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.

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

LCPR hears testimony on investment assumption, Blue Ribbon Panel recommendations

The Legislative Commission on Pensions and Retirement (LCPR) held its first meeting Tues., Jan. 31, and elected Sen. Julie Rosen, R-Vernon Center, as chair and Rep. Tim O’Driscoll, R-Sartell, vice-chair. Sen. Sandy Pappas, D-St. Paul was elected secretary. Rosen said that it’s an honor to serve on the pension commission, which has a history of crafting pension legislation in a bipartisan manner.

The commission then heard testimony from Mansco Perry, executive director of the Minnesota State Board of Investment (SBI), Myron Frans, commissioner of Minnesota Management and Budget (MMB), LCPR staff, and representatives from the pension commission actuaries at Deloitte.

Perry reviewed SBI structure, investment strategies, asset allocation, and annual return history. He reported on investment consultants’ expectation of a 7.3 percent return for the next 10 years. Perry said that the expected return is just one element in developing an assumed rate of return on pension investments, and he observed that there has been a very significant drop in the assumed rate of return over a fairly short period of time. He said that it is inadvisable for the number to bounce around, and that the rate expected by investment consultants might increase in the future. There is a need to come up with a thoughtful way to determine the rate, Perry said.

Frans presented the recommendations of the governor’s Blue Ribbon Panel on Pensions, saying that the governor asked a panel of financial professionals to review pension plan proposals and provide advice on whether to include these reform proposals in his budget. Frans said the panel felt the 8 percent investment assumption is too high and should be reduced to 7.5 percent immediately to more accurately reflect plans’ potential unfunded liabilities.

The panel acknowledged that public pensions are important to thousands of Minnesotans and provide sound financial base for recipients and the state, Frans said. The panel also supports the shared sacrifice approach developed by pension system boards and believes that funding at the state level should be made available to help reduce unfunded liabilities. Frans said the panel suggests pursuing reform strategies in the future to manage COLAs and contribution levels.

Deloitte representatives said that lowering the return assumption lowers the risk of being unable to meet obligations, and said that a more conservative rate (7.5 percent) is preferable. Deloitte provided a letter to LCPR stating that 7.5 percent is reasonable and that they don’t recommend different rates across the pension systems.

The Deloitte actuaries also noted that Minnesota is above average in management of pension plans. Deloitte also noted that other states, employers generally pay twice as much as employees while in Minnesota the ratio is closer to 50/50.

Rosen said that Frans will return next week for additional testimony regarding pension finances.

Courtesy of Minnesota TRA

Divided We Fall

The political expedient of offering a free lunch leads government authorities to make commitments they cannot support in the long term without assessments and tax increases–both political suicide. The get hit in their campaign funds and hit at the polls. The American wealthiest and their corporate empires assume a 19th century uber-privilege, owing nothing to the societies that fed their greed and freely buying the politicians to insure that. American voters meanwhile have been convinced that they deserve to have the amenities but not pay for them.

Then, when the bills come in, the authorities, beholden to their wealthy benefactors, look for excuses and scapegoats rather than biting the bullet, correcting tax law, and convincing tax-payers to pay up or give up the things they’ve come to expect. So the result is that they go after two of their own big expenses–the public workers, who make our society civilized, and the neediest, who don’t pay much tax and often don’t vote. Breaking the life-long promise of a pension to public employees, cutting funding to schools, and reducing the public work force, government chews off its own leg to free itself from the trap of its own design. Cutting off the needy is simply barbaric.

America has been effectively marketed a dream that everyone deserves a life that is fun and feels good. Watch almost any TV ad. Americans are discouraged from thinking about how that could be true when we know that life includes effort and pain. Only when enough of us look around and think will we begin to reverse the seemingly inexorable trend toward a country of 350,000,000 individuals, each at the center of her or his own universe, and start to reestablish America as a united society, who share common needs despite individual differences. If “divided we fall” has not been apparent before, certainly watching the human pieces of our civil society fall away over the years should alert us to the future we will leave our children and grandchildren.

Every thoughtful person must stand up, speak out, help out and vote.

House passes 2016 Omnibus Pension Bill

The Minnesota House of Representatives on Sunday passed the 2016 Omnibus Pension Bill (SF588) on a vote of 129-3. The bill now goes to Gov. Mark Dayton.

