That Was Then; This Is Now

We had a fantastic success in Minnesota teachers’ defined-benefit pension plan last spring. Here’s what shaped that public employee pension adjustment bill:

What were the factors making it necessary to pass a pension bill?

Mortality Experience: An experience study in 2015 evaluated all actuarial assumptions (economic and demographic) and recommended an adjustment to the mortality tables — TRA members and retirees are living longer — on average an extra two years, adding significant cost to the fund.

Who has the longest average life expectancies in the USA?
…….people born in Hawaii, age 81.3
…….people born in Minnesota, age 81.1
…….people born in Connecticut, age 80.8
…….people with higher education
And which of these are Minnesota teachers?

Investment Return Expectations: A “mini-experience study” in 2017 of the economic assumptions recommended a lower investment return assumption, from 8.5% to 7.5%. This adds significant liability to the fund.

However, It isn’t over yet. Future legislatures and administrations could undo all of that, and there will certainly be a big push from Arnold Foundation millions to bring us all into their high fee brokerage firms with a defined-contribution plan. While we fight back at the polls, Minnesota TRA is heading toward stabilizing and advancing those hard won pension system benefits.

TRA logoTRA Strategic Planning – Four Goals

Engagement and education
TRA will provide information to empower members, employers, legislators and taxpayers to be informed and engaged about TRA’s governance structure as well as the value of a defined-benefit plan. Member educational materials should be clear, accurate, accessible and presented in innovative ways for all life stages.

Fund integrity balanced with equity in plan provisions
TRA will abide by its fiduciary duty to ensure the financial stability of the plan while working toward fairness in benefit structure and contribution rates. TRA will continually monitor the plan’s financial health. When needed, TRA will recommend adjustments to stabilize the fund while upholding the board’s guiding principles of shared commitment, intergenerational equity, long-term financial sustainability and maintaining the recruitment/ retention value of a TRA pension

Engaged, empowered, high-performing workforce
TRA will demonstrate dedication, stability and inclusivity. Leadership and staff will respect all perspectives and experiences. Succession planning and operational workforce planning will support the transfer of knowledge from outgoing employees and the recruitment and retention of new and existing employees.

Risk-intelligent organization
TRA will be a risk-intelligent organization with a robust, proactive and comprehensive risk-management program. TRA will continue to monitor and respond to known and emerging risks.

TRA’s Mission:

Retirement security for Minnesota teachers

Support state’s education system by attracting and retraining teachers


TRA Responds to Bloomberg News Article

An article published by Bloomberg News (“New Math Deals Minnesota’s Pensions the Biggest Hit in the U.S.,” Aug. 31, 2017),  uses numbers reported under the Governmental Accounting Standards Board (GASB) rules to paint an incomplete and misleading picture of the financial health of Minnesota’s public pension plans.
The key point to understand about numbers reported under GASB rules is that the true health of a pension plan is determined not by GASB annual accounting rules but by funding policy.
GASB reporting is not intended to provide a picture of the funded status of a pension plan. Instead, funded status is determined by an actuarial funding methodology, the objective of which is to achieve an ultimate funded status of 100 percent. If the TRA reforms currently pending in the legislature are enacted, TRA will be on that positive funding trajectory.
In response to an increase in TRA liabilities caused by longer member lifespans and reflected in the GASB numbers, the TRA Board of Trustees proposed $1.6 billion in benefit reductions and $92 million in annual contribution increases. Unfortunately, the TRA proposed financial reforms failed to be enacted during the past two legislative sessions (2016-2017). TRA will renew its request for reforms in the 2018 session.
Enactment of proposed pension reforms by the legislature would significantly improve the numbers reported under GASB rules – as will the strong 15.1 percent fiscal 2017 investment return.
The Bloomberg article claims that Minnesota has experienced “lackluster” investment returns. In fact, the State Board of Investment has averaged an 8.7 percent annual return over the past 30 years, consistently outperforming its peers (public fund median over 30 years is 8.3 percent). Returns over 35 years have averaged 10.2 percent per year.
Recent numbers reported for GASB purposes lag one year and reflect investment returns from fiscal year 2016, which were indeed lackluster at -0.10 percent. However, for the fiscal year that ended on June 30, 2017, the SBI returned 15.1 percent (public fund median for FY 2017 was 12.4 percent). GASB results for FY2017 thus will swing dramatically in the other direction. The year-to-year GASB numbers will fluctuate wildly and do not provide appropriate guidance for oversight of pension funding, which is best viewed through a very long-term lens.
Minnesota’s pension funds are not in crisis but do need constant monitoring and adjusting and, with help from the state legislature and the governor, will be on sound footing for many years to come.

