to bring the state retirement systems into compliance with federal tax law.

O’Driscoll said that the pension commission earlier this year received actuarial experience studies detailing demographic and economic recommendations that require “heavy financial lifting” – referring to sustainability packages supported by MSRS and TRA retirees, active employees, boards and employer units. These original sustainability packages reflected shared sacrifice and offset deficiencies created by increased life expectancies and decreased investment expectations.

“We have set that aside for this year since it’s not a budget year,” opting instead for a highly limited sustainability measure that reduces the retiree COLA for MSRS and TRA for one year beginning Jan 1, 2017, O’Driscoll said. This limited sustainability measure saves the systems $81.5 million, he added.

Rep. Mike Nelson, D-Brooklyn Park, introduced an amendment to delete the provision of the bill calling for a COLA reduction for TRA and MSRS retirees. Nelson said that when action is necessary to garner savings for the state’s pension plans, shared sacrifice is normally involved.

“What this plan does is take it out of the hide of retirees only. Their COLAs are being cut, their future raises are being cut, and the employers aren’t putting any more money in and the employees are not putting any money in,” Nelson said. “It’s not fair.”

Nelson said legislature is missing an opportunity, given the budget surplus, to “put more money into the pension plans so our retirees can be safe and secure in their retirement plan.” This fix only nibbles around the edges of the problem, he said. “We should be putting money into this plan now to help fix this problem.”

O’Driscoll encouraged a no vote on Nelson’s amendment, adding that the COLA reduction would represent the first step toward a pension plan solution. The Nelson amendment failed on a narrow 62-68 vote. Nelson later expressed disappointment in the failure of his amendment, but said that since this appears to be the best pension bill that could be achieved this year, he encouraged a yes vote.

A partisan skirmish erupted after Rep. Joe Atkins, D-Inver Grove Heights, introduced an amendment to raise the base benefit amount for 83 police and fire survivor recipients. Atkins argued that these people do not receive Social Security and the proposal is an effort to “do right by these members.” The cost would be $2.4 million, which Atkins said can be harmlessly absorbed by the Public Employee Retirement Association’s (PERA) Police & Fire Plan.

O’Driscoll said that he had received a letter from PERA laying out concerns about this idea, and that PERA’s board does not believe the proposal is financially sound. Prompted by Rep. Tony Albright, the House Speaker ruled the amendment not germane, and House minority Democrats expressed outrage at the notion of not allowing a pension-related amendment to an omnibus pension bill. The procedural vote stood, and the Atkins amendment was ruled non-germane.

Rep. Phyllis Kahn, D-Minneapolis, introduced an amendment directing the Minnesota State Board of Investment to develop climate change risk management strategies in its investment approach. O’Driscoll read a letter from SBI Executive Director Mansco Perry urging the legislature not to tie the hands of the SBI in making investment decisions.* The Kahn amendment failed.

Courtesy of TRA Communications


* Note from C of 13 editor: See following posting of Divestment-Investment, “Ethics and Energy: Thoughts on Divestment”

Ethics and Energy: Thoughts on Divestment

As global temperatures rise with climate change, so too does the heat of debate over the issue of investment in the fossil fuel industry.  With this debate has come a call for the Minnesota State Board of Investment (SBI) to divest its fossil fuel holdings.  Currently, a Divest-Invest Minnesota Committee is actively lobbying for the SBI to divest its holdings of these stocks.

A twofold controversy arises over the divestment issue:

1)  The right of one group of beneficiaries of the state’s assets to impose its will on all beneficiaries

2) The consequences of the proposed divestment 

Normally, the answer to the first issue would be simple—a minority interest group should not control the majority. However, if, as some argue, we are truly on the brink of destroying the life-sustaining environment of our planet, a more compelling argument might be made for the minority point of view.

A response to the second issue of the consequences of divestment is also complex. Will selling shares from one investor to another send a message, ease a conscience, or alter the behavior of the targeted corporation?  If other large shareholders divest, will that collective action affect corporate behavior? It is hard to say. Another question lingers—Does ownership of an asset indicate endorsement of that asset’s goals and activities? 

Those who argue against divestment point out that in doing so a shareholder forfeits the opportunity to influence the governance and operation of the company through proxy voting and the introduction of resolutions.  A collaboration of large shareholders, exercising their shareholder power, might affect corporate behavior, protecting fragile areas from exploitation or forcing a company to disclose what it knows of the harm done by its operation or by convincing the company to transition from fossil fuel investment to renewable energy alternatives.  By forcing a long-term view of operations, the worst of short-term devastation may be avoided

The fossil fuel industry has demonstrated itself to be brazenly unscrupulous, wreaking ecological devastation and lying to the public about its effects on climate change.  The question remains: What is the most effective investor response to the threat the industry poses for the planet and the investor’s quest for profit?  Will divestment or activist shareholders make a greater difference?

The controversy over the ethics of investment in fossil fuels will undoubtedly continue.  However, there can be no reasonable doubt about the science supporting the urgent need to find alternatives, to break our addiction to carbon based energy and to find future profits in the development of renewable energy.


Committee of Thirteen member, Larry Risser

 for more thoughts, see:

Tim Smith. “Impact through Shareholder Engagement,” Journal of Environmental Investing, 7, no. 1 (2016)


Senate passes pension bill

The Senate version of the 2016 Omnibus Pension Bill (SF 588) on Thursday passed out of the chamber on a vote of 61-1. Sen. Eric Pratt voted no.

Senate bill author and pension commission vice chair Sen. Sandy Pappas, D-St. Paul, introduced the bill by saying that the state’s pension plans recently conducted studies and found that public employees are living longer, which means that retirees will be collecting pension checks for a longer period of time as well. Pappas said it is a normal part of pension oversight to have to come in and adjust items such as employer and employee contribution rates and retiree cost-of-living adjustments.

