Reps from Pew Charitable Trusts, South Dakota pension system speak at LCPR

The Legislative Commission on Pensions and Retirement on Mon., Feb. 19, heard testimony on a state public pension stress-testing analysis from researchers at the Pew Charitable Trusts. Also testifying was the executive director of the South Dakota Retirement System, a “hybrid defined benefit plan.”

The Pew research is part of its Public Sector Retirement Systems Project, which began in 2007 and has received funding from the anti-pension Laura and John Arnold Foundation. The research includes 50-state trends on public pensions and retiree benefits related to funding, investments, governance, and employee preferences.

In their discussion, presenters Susan Banta and Tim Dawson said that pension systems are “as exposed to the impact of an economic downturn as ever, based on measures of fiscal health and investment risk.” They added that pension fiscal health varies across states and cities. There is a $1.1 trillion pension funding gap in the nation, according to 2015 data collected from annual reports in all 50 states, Pew reports.

The stress testing referenced by Pew is an analysis in which adverse economic scenarios and market volatility are simulated to assess fiscal health. Stress testing also assesses the impact of lower investment returns or an economic recession on pension costs and liabilities. Pew touts its stress testing as a tool to aid administrators and policymakers to plan for the next market downturn. Banta and Dawson presented stress-tested projections for several states on metrics such as assets and contributions, and said that nine states presently require stress testing.

Robert Wylie, executive director of the South Dakota Retirement System, testified regarding recent plan changes at SDRS – notably legislation in 2017 tying the retiree cost-of-living adjustment to the Consumer Price Index inflation measure. The SDRS COLA equals the CPI-W with a minimum of .5 percent and a maximum of 3.5 percent that may be restricted based on actuarial projections for keeping the plan fully funded. 

All three speakers emphasized that each state is unique and there is no one-size-fits-all approach to pension reform.

Also on Monday, the LCPR approved a motion to change all economic assumptions (except the investment rate of return) for the Public Employees Retirement Association (PERA), Minnesota State Retirement System (MSRS), and Teachers Retirement Association (TRA).

LCPR chair Sen. Julie Rosen laid out a timeline for upcoming meetings:

  • Feb. 27: Pension bill to be released.

  • March 6: Consider changes to the bill.

  • March 13: LCPR to vote on pension bill.

  • March 20: LCPR hearing on Secure Choice.

Courtesy of Minnesota TRA


    State workforce, national pension trends discussed at LCPR

    The Legislative Commission on Pensions and Retirement (LCPR) on Tuesday heard a presentation on national public pension trends from Alex Brown, research manager at the National Association of State Retirement Administrators (NASRA), and testimony from State Demographer Susan Brower on trends and forecasts for public employment in Minnesota.

    Brown called attention to differences between Minnesota and other areas of the United States in pension policy and spending. He noted that the employer-employee contribution rate in Minnesota is more evenly split than in other states (most often the employer contribution rate is higher than the employee’s share).

    He said that nationally in fiscal year 2015, about 4.6 percent of state and local government spending went to pensions. In Minnesota, only about 2.3 percent of state and local government spending went to pensions. In addition, the normal retirement age in Minnesota, age 66, is higher than the national median of age 63. Minnesota public workers also fund a higher percentage of their benefits than the national median. Brown mentioned some of the reforms in the U.S. in recent years, including lowering benefits, raising contributions, conversion to hybrid plans, and the transfer of risk from employer to employee.

    Brower presented data on Minnesota’s aging population, the resulting projected workforce changes, and the impact of growing diversity on the state labor force. The transition to an older Minnesota has begun, and the aging of the population will change demand for public services – especially health and human services and K-12 education, she said. As baby boomers continue to transition to retirement, labor force growth is projected to slow over the next decade, transforming the state workforce in the process.

    Brower said that the state government workforce is heavily weighted toward older workers, which shows how defined-benefit pension plans do appear to help attract and retain workers. In Minnesota, trend lines show that workers tend to stay employed in state government for a long time.

    Both presenters’ slides are available on the LCPR website:

    Courtesy of TRA Communications