Susan M. Barbieri
Communications Director
Teachers Retirement Association

Fordham Institute report on teacher pensions flawed, not credible

Last week, the Fordham Institute released a study that erroneously claims teachers in Minnesota and in most states would be better off investing retirement contributions on their own rather than receiving a TRA defined-benefit (DB) pension after a career of teaching. The study used flawed calculations and methodologies to arrive at this conclusion by very significantly underestimating the value of a TRA pension and overestimating an individual’s ability to earn high investment returns.

The study’s calculation of future pensions used outdated life expectancy data that predict far shorter life expectancies than Minnesota teachers experience and made other erroneous assumptions about likely retirement ages. These miscalculations shortened the projected pension payout period by 10 years. The study’s numbers also inflate the potential earnings an individual is likely to earn from investing their own contributions. Below is a detailed description of the problems and miscalculations found in the study.

Pension Accumulation/Payouts: The study

underestimates the value of the MN pension benefit for several reasons:

1. The study uses Centers for Disease Control (CDC) 2007 life expectancy tables, which predict far shorter life expectancies than MN-specific teacher mortality tables predict. For example, CDC tables predict an age 60 female will live to age 84 while TRA’s mortality tables predict they will live to age 90.2. CDC tables predict an age 65 female will live to age 84.9 while TRA’s tables predict age 90.3. Due to life expectancy errors alone, the study’s calculations shorten the likely pension payout by between 5 and 6 years.

2. The study assumes a teacher retires at the plan’s statutory normal retirement age, which in TRA’s case is age 66. In reality, TRA’s average retirement age is about age 62. By assuming a beginning payout age of 66, the study shortens the payout period by another four years. These years are excluded in the pension wealth accumulation part of the equation.

3. The study’s combined use of an overly advanced retirement age of 66 and wrong mortality tables results in a predicted payout period of 18 years to 19 years whereas using TRA-specific data results in a payout of over 28 years, a very material difference of over 10 years.

4. There are no references in the study indicating that the authors incorporate COLAs in the calculation of pension payouts.

Accumulated contributions plus interest: The study greatly

overestimates the value of the teacher’s theoretical cumulative contributions plus investment earnings by assuming individuals can invest and earn as much as large institutional investors. This is very optimistic and unrealistic. Here are the study’s flawed assumptions regarding potential investment earnings.

1. The study assumes the individual is capable of earning a very aggressive compound annual return, net of investment fees, of 8.5% in each year of the teacher’s entire working career.

2. According to the National Institute on Retirement Security (NIRS), Morningstar advises individuals making retirement plans to use an expected return on their investments of 5%.

3. Previous studies show that individuals tend to earn 1% to 2% less per year than institutional investors due to high investment fees, less skill than institutional investors, and no access to certain high-performing investment sectors such as private equity and venture capital.

4. Individuals investing their own assets must reduce their risk as they approach retirement age and move more retirement assets into lower-performing bonds and other fixed income investments. This was not taken into account in the study which assumed an 8.5% return each and every year through the age 66 retirement age. The current investment market climate shows how retirees near retirement are struggling to eke out very low single digit returns on bonds and fixed income investments.

