Pension funds update governor, State Board of Investment

The executive directors of the three statewide retirement systems presented a funding status update on Wed., March 2, to the Minnesota State Board of Investment. Among the board members in attendance were Gov. Mark Dayton, state Attorney General Lori Swanson, State Auditor Rebecca Otto, and Secretary of State Steve Simon.

After a review of SBI performance over time and relative to other public pension funds, longtime actuary Doug Anderson, executive director of the Public Employees Retirement Fund Association (PERA), explained the impact of recent experience studies on the Minnesota funds. Anderson pointed out that life expectancy increases are affecting each of the three statewide funds differently.

Dave Bergstrom of the Minnesota State Retirement System (MSRS) outlined the impact of assumption changes recommended by the fund actuaries as a result of his system’s experience study. Bergstrom noted that putting each of the statewide funds on track to reach 100 percent funding is a key aspect of fund officials’ fiduciary duty.

Upon viewing a line chart showing a significant decline in funded ratios for MSRS, TRA, and to a lesser extent, PERA, the governor suggested that 100 percent funded ratios may not be necessary to meeting the funds’ financial obligations and would be a significant cost to the General Fund.

Bergstrom said that it would be wise to continue to work toward that goal, and he outlined the proposal that MSRS seeks to put forward this legislative session. The proposal includes a 0.5 percent employee contribution rate increase and a 1.5 percent increase in the employer rate as well as a COLA reduction from 2 percent to 1.75 percent.

With sustainability changes, MSRS is projected to reach 104 percent funded by 2041. Without the changes, MSRS flat-lines and declines until reaching 75 percent in 2041.

Teachers Retirement Association (TRA) Executive Director Laurie Hacking then walked the board through TRA’s numbers, and explained the shared-responsibility ethos behind TRA’s sustainability proposal. TRA’s proposal includes a 1 percent increase in the employer contribution rate, no change in the employee contribution rate, and a decrease in the COLA from 2.0 percent to 1 percent for five years and 1.75 percent after.

PERA is not pursuing sustainability measures this session, and Anderson began his portion by addressing Dayton’s concerns about the 100 percent funded ratio goal, saying that during his decades as an actuary, 80 percent was traditionally regarded as an adequate funded ratio for public pension funds, but that market volatility has caused many plan administrators to think in terms of maintaining a “cushion” for downturns. Dayton said that this is an expensive proposition.

Otto opined that as long as the ratio of retirees to active employees is not upside-down – with more retirees receiving benefits than workers paying into the system – the plans should theoretically be fine.

Dayton thanked the fund directors for their conscientious stewardship of the funds but questioned whether we need to go as far with the sustainability proposals.

Courtesy of Susan Barbieri, MTRA Communications