2018 Sustainability Bill Passes Out of Pension Commission

The Legislative Commission on Pensions and Retirement (LCPR) on Tues., March 13, passed the 2018 omnibus pension bill. The next stop for the bill is the Senate State Government Finance Committee, which will hear it on Thurs., March 15, at 1 p.m. in Room 1200 of the Minnesota Senate Building.
The bill includes sustainability measures for all four public pension systems: the Teachers Retirement Association (TRA), the Public Employees Retirement Association (PERA), the Minnesota State Retirement System (MSRS), and the St. Paul Teachers Retirement Fund Association (SPTRFA).
Details on the bill, currently moving as SF 2620 (Senate version)/ HF 3353 (House version), may be viewed on the State Legislature website.
Minnesota Management and Budget Commissioner Myron Frans told commission members that Gov. Mark Dayton endorses the pension bill in its current form and will include the funds in his supplemental budget. Frans said the bill is a “very important sustainability package” that has been several years in the making and includes measures to improve the financial health of the pension funds and the state.
The bill reduces liabilities by about $3.4 million immediately, lowers the rate of return on investments to a “reasonable” 7.5 percent, puts the plans on the path to full funding, provides funding to schools to offset increased pension contributions, ensures that unfunded liabilities won’t weigh down bond ratings, and safeguards the retirement security of public employees for the future, Frans said.

* COLA: 1.0% for 5 years (2019-2023), then increase by 0.1% per year in each of next five years (2024-2028) to 1.5%
* COLA delay to age 66  (effective 7/1/2024) (exempt: Rule of 90, disability, survivors, age 62/30 years)
* Early retirement: Increase penalties, 5-year phase-in (fiscal years 2020-2024), age 62/30 years exempt
* Employee contribution increase: +0.25% beginning in FY2024 (7.5% to 7.75%)
* Employer contribution increases: +1.25% phased in over 6 years, FY19-24 (7.5% to 8.75%)


Commission hears public comment on pension bill

The Legislative Commission on Pensions and Retirement (LCPR) on Tues., March 6, reviewed miscellaneous pension-related bills and again took up the 2018 Omnibus Retirement Bill. Numerous stakeholders spoke during the public testimony portion of the meeting.
Teachers Retirement Association (TRA) retirees from the group Retired Educators of Minnesota (REAM) said that REAM supports the pension bill as long as funding of the employer contribution portion is approved. REAM’s Lonnie Duberstein said that he is grateful for his defined-benefit pension and wants the same benefit to be preserved for the next generation of teachers.
Education Minnesota’s Rodney Rowe spoke to the recruitment and retention value of the TRA pension and said that his union supports the bill. Joan Beaver of REAM and Education Minnesota Retired and Louise Sundin of the Minneapolis Committee of 13 also spoke in support of the bill.
Representatives of school boards and administrators showed up in force to support the bill provided state pension adjustment aid is included. Scott Croonquist of the Association of Metropolitan School Districts thanked the commission for working out the pension adjustment formula, noting that because schools do not have general levy authority, such an aid provision is needed to offset increases in the TRA employer contribution.
Grace Keliher of the Minnesota School Boards Association, Valerie Dosland of the Minnesota Association of School Administrators, Fred Nolan of the Minnesota Rural Education Association, and Joel Albright of Schools for Equity in Education also testified in favor of the pension bill.
Public safety and firefighter representatives testified that a strong pension system is needed to recruit and retain police officers. Joe Dellwo of the Minnesota State Patrol Trooper’s Association noted that state troopers don’t get Social Security and said that the bill represents shared sacrifice by all parties.
Members of the Minnesota State Retirement System (MSRS) representing the state Pollution Control Agency and the University of Minnesota agreed that a healthy pension system helps attract and retain skilled public workers at a time when “brain drain” and succession planning are major concerns.
Public Employees Retirement Association (PERA) members from AFSCME testified that the 1 percent COLA outlined in the bill is hard to swallow, but the union supports the bill. It was noted that many PERA retirees have no Social Security coverage and are therefore deeply dependent on their state pensions.
Also on Tuesday, the commission reviewed separate bills dealing with state aid eligibility reporting for the Clearbrook Fire Department Relief Association, TRA coverage election authority for a Minnesota State employee, coverage for PERA part-time paramedics and emergency medical technicians employed by Hennepin Healthcare System, and clarifying PERA DC distributions for those still employed.
The pension commission intends to pass the bill at its next meeting, March 13 at 5:30 p.m. in Room 1200, Senate Office Building.