Legislative Commission on Pensions and Retirement (LCPR) chair Tim O’Driscoll (R-Sartell) summarized the provisions of the bill, whose major changes call for the investment return assumption for Teachers Retirement Association (TRA) to be lowered to 8 percent, and for the cost-of-living adjustment for retirees of TRA to be lowered to 1 percent for one year and for the Minnesota State Retirement System (MSRS) to be lowered to 1.75 percent for one year beginning Jan. 1, 2017.

The bill also contains a half-percent employer contribution rate increase for the St. Paul Teachers Retirement Fund Association (SPTRFA) as well as changes to provisions dealing with disability eligibility, Minnesota State Colleges and University system and language to bring the state retirement systems into compliance with federal tax law.

O’Driscoll said that the pension commission earlier this year received actuarial experience studies detailing demographic and economic recommendations that require “heavy financial lifting” – referring to sustainability packages supported by MSRS and TRA retirees, active employees, boards and employer units. These original sustainability packages reflected shared sacrifice and offset deficiencies created by increased life expectancies and decreased investment expectations.

“We have set that aside for this year since it’s not a budget year,” opting instead for a highly limited sustainability measure that reduces the retiree COLA for MSRS and TRA for one year beginning Jan 1, 2017, O’Driscoll said. This limited sustainability measure saves the systems $81.5 million, he added.

Rep. Mike Nelson, D-Brooklyn Park, introduced an amendment to delete the provision of the bill calling for a COLA reduction for TRA and MSRS retirees. Nelson said that when action is necessary to garner savings for the state’s pension plans, shared sacrifice is normally involved.

“What this plan does is take it out of the hide of retirees only. Their COLAs are being cut, their future raises are being cut, and the employers aren’t putting any more money in and the employees are not putting any money in,” Nelson said. “It’s not fair.”

Nelson said legislature is missing an opportunity, given the budget surplus, to “put more money into the pension plans so our retirees can be safe and secure in their retirement plan.” This fix only nibbles around the edges of the problem, he said. “We should be putting money into this plan now to help fix this problem.”

O’Driscoll encouraged a no vote on Nelson’s amendment, adding that the COLA reduction would represent the first step toward a pension plan solution. The Nelson amendment failed on a narrow 62-68 vote. Nelson later expressed disappointment in the failure of his amendment, but said that since this appears to be the best pension bill that could be achieved this year, he encouraged a yes vote.

A partisan skirmish erupted after Rep. Joe Atkins, D-Inver Grove Heights, introduced an amendment to raise the base benefit amount for 83 police and fire survivor recipients. Atkins argued that these people do not receive Social Security and the proposal is an effort to “do right by these members.” The cost would be $2.4 million, which Atkins said can be harmlessly absorbed by the Public Employee Retirement Association’s (PERA) Police & Fire Plan.

O’Driscoll said that he had received a letter from PERA laying out concerns about this idea, and that PERA’s board does not believe the proposal is financially sound. Prompted by Rep. Tony Albright, the House Speaker ruled the amendment not germane, and House minority Democrats expressed outrage at the notion of not allowing a pension-related amendment to an omnibus pension bill. The procedural vote stood, and the Atkins amendment was ruled non-germane.

Rep. Phyllis Kahn, D-Minneapolis, introduced an amendment directing the Minnesota State Board of Investment to develop climate change risk management strategies in its investment approach. O’Driscoll read a letter from SBI Executive Director Mansco Perry urging the legislature not to tie the hands of the SBI in making investment decisions.* The Kahn amendment failed.

Courtesy of TRA Communications


* Note from C of 13 editor: See following posting of Divestment-Investment, “Ethics and Energy: Thoughts on Divestment”

Ethics and Energy: Thoughts on Divestment

As global temperatures rise with climate change, so too does the heat of debate over the issue of investment in the fossil fuel industry.  With this debate has come a call for the Minnesota State Board of Investment (SBI) to divest its fossil fuel holdings.  Currently, a Divest-Invest Minnesota Committee is actively lobbying for the SBI to divest its holdings of these stocks.

A twofold controversy arises over the divestment issue:

1)  The right of one group of beneficiaries of the state’s assets to impose its will on all beneficiaries

2) The consequences of the proposed divestment 

Normally, the answer to the first issue would be simple—a minority interest group should not control the majority. However, if, as some argue, we are truly on the brink of destroying the life-sustaining environment of our planet, a more compelling argument might be made for the minority point of view.

A response to the second issue of the consequences of divestment is also complex. Will selling shares from one investor to another send a message, ease a conscience, or alter the behavior of the targeted corporation?  If other large shareholders divest, will that collective action affect corporate behavior? It is hard to say. Another question lingers—Does ownership of an asset indicate endorsement of that asset’s goals and activities? 

