The Legislative Commission on Pensions and Retirement (LCPR) on Tuesday finished debate and compilation of the 2015 Omnibus Pension Bill. The commission expects to take final action on the bill after Easter and tentatively set the next hearing date for April 8.
Administrative bills pertaining to the Public Employees Retirement Association (PERA), Minnesota State Retirement System (MSRS) and Teachers Retirement Association (TRA) were approved and rolled into the omnibus bill. The St. Paul Teachers Retirement Fund Association (SPTRFA) proposal to change the fund’s COLA calculation by capping it at 2.5 percent upon reaching 90 percent funding was also included.
The panel held further discussion on the pension systems’ request for more board discretion than allowed under current law with regard to the contribution rate stabilizer. The systems’ proposed contribution stabilizer language in statute changes “mandatory” to allow retirement systems’ boards more flexibility in implementing contribution rate changes, though LCPR retains veto power.
PERA legislative director Shana Jones pointed out that current law is too restrictive and that the PERA board felt forced to recommend a contribution increase. Rep. Mary Murphy, D-Hermantown, said school districts can’t afford a contribution rate increase because “it would come at the expense of the kids.” LCPR Executive Director Larry Martin said that a quick estimate of a PERA contribution rate increase would be about $13 million employee, $13 million employer.
The commission approved motions to not approve contribution rate increases proposed by the MSRS and PERA boards. Those boards felt compelled to propose increases due to the mandatory nature of the stabilizer but did not support the increases.
Rep. Tony Albright, R-Prior Lake, asked how a lower assumed rate of return on investments would impact contributions. Jones said that PERA contributions would be sufficient with an 8 percent investment assumption.
Albright asked State Board of Investment Executive Director Mansco Perry to testify as to which is more important: investment of the assets of the plan versus contribution revenue over time. Perry said that generally investments would be the more important piece of the equation, since investments make up 70 percent of revenue for the state’s three plans. Perry said moving from 8.5 percent to 8 percent would have only a negligible impact on asset allocation, though he opined that it is “significantly more prudent” to move to 8 percent.
Kim Crockett, lobbyist for the Center of the American Experiment, testified on a number of issues. She said she strongly opposes the longer payment period for certain TRA leaves of absence because TRA faces large funding and contribution deficiencies. Crockett also opposed SPTRFA’s efforts to change its COLA, stating “taxpayers receive nothing in this bill.” Crockett also referred to a policy paper published by the center last summer that proposes putting all Minnesota public employees into defined-contribution or 401(k)-type plans instead of defined-benefit pension plans.
Rep. Paul Thissen, D-Minneapolis, reacted to Crockett’s testimony and commented that the motivation of some testifiers is to make the public pension plans look unhealthy in order to privatize them. Thissen objected to the notion that taxpayers receive no benefit from teachers’ service, calling that suggestion “outrageous.”
Martin then walked the panel through the Omnibus Pension Bill. Sen. Sandy Pappas, D-St. Paul, asked TRA Executive Director Laurie Hacking to testify about TRA’s delay in changing the interest rate assumption.
Hacking defended the delay in changing the assumed rate of return on investment for TRA, arguing that the TRA board wants to complete the experience study scheduled to be released in June. She said that the impact on TRA of a lower investment return assumption is significant, and that waiting for the experience study would give TRA time to bring forward a reform package, if necessary, to deal with any contribution deficiency. Sen. Julie Rosen, R-Vernon Center, asked what might be in a reform package. Hacking said it would be premature to speculate until TRA has an opportunity to work with its stakeholder groups on options.
Several articles pertaining to PERA volunteer fire plans were adopted and included in the omnibus bill, which has not yet been passed out of the LCPR.