LCPR considers several bills and hears testimony from Center of the American Experiment

March 22, 2017 – Last evening the Legislative Commission on Pensions and Retirement (LCPR) considered several pension bills and heard testimony from Kim Crockett with the Center of the American Experiment (CAE).
In a discussion about funding for the major pension bills, Rep. Paul Thissen (D-Minneapolis) asked LCPR Chair Sen. Julie Rosen (R-Vernon Center) whether the LCPR can act on the major pension bills this session since the recently-released House GOP and Senate GOP budget targets do not specify funding for pensions. Rosen responded that pensions are a priority and that “in the end, we will take care of pensions.”
Kim Crockett*, who is CAE’s Vice President, Senior Policy Fellow and General Counsel, made a presentation (available on LCPR website), “Keeping the Promise: Pensions 2017” and was accompanied by Ross Bowen, an actuary and Financial Advisor at Merrill Lynch Wealth Management, who helped CAE analyze the Minnesota pension system valuations.  In her testimony, Crockett pointed out that there are 630,000 public pension retirees, survivors or active public employees in Minnesota who are counting on their public pensions.  She said Minnesota has been making pension promises without paying for them and highlighted how the funding ratios of the systems have dropped from being fully funded in the early 2000s to being 77 percent funded by 2016, leaving a $17.8 billion shortfall.   She indicated that “Anyone in a DB right now, I want to see it fully funded.”
Crockett stated that current investment return assumptions are too high and understate the deficit. She provided estimates showing that the current $17.8 billion shortfall would be $31.6 billion if a 4.3 percent return is assumed and $44.2 billion if a 2 percent return is assumed.  Unfunded liabilities are crowding out other spending priorities, she said, and referenced a quote from Warren Buffett that calls pension costs a “gigantic financial tapeworm.” Crockett pointed out that contributions for the plans have been rising but those contributions “are not getting us out of the hole” and she added that the “market crash did not cause the pension problem as the funds would have you believe.”
Crockett proposed solutions: “fully fund the defined benefit plan for retirees and current employees,” and then close the plans in order to stop adding new liabilities.  Crockett recommended new employees be offered a defined contribution plan that she believes would be more appealing to younger employees.  With respect to COLAs, she indicated that they “eat away at the asset base” and are not provided by private sector pensions.  LCPR members had no follow-up questions of Crockett.
In action earlier in the hearing, LCPR approved a special individual bill (SF 1839) that would permit a Winona State University employee a second opportunity to elect TRA coverage with the costs of that coverage borne by the employee and Winona State.
The LCPR also heard legislation (SF 1864/HF 2390) affecting PERA-covered employees receiving workers compensation.  Under current law, an employee may elect to purchase service credit for a period during which the member is receiving workers compensation, but in order to receive credit, the employee must pay both employee and employer contributions on the compensation.  The bill would require employers to pay PERA contributions on workers compensation when the employee elects to pay contributions on such compensation.  The bill limits the purchase to up to one year.  The bill was laid over for possible consideration in the omnibus pension bill.
LCPR also considered a bill (HF 2236) that would grant a benefit increase to retirees and surviving spouses of certain local salaried police and fire relief associations that consolidated with PERA. The benefit increase would be funded by state aid to PERA.  The bill was laid over for possible consideration in the omnibus pension bill.

Laurie Fiori Hacking, Executive Director
Minnesota Teachers Retirement Association

* C of 13 editor’s note: Kim Crockett has consistently provided an absolute worst case interpretation on publicly held pension systems. Some of these border on “alternative fact.” The CAE has a clear interest in moving billions of public employee pension funds from State Board of Investment control into the hand of private investment industry hands–hands that keep a bit of every transaction.

This is life in the privatized pension lane

 It’s just about picking the right stocks. Right?

What does distributing risk look like? What do the fees actually cost over the 60 years between 25 and 85? Oh and then there’s the health savings account for you medical costs. Everyone will have to save for the average cost of medical care including end of life. Right? And there won’t be any downturns in investments ever again. Right?

Now let’s see how many dollars will it take 20 or 50 years from now? So I’ll need to save how much out of my checks? I don’t make that much yet. Shouldn’t my school district or university or the state have to pay this? Who benefits from my work, after all?

04MONEY-02-master768

Matthew Lesser, a Connecticut state representative, sponsored a bill that would require more disclosures on conflicts of interest by those who sell 403(b)-type retirement plans.

Credit Christopher Capozziello for The New York Times

Support the Minnesota TRA 2017 Pension Adjustment Plan. Protect your public employee pension. It’s part of your compensation for years of service to Minnesota’s children and families.

Pension commission hears staff presentation on benefit cut options

The Legislative Commission on Pensions and Retirement (LCPR) met Tuesday night to hear a staff presentation regarding possible benefit cut options in addition to the benefit reductions already proposed by the retirement systems. 

Commission chair Julie Rosen, R-Vernon Center, explained that the hearing would be a listening session and encouraged LCPR members to ask questions. Rosen explained that LCPR would begin to build the pension bill at upcoming March meetings. The next LCPR meeting is scheduled for Tues., March 7, at 5:30 p.m.

LCPR staff, Susan Lenczewski and Rachel Barth, reviewed the proposals made by MSRS, TRA and SPTRFA and described the financial status of the plans. Staff explained that Rosen and Rep. Tim O’Driscoll, R-Sartell, had asked them to develop benefit cut options in addition to those proposed by the plans. 

LCPR staff had originally developed a list of approximately 30 benefit cut options, but O’Driscoll and Rosen had narrowed down the list to about 14, which they described as being in a “research and report” mode. The benefit cut options that were described by staff included:

  • Lowering the retiree cost-of-living adjustment to 1 percent permanently.
  • Increasing early retirement penalties for members who retire before the normal retirement age of 66.
  • Increasing the normal retirement age from 66 to 67.
  • Increasing the minimum early retirement age from 55 to 57 or 62.
  • Lowering TRA’s current benefit formula multiplier from 1.9 percent to 1.7 percent for each year of service.
  • Delaying payment of the first full COLA until a retiree reaches the current normal retirement age of 66.
  • Eliminating or reducing the benefit increase (augmentation) mechanism now available for members who terminate public service and elect to leave their contributions with the pension system and delay receiving a benefit.

Commission members asked several questions about changing demographics and growing number of retirees relative to active members. There were also several questions about the complex mechanics of the augmentation or deferral mechanism. Some commission members asked for more explanation about how early retirement penalties work. There were also questions regarding how retiree health care costs are accounted for in the CPI and whether COLAs had been frozen in prior years.

Regarding the proposal to lower TRA’s benefit formula multiplier, some commission members recalled that TRA employee contributions were increased in 2006 to pay for this formula improvement. Some LCPR members expressed a desire for more consistency among the provisions of the statewide plans. Concerns were also expressed about the need to avoid reducing benefits for members close to retirement so that benefit promises are kept. The importance of pensions in the recruitment and retention of public employees was also mentioned.

Some commission members cited their concern that the systems were asking for $400 million in financial assistance “in perpetuity.”

Courtesy of Minn TRA Communications