The TRA Board of Trustees on Wed., Nov. 16, approved a legislative proposal that would lower the annual cost of living adjustment (COLA) for retired teachers from 2 percent to 1 percent for 10 years and 1.5 percent thereafter.
The proposal also calls for a 2 percent increase in the employer (school district) contribution rate, from 7.5 percent to 9.5 percent, phased in incrementally. The employer contribution rate increase would be offset by a request for state aid to cover school districts’ pension costs. The active-teacher contribution rate would remain unchanged at 7.5 percent.
Representatives of the Retired Educators Association of Minnesota and Education Minnesota Retired said they were disappointed with the decision to lower the COLA to 1 percent for 10 years and said they could not support the proposal.
Another major area of contention around the package was the board’s decision to not increase the active-teacher contribution rate. Groups representing employers argued this should be an element of the proposal.
Board member Mary Supple, who teaches in the Richfield School District, said she “cannot in good conscience support raising the active portion.” Supple said she was speaking as one of the few active classroom teachers on the board who deals with the pressures teachers face every day. She said that she was teaching when the Rule of 90 early-retirement option was eliminated, and she has seen first-hand the toll it has taken on teachers forced to work past the point of burnout.
“I do not think it is in the interest of this state to continue to dump on young teachers, to continue to drive people out of the profession,” she said. “I work with these people every day. Some of us are just hanging on until we can retire. … Actives have been paying their fair share and continue to pay their fair share.”
At 7.5 percent, Minnesota teachers pay a higher amount than the average nationwide, which is 6 percent. Minnesota school districts currently contribute 7.5 percent to TRA for their teachers’ pensions, compared to an average 12.9 percent nationally.
School boards representative Kirk Schneidawind expressed serious concern with the proposal to raise employer rates by 2 percent. Schneidawind said that it’s unclear whether state funding will be available for districts to shoulder the increased pension costs, and school districts need to know that their operational and programming budgets will be held harmless.
He said the last time TRA sought major financial adjustments in 2010 it was more of a “full partnership.” Even though there was no state aid involved, active teachers did contribute more at that time. (Active teachers’ contribution rates rose from 5.5 percent to 7.5 percent, phased in over four years.)
In 2010, retirees accepted a two-year COLA freeze as well as a permanent reduction in the COLA from 2.5 percent to 2 percent, and Walt Munsterman of Education Minnesota Retired said the new proposal means retirees “are getting nailed again.” Curt Hutchens of the Retired Educators Association of Minnesota (REAM) said that since he retired in 2005 there have been more benefit “take-aways” than benefit increases, and retiree buying power is deteriorating.
Added retiree Tim Moynihan: “I understand the gravity of the decision, but this is not a good day for retirees. … Please try to find a way to do better than this.” REAM and EdMN-Retired member Joan Beaver noted that this package will be “a very tough political push.” “I don’t know how we’re going to rally our members to get behind this,” she said.
The board’s effort to settle on a financial proposal was prompted in part by pressure to lower the fund’s assumed rate of return on investments. Lowering this assumption from 8 percent to 7.5 percent has the effect of worsening TRA’s funded status and prompting the need for lower benefits and higher contributions. This comes on the heels of economic and demographic assumption changes – such as longer member life expectancies – that also negatively impact TRA’s financial status.
At its Oct. 24 meeting, the board discussed the investment return assumption, which is used to project TRA’s long-term financial trends. The board voted to lower the investment return assumption to 7.5 percent for three to five years while a study is conducted; then the rate reverts to 8 percent. Also, the study would evaluate processes and governance structure for changing the investment return assumption.
A proposal last winter that had the support of all of TRA’s stakeholder groups failed to win legislative approval – in part because of the lack of state funding to cover increased costs to school districts. A stopgap bill that would have cut the retiree COLA without any employer or employee contribution rate increases was vetoed by Gov. Dayton.
Shortly thereafter, the fiscal year ended with a poor investment return logged into the books.
Courtesy of Minn TRA Communications