Those who argue against divestment point out that in doing so a shareholder forfeits the opportunity to influence the governance and operation of the company through proxy voting and the introduction of resolutions.  A collaboration of large shareholders, exercising their shareholder power, might affect corporate behavior, protecting fragile areas from exploitation or forcing a company to disclose what it knows of the harm done by its operation or by convincing the company to transition from fossil fuel investment to renewable energy alternatives.  By forcing a long-term view of operations, the worst of short-term devastation may be avoided

The fossil fuel industry has demonstrated itself to be brazenly unscrupulous, wreaking ecological devastation and lying to the public about its effects on climate change.  The question remains: What is the most effective investor response to the threat the industry poses for the planet and the investor’s quest for profit?  Will divestment or activist shareholders make a greater difference?

The controversy over the ethics of investment in fossil fuels will undoubtedly continue.  However, there can be no reasonable doubt about the science supporting the urgent need to find alternatives, to break our addiction to carbon based energy and to find future profits in the development of renewable energy.


Committee of Thirteen member, Larry Risser

 for more thoughts, see:

Tim Smith. “Impact through Shareholder Engagement,” Journal of Environmental Investing, 7, no. 1 (2016)


Counterpoint: Pension fixes are already on the table

And the Legislature should adopt our proposals for two of our public plans.

By Laurie Hacking, Dave Bergstrom and Doug Anderson

APRIL 29, 2016 — 5:59PM



We agree with the call for fixes to the state’s public pension plans made by Mark Haveman of the Minnesota Center for Fiscal Excellence (“Public pension plans: Can we Minnesotans handle the truth?” April 24). In fact, Minnesota’s pension boards have proposed to fix the plans in ways that meet the interests of everyone who has a stake in the system — including public employees, retirees, governments and taxpayers.

Two of the three statewide pension plans are indeed seeking legislative changes “for the third time in 10 years.” Monitoring the plans and making necessary adjustments is an ongoing, routine part of the exercise of our fiduciary duty to Minnesota’s taxpayers, active and retired public workers, local government units, and school districts. We are committed to the defined-benefit (DB) pension model and believe wholeheartedly that DB pensions are the best way to provide modest retirement security for our public workers in the most cost-effective way for taxpayers.

Last year, the forecast for future longevity improvements was changed for the state’s three largest plans. We have long known that Minnesotans are living longer, and our actuaries have been forecasting longer life spans for some time now. However, recent studies indicate that the previous assumption for future life span improvement should be more conservative. Adoption of this recommendation increases the plans’ liability estimates while reducing the risk of future cost increases.

Despite the cost impact of the mortality assumption change, the Public Employee Retirement Association’s (PERA) General Plan — the state’s largest — is still on a path to achieve full funding without legislative action this year. The Teachers Retirement Association (TRA) and the Minnesota State Retirement System (MSRS) are seeking to offset the increased costs of providing retirement benefits for a longer period of time. In December, TRA and MSRS administrators, boards, active and retired employees, and employers agreed to a sustainability package that will result in over $1.4 billion in benefit cuts. The Legislature now must approve the changes.

When combined with savings from reform measures taken in 2010, previous and proposed reforms will save $8.2 billion. These are structural reforms that will produce ongoing savings and put the plans on track for 100 percent funding.

The proposed changes reflect a “shared sacrifice” philosophy. The TRA and MSRS retirees will see their cost-of-living adjustments reduced significantly. In addition, the MSRS is asking members still in the public workforce to contribute more of their pay toward their pensions. Both the MSRS and TRA are asking employers to kick in 1 percent more to help attract and retain a high-quality workforce.

Ratings agencies Moody’s, Standard & Poor’s and Fitch have issued harsh reports on states that have not been proactive and aggressive in managing their public pension plans. Minnesota has a history of good financial stewardship of its public pensions, which is reflected in the state’s AA+/Positive bond rating. Our 2016 proposed reforms will help preserve that positive assessment.

We appreciate Haveman’s general call to action, though it should be noted that we began working on detailed solutions the minute after our actuaries wrapped up their studies last summer.

We now ask the Legislature to pass our sustainability measures and continue Minnesota’s tradition of fiscal excellence in public pension management.


Laurie Hacking is executive director of the TRA. Dave Bergstrom is executive director of the MSRS. Doug Anderson is executive director of the PERA.