LCPR concludes October meetings

On Tuesday, the Legislative Commission on Pensions and Retirement (LCPR) met to hear testimony from representatives of commission actuary Deloitte Consulting, the Minnesota State Board of Investment (SBI) and the three statewide retirement systems.

Deloitte provided a review of the retirement plans’ actuarial reports from fiscal year 2014-15, a recommendation of funding policy change, and the implications of changing the investment return assumption. SBI Executive Director Mansco Perry gave an overview of the agency’s governance structure, asset allocation, and long-term investment return performance relative to national peers.

Dave Bergstrom, executive director of the Minnesota State Retirement System (MSRS), Dave DeJonge, interim executive director of the Public Employees Retirement Association (PERA), and Laurie Hacking, executive director of the Teachers Retirement Association (TRA), presented information about the findings of the systems’ recent actuarial experience studies and recommendations for bringing the systems’ economic and demographic assumptions in line with member population experience. The pension plan directors discussed the cost impact of incorporating the new assumptions.

The directors were also asked to provide the commission with estimates of the actuarial impact of lowering the systems’ investment return assumption from 8 percent to 7.75 percent or 7.5 percent .

On Wednesday, the LCPR heard testimony from the principals of Epoch International, a New York firm invited by Sen. Dave Thompson (R-Lakeville) to discuss the idea of injecting a relatively small amount of “free” money into the pension funds by leveraging life insurance policies for MSRS, PERA and TRA retired members. These so-called LIFTs (Life Insurance Finance Trust) are insurance-linked securities that are being touted as a model for providing “funding relief to seriously underfunded pension plans and retiree plans,” according to Epoch.

An outside institutional investor would contribute the capital to pay annual insurance premiums. The insurance company, in turn, underwrites 2,000 “qualified lives” with expectations to invest the premiums profitably. The pension fund provides the 2,000 “qualified lives” and would receive an estimated $25 million up front, but must pay death benefits of between $10,000 and $15,000 to retirees’ survivors or estates. Epoch would receive a 5 percent fee. Epoch’s representatives said that the retirees would participate out of a sense of wanting to help the pension fund remain sustainable.

“By using life insurance on retiree lives the institutional investors, life insurance company and pension fund can all make money for their mutual benefit,” according to Epoch. 

Jill Schurtz, executive director of the St. Paul Teachers Retirement Fund Association (SPTRFA), testified and questioned the Epoch representatives about potential downside risks that would be taken on by the pension systems.

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Courtesy MN TRA