Courtesy TRA Communications

 Committee of 13
Communications Extra:

It is important to let your Representative and Senator know how important the passage of the LCPR Pension Omnibus Bill is – to you and to all Minnesotan.
The Pension Bill has numbers in both houses:  SF 2620 and HF 3053.  Chair Rosen is working to get universal support in the Senate and Rep. O’Driscol, Vice Chair, is working to get support in the House. Governor Mark Dayton has agreed to put funding for pensions into his Supplemental Budget.

Listen, Talk, Vote

It is an election year for Minnesota. Much is at stake.
Midterm elections don’t usually draw much voter turnout. When the state economy seems to be doing well, voters may think that not voting returns the status quo. These conditions favor the opposition, whose turnouts produce stunning defeats and are followed by dramatic reversals.
Minnesota stands out as a great place to live, for now. The governor’s efforts to hold off the forces of capital side pressure have preserved many gains for Minnesotans. That could come undone in November. There is a fragile and unreliable balance in power.
If the effects of an international trade war sharply depress the equity markets and the economy, pensions and other retirement savings could be similarly depressed and under renewed threat from the investment industry. Losses in farm exports could put further demands on our state’s resources. Meanwhile, prices for consumer goods as well as medical costs and inflation could rise. Social Security and Medicare are already under threat from blossoming Federal debt and the prevailing “everyone for her/himself” attitude in Washington.
We can anticipate debates around gun sentiment and actual education needs upping that piece of the next budget, while the 2017 budget standoff gets revisited attention. The #MeToo movement will rightly demand some actions. Meanwhile, other gender rights agendas lie right beneath the surface. And there will be water quality problems and climate change effects that are unpredictable but seemingly inevitable. Actions taken will have long-lasting outcomes.
Voting in November could not be any more important. Your everyday lives are far more impacted by state controlled factors than any other. Every candidate must be asked about all of the above points, and their answers must be clear and their positions firm. That’s how you must decide your votes.
If you’ve read this far, you were already committed to voting. Now commit to getting family and friends to do likewise. Find out where candidates are on the issues and get yourself and others to the polls in November. Every day you should think about what’s important in your life that the State of Minnesota affects in some way. Listen to what others are saying about these things and talk with them about why you feel as you do. Then every day, tell someone to vote in November.

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

    2018 DFL Precinct Caucus Resolutions

    The Committee of 13 and the Retired Teachers Council 59 encourage retirees to take the following resolutions to the precinct caucuses and move to them for approval. If passed, these resolutions will then help shape the platforms of Minnesota’s political parties and be a guide for legislative candidates running for office and serving in the MN Legislature.

    Ready to introduce a resolution at your DFL precinct caucus?

    First, download this page so that you can open Web pages and can still copy the resolutions from those below. You can download it as any sort of file, but keep it open and handy.

    Next download the DFL precinct caucus resolution form here:


    Your resolution will need to be on this form in order to be considered at the caucus.

    Once it’s downloaded, open it and keep both the text of this page and the Resolution Form open on your desktop or tablet. You will need to work between them.

    Fill in the Resolution Form and print it out. Just copy and paste the language of one of the resolutions listed those below. Then save the form with its own file name for your record–and just in case. Then you can erase the resolution section of the open Resolution Form and reuse it by copying and pasting the next resolution in. You may also need to change the category. Just remember to save the changed form under a new file name.

    Don’t forget to take your resolutions with you to your caucus on Tuesday, February 6th at 7:00. Look here to be sure you know the location of your caucus location: http://caucusfinder.sos.state.mn.us/

    Exercise your democratic rights. Attend your caucus, become a convention delegate, and vote.


    Secure Retirement resolutions

    I move that the party support a strong, secure retirement system for our public educators and support the goal of maintaining a defined-benefit pension plan for current and future generations.


    I move the party support providing an investment of state funding to ensure continued financial stability of the major public pension funds.


    Early childhood Education resolution

    I move the party support funding to offer universal, school-based pre-kindergarten taught by licensed professionals, to all Minnesota 4-year-olds.


    Higher Education resolution

    I move the party support state and federal financial aid grants, loans and tax credits to make public higher education affordable and accessible for every Minnesota resident.

