The Legislative Commission on Pensions and Retirement (LCPR) met on Wednesday and Thursday, Sept. 11 and 12, to discuss the teacher fund consolidation study, the investment return assumption and post-retirement adjustments (retiree COLAs).
After LCPR staff summarized a memo on possible consolidation of the St. Paul and Duluth teacher retirement funds into TRA, TRA Executive Director Laurie Hacking and Duluth Teachers Retirement Fund Association (DTRFA) Executive Director Jay Stoffel testified to provide an update on how the study will proceed.
Stoffel said that the study would be conducted using detailed actuarial analysis that will quantify the costs of consolidation. He also said that any consolidation must assure that assets of TRA are protected, and noted that past consolidations – such as the Minneapolis teachers and the Minneapolis Employees Retirement Fund (MERF) – were done based on the incoming funds being fully funded upon merging with TRA.
Both the St. Paul and Duluth funds have board meetings on Sept. 18, Stoffel said, at which both boards will be asked to take a preliminary position on merger. While the study continues, St. Paul and Duluth will finalize their decisions. For Duluth, consolidation is “a good solution,” Stoffel said, noting that St. Paul might have a different position on the issue.
Hacking discussed the outline of the consolidation report, which is due on Jan. 6, 2014. She noted that Duluth and TRA have fixed amortization periods for their pension debt, while St. Paul has a rolling 25-year amortization period which will impact consolidation costs estimates. Hacking said that SBI has reviewed the asset holdings of Duluth and St. Paul and the SBI foresees no problems integrating their assets.
Jeff Slocum of Jeffrey Slocum & Associates, DTRFA’s investment consultant, testified regarding fund performance, noting that for the year ended June 30, the fund returned 17.2 percent. Slocum said that an 8 percent assumed rate of return is very realistic and attainable. He added that the Great Recession of 2008-09 was a “once in a lifetime event,” and with pension fund investing, “time is on our side” because it’s a long-term business.
Rep. Tim O’Driscoll disputed the notion of a “once in a lifetime event,” noting that there was a major recession in 1981-82. “I’m sensitive to making sure we do things right,” O’Driscoll said. “The lower the benchmark, the easier it is to reach that benchmark.”
The directors of the three statewide retirement systems testified about how moving the investment assumption downward would negatively affect the funds’ funding ratios and increase their funding deficiencies. LCPR chair Sen. Sandy Pappas called the actuarial information “a reality check.”
On Thursday the panel went through a staff memo on retiree cost-of-living adjustments, which included information on historical trends nationwide and in Minnesota. Sen. Julie Rosen and Rep. O’Driscoll had several questions regarding what level of COLA could be considered adequate. O’Driscoll said that it’s “failed logic” to expect increases to be borne solely by state pensions when retiree income also should take into account Social Security income and income from personal savings.
Rosen added that the commission should discuss how zero-percent COLAs affect retiree purchasing power, and suggested that the panel look at data from the Pew Foundation on states that have been more aggressive than Minnesota on pension reform, particularly those that have moved to hybrid retirement plans.
The October LCPR meetings will focus on PERA salary threshold issues and pension commission policies.
Susan M. Barbieri
Teachers Retirement Association
Public Employees Retirement Association
Minnesota State Retirement System