House passes 2016 Omnibus Pension Bill

The Minnesota House of Representatives on Sunday passed the 2016 Omnibus Pension Bill (SF588) on a vote of 129-3. The bill now goes to Gov. Mark Dayton.

Legislative Commission on Pensions and Retirement (LCPR) chair Tim O’Driscoll (R-Sartell) summarized the provisions of the bill, whose major changes call for the investment return assumption for Teachers Retirement Association (TRA) to be lowered to 8 percent, and for the cost-of-living adjustment for retirees of TRA to be lowered to 1 percent for one year and for the Minnesota State Retirement System (MSRS) to be lowered to 1.75 percent for one year beginning Jan. 1, 2017.

The bill also contains a half-percent employer contribution rate increase for the St. Paul Teachers Retirement Fund Association (SPTRFA) as well as changes to provisions dealing with disability eligibility, Minnesota State Colleges and University system and language to bring the state retirement systems into compliance with federal tax law.

O’Driscoll said that the pension commission earlier this year received actuarial experience studies detailing demographic and economic recommendations that require “heavy financial lifting” – referring to sustainability packages supported by MSRS and TRA retirees, active employees, boards and employer units. These original sustainability packages reflected shared sacrifice and offset deficiencies created by increased life expectancies and decreased investment expectations.

“We have set that aside for this year since it’s not a budget year,” opting instead for a highly limited sustainability measure that reduces the retiree COLA for MSRS and TRA for one year beginning Jan 1, 2017, O’Driscoll said. This limited sustainability measure saves the systems $81.5 million, he added.

Rep. Mike Nelson, D-Brooklyn Park, introduced an amendment to delete the provision of the bill calling for a COLA reduction for TRA and MSRS retirees. Nelson said that when action is necessary to garner savings for the state’s pension plans, shared sacrifice is normally involved.

“What this plan does is take it out of the hide of retirees only. Their COLAs are being cut, their future raises are being cut, and the employers aren’t putting any more money in and the employees are not putting any money in,” Nelson said. “It’s not fair.”

Nelson said legislature is missing an opportunity, given the budget surplus, to “put more money into the pension plans so our retirees can be safe and secure in their retirement plan.” This fix only nibbles around the edges of the problem, he said. “We should be putting money into this plan now to help fix this problem.”

O’Driscoll encouraged a no vote on Nelson’s amendment, adding that the COLA reduction would represent the first step toward a pension plan solution. The Nelson amendment failed on a narrow 62-68 vote. Nelson later expressed disappointment in the failure of his amendment, but said that since this appears to be the best pension bill that could be achieved this year, he encouraged a yes vote.

A partisan skirmish erupted after Rep. Joe Atkins, D-Inver Grove Heights, introduced an amendment to raise the base benefit amount for 83 police and fire survivor recipients. Atkins argued that these people do not receive Social Security and the proposal is an effort to “do right by these members.” The cost would be $2.4 million, which Atkins said can be harmlessly absorbed by the Public Employee Retirement Association’s (PERA) Police & Fire Plan.

O’Driscoll said that he had received a letter from PERA laying out concerns about this idea, and that PERA’s board does not believe the proposal is financially sound. Prompted by Rep. Tony Albright, the House Speaker ruled the amendment not germane, and House minority Democrats expressed outrage at the notion of not allowing a pension-related amendment to an omnibus pension bill. The procedural vote stood, and the Atkins amendment was ruled non-germane.

Rep. Phyllis Kahn, D-Minneapolis, introduced an amendment directing the Minnesota State Board of Investment to develop climate change risk management strategies in its investment approach. O’Driscoll read a letter from SBI Executive Director Mansco Perry urging the legislature not to tie the hands of the SBI in making investment decisions.* The Kahn amendment failed.

Courtesy of TRA Communications


* Note from C of 13 editor: See following posting of Divestment-Investment, “Ethics and Energy: Thoughts on Divestment”