    Commission explores public pension privatization

    An organization that spends millions of dollars on a state-by-state effort to privatize public pensions is now playing a significant role in pension discussions at the Minnesota state capitol.

    The Legislative Commission on Pensions and Retirement (LCPR) heard testimony on Wednesday from a University of Minnesota research fellow whose pension policy research is funded in part by the anti-pension Laura and John Arnold Foundation. Also testifying was the executive director of the Oklahoma Public Employees Retirement System, whose state’s transition away from pensions to a private, defined-contribution system was partly due to a push from the Arnold Foundation.  

    The Feb. 19 LCPR meeting is set to include testimony from a representative of the Pew Charitable Trust. Pew has received $9.7 million from the Arnold Foundation to support its Public Sector Retirement Systems project (http://www.pewtrusts.org/en/projects/public-sector-retirement-systems), according to Governing magazine (http://www.governing.com/topics/mgmt/gov-john-arnold-pensions.html).

    The Arnold Foundation has directed nearly $28 million to fund pension policy research nationwide and millions more in personal donations from the Arnolds to support political candidates and ballot initiatives aiming to switch public workers to 401(k)-style plans, according to Governing magazine.

    Kurt Winkelmann, a former managing director at Goldman Sachs, is leading the inter-disciplinary research project on pension policy design at the University of Minnesota’s Heller-Hurwicz Economics Institute. Winkelmann told the LCPR that his project’s goal is to “provide a solid research foundation for choices” in retirement plan design and take advantage of cutting-edge tools for developing pension policy.

    The dual policy goals, he said, are secure retirement income for employees and reducing volatility in taxpayer expense. Referring to a few 2017 news articles debating the nature and extent of Minnesota’s public pension challenges, Winkelmann compared the state’s pension policy to the Bill Murray movie, “Groundhog Day.” An article appears about funding issues, op-ed rebuttals ensue, new funds are allocated at legislature, and the cycle repeats, he said.

    Using Arnold Foundation funding, the project will include academic conferences with experts and researchers, quarterly policy briefs (four of which have been published at https://cla.umn.edu/heller-hurwicz/pensions-initiative), three policy forums that will be open to the public, and two workshops to “help policymakers with pension policy,” Winkelmann said.

    Sen. Sandy Pappas, D-St. Paul, asked Winkelmann whether he has ever studied Minnesota pensions before, or if this is a new endeavor. She asked whether he intends to familiarize himself with the history and reform record of Minnesota’s pensions. Winkelmann affirmed that you can’t talk about changes unless you spend some time studying how you got from Point A to Point B.

    Winkelmann touched on the privatization of public pensions in Pennsylvania and Rhode Island, but was unable to answer in-depth questions about those states. He also mentioned the success of pension systems in the Netherlands and Australia and the transparency of those plans. 

    Sen. Warren Limmer, R-Maple Grove, asked whether Winkelmann believes Minnesota lawmakers are doing something that’s not transparent, noting that reporting requirements for actuarial valuations for pension plans are set in statute. Winkelmann responded by touting a market-based rate (around 4 percent). Pension systems use an assumed rate of return on investment that’s higher than the market rate because long-term average investment return performance is typically higher than 4 percent.

    Testifying via Skype was Joseph Fox, executive director of the Oklahoma Public Employees Retirement System, which closed its defined-benefit plan to new state employees hired on or after Nov. 1, 2015. From 2010 to 2015, legislators studied pension reform and ultimately made changes to raise the retirement age and eliminate retiree cost-of-living adjustments, among other things. OPERS has not paid a COLA since 2008.

    Today, state employees have a mandatory contribution rate of 4.5 percent but may opt to contribute more. The employer contribution for all new state employees is 16.5 percent of payroll. Of this total, only 6 percent to 7 percent goes to the employee retirement account. The remainder (9.5 percent to 10.5 percent) goes into the closed legacy fund.

    Rep. Tony Albright, R-Prior Lake, asked how fees are reported to participants in the defined-contribution plan, who choose from a menu of investment options through Vanguard. Fox said the fee structure is transparent; participants can access fee disclosure in all records and by viewing their individual accounts. Fox said the system’s board was very concerned about fees.

    Pappas said that the 2011 DB/DC study commissioned by the LCPR and conducted by the three Minnesota statewide retirement systems should be reviewed for new commission members who might be unaware of the estimated cost of transitioning public employees from the defined-benefit plan to private savings plans. (That cost, in 2011 dollars, was estimated at $3 billion.)

