A preliminary draft of a pension bill

A preliminary draft of a pension bill was posted last night on the LCPR website. It can be accessed at: http://www.commissions.leg.state.mn.us/lcpr/documents/mtgmaterials/2017/LCPR17-038.pdf.

Below is a summary of the main provisions of the bill that affect TRA.  Note that some provisions may change as a result of technical refinements being worked on by Commission staff.

1% COLA (pages 41-43 of bill): Reduces TRA’s 2% COLA to 1% effective with the next January 1, 2018 COLA.  Eliminates future COLA triggers that would increase COLAs if system funding improved. Also requires LCPR to study COLAs for all plans and make recommendations for change including whether a new COLA methodology should be adopted. The study is due in time for the 2021 legislation session. (page 48)

COLA Delay (page 43): Delays payment of the first full COLA until a member reaches normal retirement age (age 66 for post-89 hires and age 65 for pre-89 hires). The delay is effective for retirements beginning January 1, 2018.  Under this proposal a teacher retiring at age 62 would have a frozen benefit for four years until eligible for a full COLA, whereas under current law the wait period for the full COLA is 18 months. Members retiring under the Rule of 90 are exempt from this COLA delay. Also exempt are disabilitants and younger survivors of members who die while active.

Early retirement benefits (pages 10-14): Reduce early retirement benefits by eliminating current-law augmentation rates that are used in calculating benefits.  Early retirement benefit augmentation would be eliminated over a four-year period beginning July 1, 2018 through June 30, 2022.  Compared to current law benefits, this provision, once fully implemented, would reduce early retirement benefits by approximately 18% for members retiring at age 60, by 11% for members retiring at age 62 (TRA’s average retirement age), by 8% for members retiring at age 63 and by 6% for members retiring at age 64.  Reductions for members retiring before age 60 would be more significant, ranging from 19% at age 59 to 33% at age 55.

Contribution rates (pages 88-89): Increases employEE contribution rates from 7.5% to 8.25% phased in over four years, beginning July 1, 2017.  Increases employER rates from 7.5% to 8.5% phased in over four years, beginning July 1, 2017.  At this point, the bill does not contain any language that would provide funding to offset the increased costs to employers.

Deferred augmentation (pages 14-16): Reduce augmentation from 2% to 0% for vested deferred members who terminate employment and elect to leave their contributions with TRA.  The elimination of augmentation would occur for future years of deferral beginning July 1, 2018.

Investment return assumption (page 22): Lowers TRA’s investment return assumption to 7.5% along with all other pension plans.  Also lowers to 7.5% the interest TRA charges members and employers for repayment of refunds, various leave payments, and omitted contributions (pages 70-72; 79)

Amortization period (page 28-30): Extends TRA’s amortization period by 10 years from 2037 to 2047.  Most other plans’ amortization periods are also extended to 2047.

Contribution stabilizer (page 16): The contribution stabilizer authority the TRA Board has under current law would be repealed. Under that law, the Board has authority to recommend adjustments in contribution rates to address funding deficiencies or sufficiencies. Any contribution rate change is subject to review and approval by the LCPR.

Actuarial impacts:  As of this point in time, no actuarial estimates of the impact of the proposal on system funding have been made available, but we understand that the goal of the proposal is to attain a 90% funded ratio in the next 25 years.

Balance/shared sacrifice: Based on preliminary analysis by TRA, approximately 66% of the proposed package would be borne by active teachers, 21% by current retirees and 13% by employers.

For a summary of provisions affecting systems other than TRA, you may check the LCPR website for a staff memo that will be posted later (See http://www.commissions.leg.state.mn.us/lcpr/meetings/agendas/2017/050817agenda.htm for the forthcoming LCPR staff memo.)

Public testimony on the bill will be taken at a hearing scheduled for Monday, May 8, 2017, 5:30 pm in Room 123 of the State Capitol.  If you wish to testify, contact Lisa Diesslin at 651-296-6806 or lisa.diesslin@lcpr.leg.mn BEFORE the meeting, identifying the agenda item of interest.

Courtesy of Minnesota TRA