The State of the Pensions as the Session Comes to an End

On Tuesday, the Omnibus Retirement Bill was approved by three committees: the Legislative Commission on Pensions and Retirement (LCPR), Senate State and Local Government Committee and House State Government Finance Committee.  The bill will soon be considered on the House and Senate floors.  The bill contains administrative provisions and “stopgap” sustainability measures that reduce the MSRS COLA to 1.75 percent for one year and the TRA COLA to 1 percent for one year.  The proposal also eliminates future COLA triggers. Highlights from each hearing are below.

 

LCPR Hearing

LCPR approved the omnibus bill containing administrative provisions and scaled down version of sustainability.  LCPR Chair Tim O’Driscoll, R-Sartell, stated that because there is no money set aside for pensions this year, full sustainability could not be pursued but he wanted to get at least a start on the package.  He explained that he had heard concerns raised about how state agencies and school districts would be negatively impacted by proposed contribution increases.  Sen. Sandy Pappas, D-St. Paul, described how she and Rep. O’Driscoll met with the governor and MMB Commissioner Myron Frans and that they believe sustainability is important to the state’s bond rating and keeping the funds on track financially. But it appears to be late this year and the intent is to build the financial needs into state agency budgets and school aid revenue next year.

Mark Haveman, Executive director of the Minnesota Center for Fiscal Excellence, testified that other states have gotten into trouble because of a failure to make prompt corrections with their pension plans. Haveman stressed that root of Minnesota’s problem is an overly optimistic investment assumption.  Rather than being on a path to full funding, he said we are “like a hamster on a wheel that is turning faster and faster.”

Julie Bleyhl, AFSCME Legislative Director, testified in opposition to the proposed stopgap sustainability bill calling it is a “piecemeal” approach with no balance or shared sacrifice.  She said the AFSCME board supports the original proposal, but they find the interim measure unacceptable.

Rodney Rowe, Education Minnesota’s Secretary-Treasurer, testified and re-affirmed their support for the original proposal.  He indicated the stopgap measure solves only 4 percent of the funding problem and puts the entire burden on retirees.

Joan Beaver, Education Minnesota Retired, testified in support of the original proposal and reminded LCPR that pensions are an important teacher retention and recruitment tool.

Rep. Mary Murphy, D-Hermantown, stated she is very concerned that this is has become a repeated cycle in which we come to the end of the session and find out there is no money.  She urged LCPR members to be advocates in the budget setting process to ensure sufficient funds become available for pensions earlier in the process.  She said state agencies need to have line items in their budgets for pensions.  Murphy warned that next year, LCPR members need to be appointed in January in order for work to start promptly on sustainability.

 

Senate State and Local Government Committee Hearing

Sen. Pappas testified, saying that the original sustainability package brought forward by Teachers Retirement Association (TRA) and the Minnesota State Retirement System (MSRS) is the correct solution, but she acknowledged that funding is not available for that full package this year. Pappas said she will continue to seek money for the original package in the closing days of the session. Pappas noted that Gov. Dayton supports the original sustainability package.  Pappas said if she takes over the gavel of the pension commission next year, she is committed to completing the remainder of the sustainability package.

Sen. Jim Abeler, R-Anoka, mentioned the issues surrounding the Teamsters pension plan and said he knows Minnesota wants to “keep promises made.” Abeler asked about the general health of Minnesota’s pension plans, and Pappas provided numbers on the negative effects of experience study changes on all of the systems’ funded ratios. She said that while the pension systems were adequately funded in past years, changes in the investment markets and demographics mean that significant changes are needed to put the funds on path to full funding. She acknowledged that current COLAs are low (1-2 percent range), but that’s all that is currently affordable. Pappas also said she was nervous about not passing a more complete package and is concerned it will negatively affect the state’s bond rating.

Laurie Hacking of TRA and Dave Bergstrom of MSRS testified on the minimal financial impact of the stopgap measure and reiterated that a broader and more balanced package is needed.

In public testimony, Lonnie Duberstein, president-elect of the Retired Educators Association of Minnesota (REAM), said his membership is not happy with the stopgap proposal but understands there’s a need to fix the problem. He said that teacher recruitment has become very difficult, and that many leave the profession early in their careers because of stress. Duberstein said that one thing that kept him in the profession was that he knew he would have a pension when he retired. Pensions are very important to teacher recruitment, he said.

Joan Beaver of Education Minnesota Retired said her organization’s board discussed this “anemic” version of sustainability and supported the original proposal because of the shared sacrifice approach. EdMN Retired doesn’t like the COLA cuts, but there is a willingness to be part of the solution, she said. The group is disappointed that there are no contribution rate increases at a time of budget surplus and that the proposed stopgap solution only corrects 4 percent of the problem. EdMN Retired opposes the 1 percent COLA proposal unless it is part of the whole package that was originally proposed, she said.

Grace Keliher of the Minnesota School Boards Association (MSBA) said her group has been working with TRA from beginning on sustainability efforts, but MSBA can’t support the original package without state funding. She thanked Pappas for being a “warrior” on the issue.

Jodee Buhr of Education Minnesota said the union also has been working with the TRA board and had supported the package because of the shared-sacrifice approach. She emphasized that pensions are a recruitment tool, and the stopgap measure is not enough to ensure that the plan is sustainable for current and future teachers. Buhr said the legislature must continue to work on the remaining parts of sustainability package.

Louise Sundin of the Committee of 13 (Minneapolis), said the original package was delicately balanced and that her group is disappointed at this scaled-down version. She pointed out that employer contribution rates in Minnesota are much lower than they are in other states. The Committee of 13 board is reluctant to support the stopgap measure but appreciates Pappas’ tenacity, Sundin said.

 

House State Government Finance Committee Hearing

LCPR Chair O’Driscoll along with LCPR Executive Director Susan Lenczewski walked the committee through a section-by-section description of the bill. O’Driscoll explained that since this was a short session and an off-budget year, and therefore only limited sustainability measures were able to be included because of lack of funding.  He pledged to be back next year with a more comprehensive solution.

Rep. Lyn Carlson (DFL-Minneapolis) voiced concerns about the long-term fiscal impact if the legislature waits to solve the pension funds’ financial problems.  He warned that, based on his pension experience, deficiencies grow rapidly and that it is better to act sooner rather than later.  O’Driscoll responded by saying that at least the stopgap measure in the proposed bill saves $81 million for this year and that he would work for a more global solution next year.

Rep. Mike Nelson (DFL-Brooklyn Park) stated it is unfortunate that the bill’s remedies are focused exclusively on retirees when in past years, a more balanced shared sacrifice approach was taken. Nelson said he is disappointed that we have lost the opportunity to take care of this problem, especially in a year that there is a $900 million budget surplus.

Brian Rice, representing AFSCME, indicated that AFSCME does not support the bill because it includes only a COLA cut for MSRS and not the whole package that spread the responsibility among retirees, actives and the state.

 

Courtesy TRA Director, Lauri Hacking

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