    Pappas asked Fox whether Oklahoma has done a cost-benefit analysis of the switch to private retirement plans and if the change was worth it. Fox said the state has not conducted a cost-benefit analysis. The driving force behind the move, he said, was the “changing face of public pensions in the country.” “Reform has been in the air for a decade now,” Fox said.

    Sen. John Jasinski, R-Faribault, asked whether the change has affected the ability of Oklahoma’s public sector to attract employees. Fox said his state has been under a hiring freeze, but admitted that new employees are unhappy about the mandatory defined-contribution plan once they become aware of the differences between the benefits of a DB plan versus a DC plan.

    The LCPR next meets on Feb. 6, when it will hear from the National Association of State Retirement Administrators (NASRA), the head of the South Dakota Retirement System, and the Minnesota state demographer. On Feb. 19, a representative of the PEW Charitable Trust will address the panel.

    Courtesy of TRA Communications

    Where Will the Money for Your Pension Come From?

    What is a pension?

    A pension is what you get upon retirement to live on with some dignity. Most of us understand the Social Security benefit as a partial pension; that is it was meant to help the elderly and disabled survive outside the poor house, a place more like a prison than a retirement or nursing home. Big businesses often provided a real pension for employees to honor their years of service and live in relative comfort in retirement. That was more often the case when a “job for life” was the framework for a middle class of workers in a successful economy. Two things changed that framework: job mobility and greed.

    Laissez faire government of the economy at the end of the end of the 19th century allowed a few to become very rich—the robber barons. However a burgeoning middle class of managers also rose and began to demonstrate the underside of the capitalist competitive spirit. While the corporations competed for more of the market, the new middle class competed for more of the money being moved around—bigger houses, motor cars and eventually stock holdings. Meanwhile labor workers were experiencing more company debt rather than rising wages, leading to a labor revolt and the rise of unions. Everyone was coping with the changes that were taking place 100 years ago, yet, everyone seemed to see the solution to these situations in terms of more dollars.

    The stock market crash, the following depression and the great drought put the brakes on the flow of dollars however, and of course these events hurt those with access to the fewest dollars the most. The scales were now marked, however; life was all about how many dollars one had. So Social Security came into existence to provide “life” for those hard hit in old age. Life was still valued in dollars however, and more was definitely better.

    Following the World War II, the three earner sectors emerged to resume their pursuit of the dollar: the fat cats, who had retained vast sums over the course of the depression and then profited from the war; the professional and management classes, who thrived in the war industry’s enormous growth; and the union workers, many of them soldiers, sailors and fliers returning from combat, now manning factory positions, displacing women and negotiating for pensions more lucrative than Social Security.

    These three sectors have been competing for dollars ever since. Greed has been sanctioned in all sectors and has led to unethical and even criminal activity to profit on the labor of others. Only one sector actually creates new wealth however, the workers. The other sectors have always used that created wealth as their source of dollars. Hence, any process that holds money in a lower economic sector becomes the target for the sector or sectors above. Those targets include wages earned, pension funds held and taxes used to pay for public services and infrastructure.


    So what about our pensions?

    Because we are public employees, our pensions all originate in taxes: income and sales taxes, property taxes, and various transactional fees. It is public money, paid for infrastructure and social services available to all, often without cost to the user, rich or poor, and collected from everyone, more or less. There are indeed billions of dollars paid in taxes and used publicly which are unavailable for private wealth in theory and in law. However, public money is not the only or the largest part of the pensions we do or will collect.

    Just as businesses did when they still valued their life-long workers, money is invested from day-one on the job until the last check at retirement, over 20 or 30 years or more. Generally some of that investment comes from a percentage paid from the employee’s paycheck, and, nationally on average, more comes from a percentage paid by the employer. While wages may have risen considerably over that time, the value of the day-one investment, enjoying as many as thirty or more years of growth, may actually be worth much more than the last deposited investment from the higher wage. What’s more the amount remaining after any pension payout is still earning more as the invested funds continue to grow, failing a serious market setback.

