Here’s why funding is at issue

Late Sunday night the Senate unanimously approved the pension bill. Action today will move to the House. TRA’s financial stability measures were not initially included in the bill, but a floor amendment added back the TRA sections.  The TRA provisions, however, become effective only “if an appropriation is made to TRA in the 2017 legislative session for the employer contribution increase.”  It remains unclear whether in the final hours of the session legislative leaders and the governor will agree to provide the funding needed to cover the costs.  A summary of the TRA provisions in the Senate-passed bill are described below.  Note that none of these provisions are effective unless funding is provided in the 2017 session.

  • COLA: Reduces TRA’s 2% COLA to 1% for five years, effective 2018-2022; for the next five years (2023-2027), the COLA increases 0.1% per year until reaching 1.5% in 2027.  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 the 2021 legislative session.
  • COLA Delay: 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). Implementation of the normal retirement age COLA is delayed five years, until January 1, 2023.  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 at age 62+ with 30 years of service or 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: 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 five-year period beginning July 1, 2018 through June 30, 2023.  Members who retire at age 62+ with 30 years of service would retain the more favorable early retirement benefit provisions available to them under current law.  For members not eligible for 62/30 provisions, the proposed change 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: Increases employEE contribution rates from 7.5% to 7.75%, beginning July 1, 2022.  Increases employER rates from 7.5% to 8.75% phased in over six years, 2017-2023). 
  • Deferred augmentation: 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.
  • Refund interest rate: Lowers interest rate paid on refunds from 4% to 3%.
  • Investment return assumption: 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.
  • Amortization period: Extends TRA’s amortization period by 10 years from 2037 to 2047.  Most other plans’ amortization periods are also extended to 2047.

Courtesy of MN TRA