Pappas said that the Teachers Retirement Association and the St. Paul Teachers Retirement Fund Association (SPTRFA) brought sustainability plans to the Legislative Commission on Pensions and Retirement (LCPR) that were expensive because they required more from school districts and state agencies. As it became clear that money would not be available, Pappas said, the current bill was scaled back and has no dollars attached to it.

Under the current bill, St. Paul Teachers will increase contributions by 0.5 percent of salary beginning in 2018. A mechanism that would trigger higher COLAs for all public pension fund participants is being eliminated “so nothing is on automatic pilot,” Pappas said. TRA’s amortization period will be extended to June 2046. To avoid statutory COLA increases on Jan. 1, 2017, the current bill calls for the COLA for MSRS members to drop to 1.75 percent for one year, and TRA members’ COLA drops to 1 percent for one year.

These measures save the plans some money now, but the goal is to return next year to discuss further adjustments. “The governor believes this [a comprehensive sustainability package] needs to happen, if not this year then next year,” Pappas said, adding that the stopgap measure provides time to consider what kind of adjustments in school aid and agency budgets will be required to offset increased employer contributions.

Pappas summarized the technical administrative provisions in the bill, which includes lowering the investment return assumption for TRA to 8 percent. The Public Employees Retirement Association and MSRS lowered their investment assumptions last year. Another provision of the bill allows public plans to accept gifts or bequests. Pappas said the bill moving to the House on Friday is the same as hers.

Sen. Pratt, R-Prior Lake, asked Pappas about the origins of the 8 percent investment assumption. Pappas said that the pension funds, their actuaries and boards – as well as the pension commission – consults with the State Board of Investment. Minnesota’s investments have done very well, are well managed, and are designed with a long-term strategy in mind. Pappas said the pension commission felt that lowering the rate was a good cautionary move, though lowering that rate does have the effect of making the funds look like they’re not as well funded.

Pratt said that the assumption is still too high, and that even investment guru Warren Buffett says that over the long term, the market assumption for returns shouldn’t exceed 7 percent. Pratt added that while there have been good years where the return is 15 percent or more, those gains were wiped out during economic downturns. The state should be looking at fairly conservative investments, he said, noting that the prime rate is only 3.25 percent and that no depository is paying more than 1 percent on deposits.

“These plans aren’t sustainable under their current assumptions, and this is one of those assumptions that are still too high,” Pratt said. He added that he is glad the retiree COLA is being dropped to 1 percent for TRA.

Pappas said that with the Consumer Price Index, a measure of inflation, under 2 percent, LCPR members have been torn about cost-of-living increases for retirees. “In our pension principles, we really believe we need to retain the buying power of the retirees’ paycheck in order to not have it erode” but we realize that the COLA is expensive, she said. She invited Pratt to bring his expertise to the pension commission, and encouraged him to consult with SBI Executive Director Mansco Perry about the investment return issue.

Sen. Mary Kiffmeyer, R-Big Lake, said that large retiree COLAs during boom times in the stock market and the economy “robbed the core” of the pension funds of money that needed to be retained for a rainy day and that legislature was complicit in those decisions. She said there should be a standard that all retirees can count on so that one group of retirees does not get a severe reduction in their COLAs while previous retirees almost double their pensions in a few years. Kiffmeyer said that investment return assumptions have been too high, but the costs to the plans of lowering it shouldn’t be “put on the backs of retirees.” 

Sen. Terri Bonoff, D-Minnetonka, also expressed concern about the 8 percent investment return assumption and said she shares Kiffmeyer’s concerns about keeping promises to retirees. Bonoff said she has been approached by constituents who are investment advisers and they also are concerned that the pensions are underfunded. She asked Pappas for her view about the long-term viability of the state’s pensions.

Pappas said that SBI’s Perry has been quoted as saying that 8 percent is “not unreasonable.” Because of the amount of money the state invests ($65 billion in pension fund assets) and the clout that comes with it, Minnesota is able to get a good rate of return. She added that MSRS is over 85 percent funded, TRA is about 75 percent funded, and St. Paul Teachers is about 74 percent funded. Pappas added that if lawmakers are concerned about the state’s bond rating, additional parts of the original sustainability package can still be acted upon this weekend.

Sen. Dave Thompson, R-Lakeville said that the pension systems are unmanageable and that Pratt is correct that it’s dangerous to assume an 8 percent rate of return. “If you drop the rate, projections look bad,” he said. “And not only do we have economic insecurity, now we’ve got an aging population that’s going to put stress on the system.”

Thompson said the legislature should discontinue the defined-benefit program and go to a defined contribution plan such as the 401(k)-type plans found in the private sector. The people who run these pension plans and the investment portfolio do an extremely good job and in good faith, he said, but “the system is just unworkable.”

Pappas responded to Bonoff’s comments by saying that in Minnesota, the percentage of state and local spending on pensions is much less than the national average (about 2 percent in Minnesota vs. 4 percent nationally). Pappas also pointed out to Thompson that transitioning from a defined-benefit pension to a defined-contribution model would cost billions of dollars because benefits would have to continue to be paid out even though the plans lose new contribution revenue.

Sen. Julie Rosen, R-Vernon Center, said the pension commission is nonpartisan and that members take their duties very seriously. Rosen said the current pension bill is a very good compromise made necessary  after the commission “received a sucker punch” in the form of hard-to-stomach mortality studies. “When you do reform in pensions it’s very slow, like trying to turn the Titanic – and you have to do it deliberately and with seriousness and make sure those funds stay viable.” She urged her colleagues to vote for the bill because it’s the right thing to do.

courtesy TRA Communications