    The “de facto contract” made with the employee upon hiring will continue to be paid out and never be reduced through the employee’s retirement. In the case of public school teachers, that contract is generally with the state government, which must therefore find a way to honor that “contract.” One way the state can do that is by increasing the contribution rate from the teachers and/or the schools. The teachers and/or the schools must eat the costs or more money will have to be provided by public sources, e.g. tax funds. The state has no way to control the invested funds as a financial source however. So the contribution from those invested funds can only be decreased, should the markets perform badly or for long, by raising the contributions from teachers and schools. Those contributions can also be raised by hiring more teachers as well, or raising salaries, but these moves shift the burden to the tax base and so are unwelcome.

    So your pension’s value is composed of four parts: what you pay out of your check, what your employer pays above that amount, the interest that accrues on those investments, while you’re working, and the interest earned on what remains uncollected during retirement.

    The last two fund contributors reside in a pension fund, a single financial account that is managed and invested by a state agency. For Minnesota teachers, except those in St. Paul who have their own fund, that fund is the Minnesota Teacher Retirement Association (TRA) fund, which is managed by the Minnesota State Board of Investments (SBI). Private investments on behalf of individuals also exist of course. Private investments involve an investment broker sometimes, and a fund manager for any mutual fund in which one invests. If one invests independently, say online, there will be a brokerage fee for every transaction. TRA and SBI management are government employees, not insurance company salespeople, fund managers or Wall Street brokers who take much bigger bites from invested dollars.

    Public pension sources of revenue, 1987-2016
    Compiled by NASRA based on U.S. Census Bureau data


    So what’s the breakdown?

    Well, it looked like this nationally in 2016, but since 2017 has been a very good year for investments, the 61% will be greater. It’s important to understand that these figures are amounts over 30 years and for the whole nation. Notice that on average, the employer (school districts) contribution is more than twice the employee (teachers/administrators) contribution. In Minnesota, those contribution rates are equal.

    If one were excited by the competition for more money, one might look at that $4.3 trillion and salivate. Changing the plan from publicly managed to privately managed doesn’t change that dollar figure. It just breaks it into many smaller, more vulnerable pieces. As it is, changes to the plan are managed through public agencies, in Minnesota, that is the joint Legislative Commission on Pensions and Retirement (LCPR). That means it is subject to political influence, but not to the profit of account managers, a perilous trade-off perhaps.

    Because it is an important part of the TRA legislative proposal, the ratio of employer and employee contribution rates is worth knowing about. Look at the comparison of the three big Minnesota public employee funds with the St. Paul

    Employer and employee contribution rates

    teachers’ fund compared to the U.S. average. Why they differ and what it means is certainly more complex than this chart describes. There are two things to consider as you look at this though. The blue column are from the deductions from your paycheck. When this column goes up and salaries are flat, or when retiree benefits (not in this chart) go down, jobs in education look unprofitable and the best qualified new teacher candidates may look elsewhere for jobs. This has an impact for every Minnesotan. Furthermore, for the red column to go up, the LCPR has to propose that change in a bill at the Legislature that must pass it into law over the governor’s signature or a two thirds majority. The cost of that change will come from the same source as teachers’ salaries, the tax base. I will leave you to deduce what this means in our current political climate with elections coming after the next session.

    Some states, bearing very high employer contribution percentages, have been encouraged to convert or seriously constrain pensions, thus throwing the more of the cost of retirement onto the employees. Historically, Minnesota’s contribution ratios looked as follows.

    Employee/Employer contribution rates 1960-2015

    While such contribution equity seems fair, the burden of the contribution falls proportionally more heavily on the employee than on the tax base. Tax payers in Minnesota have been getting a good deal on their investment in the state’s teachers.


    Wrapping up.

    As of September 30, 2017, TRA had approximately $21.78 billion in assets. Of this amount, employee and employer contributions only account for less than one third of the funds’ values. Our (currently) healthy investment markets have been contributing more than twice that portion. The guiding wisdom of saving early and often is certainly born out here. In the 23 years from 1990 to 2013, a period that included two big and one small market setbacks, the TRA invested fund was able to well out perform national expectations.

    Minnesota TRA pension fund sources 1990-2013

    Discussions will be coming up this year on how Minnesota can stabilize the public employee pension obligations. You may wish to be part of that discussion, or at least make your informed opinion known. Beside this blog post, there is much more information online from state agencies and offices and the TRA. The Committee of Thirteen should also be able to help you understand how this might affect you and what we propose to help your situation. Visit www.committeeof13.org and send your questions to info@committeeof13.org.

    Jay Ritterson, Committee of Thirteen