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.