APRIL 8, 2015 – The Legislative Commission on Pensions and Retirement (LCPR) on Wednesday unanimously approved the 2015 Omnibus Retirement Bill, which now goes to House Government Operations and Elections Policy Committee and the Senate State and Local Government for consideration.
Before approving the bill, the LCPR debated the appropriate level of state and local funding for the merger of the Minneapolis Employees Retirement Fund (MERF) into the Public Employees Retirement Association (PERA). PERA has been administering MERF as a separate financial entity since 2010, but MERF merged financially with PERA in recent months upon reaching an 80 percent funded level. Funding for MERF had been authorized at up to $24 million annually from the state and a minimum of $27 million per year from MERF employers for a total of $51 million annually.
Under an amendment sponsored by Rep. Paul Thissen (D-Minneapolis) and adopted by the LCPR on Wednesday, aid to PERA will drop by $14 million to a total of $37 million per year with $16 million coming from the state and $21 million from local employers. Sen. Sandy Pappas, D-St. Paul, and Rep. Mary Murphy, D-Hermantown, voiced concerns that the proposed funding levels would not be sufficient, especially given the risk of future market downturns. Pappas said the commission should maintain the higher $51 million per year authorized under current law until further study is completed.
Dave Johnson of the Minneapolis Municipal Retirement Association, an organization representing MERF members and retirees, also voiced concerns and urged that the funding level remain at $51 million annually. PERA representatives assured commission members that the funding level of $37 million annually was expected to be sufficient based on recent actuarial calculations. In related action on the MERF provisions, LCPR approved an amendment that adds a MERF representative to the PERA board, making it a 12-member board. The MERF provisions were approved on a voice vote and added to the omnibus bill.
State Board of Investment Executive Director Mansco Perry testified on the structure of the SBI, its authority in the state’s constitution, and how it allocates its assets among stocks, bonds and alternative assets. Perry emphasized that SBI’s long-term investment objective is to exceed its composite index benchmark over 10 years. SBI has achieved this with a 10-year return of 8.4 percent annually, beating its composite benchmark of 8.1 percent. Perry reviewed SBI’s longer-term returns, which have averaged 9 percent per year over the past 20 years and 10.3 percent over the past 30 years. SBI returns have ranked in the upper quartile when compared to other large funds.
Deloitte Consulting, the LCPR actuary, made a presentation to the commission regarding the actuarial work they are doing. This includes actuarial review of the 12 statewide funds plus a matching valuation for MSRS. Deloitte also plans to review LCPR actuarial standards and the results of the plans’ experience studies due this June. At a future meeting, Deloitte plans to provide the commission with its perspective on the expected rate of return on investments, mortality improvement rates, and funding policy.