Teachers highly value retirement plans as an extremely important job feature. The DB pensions that cover the vast majority of teachers address an essential retirement security need –

replacing income when one stops teaching. The DB pension adds value by assuring that teachers cannot exhaust their retirement savings and will not be hurt by investment losses and inflation. School systems use pensions to recruit, retain and manage the teaching workforce.

Defined contribution plans help teachers manage employment risk, making portability easier for teachers who leave. However, studies have shown that workers need to save more in a defined contribution plans to offset the lower returns in self-directed retirement accounts and make sure that retirement savings last for as long as a teacher will live. Teachers live much longer than average workers and, in TRA’s case are predominantly female. Three-fourths of TRA retirees are women.

Calculations for school districts conflict with results of more extensive analyses of alternative retirement plan designs done for teacher pension plans. Colorado Public Employees Retirement Association (COPERA) is an example of a system recently studied by the state’s auditor in an extensive 217-page analysis of typical teacher tenure patterns based on several plan design alternatives. In every situation, COPERA’s pension replaced a higher level of income than all of the alternative designs. For example, even a teacher who teaches for only three years would receive 40 percent more retirement income from COPERA than from investing the $6,700 refund and buying an annuity.

Courtesy of Communications Office

Teachers Retirement Association

Public Employees Retirement Association

Minnesota State Retirement System


The More Things Change…

Dickens’ Spirit of Christmas Present said it 170 years ago: if nothing is done to correct it, discrimination and poverty will remain the doom of humanity:

clip_image002“Spirit! are they yours?” Scrooge could say no more.

“They are Man’s,” said the Spirit, looking down upon them. “And they cling to me, appealing from their fathers. This boy is Ignorance. This girl is Want. Beware them both, and all of their degree, but most of all beware this boy, for on his brow I see that written which is Doom, unless the writing be erased. Deny it!” cried the Spirit, stretching out its hand towards the city. “Slander those who tell it ye! Admit it for your factious purposes, and make it worse. And bide the end!”

A Christmas Carol, Charles Dickens

Some may blame the poor and oppressed for their condition, and thereby justify punishing them further. Or some may use that condition to their benefit, manipulating politics and economics to further separate the victims of poverty and discrimination from resource and power. In just such a way some blame the schools, the teachers and the unions for the outcome of such conditions in education.

We’ve long known of the persistent and troublesome academic gap between white students and their black and Hispanic peers in public schools.

We’ve long understood the primary reason, too: A higher proportion of black and Hispanic children come from poor families. A new analysis of reading and math test score data from across the country confirms just how much socioeconomic conditions matter.

Children in the school districts with the highest concentrations of poverty score an average of more than four grade levels below children in the richest districts.

“Money, Race and Success: How Your School District Compares,” Motoko Rich, Amanda Cox and Matthew Bloch, New York Times, April 29, 20162

In reality, we have all inherited these poisons to our civilization, and we must all—from the meek and humble to the rich and powerful—join together to rid ourselves from them. We could be the generation of Americans who are truly great enough to face our doom and beat the odds. Yet too often we blame the victims and beat the scapegoats. Meanwhile American’s soul is festering.


1 The online text: <

2 The interactive graphics show systems that were studied. Find yours. <

Martin Sabo Dies at 78

       We already miss this great man who demonstrated dignity, wisdom and humor in a time when leaders were respectable and admirable. Our condolences go out to his family and all who had the chance to know him. Thanks, Marty, for all you did for all of us.                              Minneapolis Committee of Thirteen

Martin Sabo, Minnesota Congressman Known for Compassion in Era of Partisanship, Dies at 78

The Associated Press, March 13, 2016

m sabo

Martin Olav Sabo announcing his retirement from Congress in 2006.
Craig Lassig, Associated Press

Martin Olav Sabo, a longtime Minnesota congressman whose quiet Scandinavian demeanor conveyed a sense of civility during increasingly partisan times in Washington, died on Sunday in Minneapolis. He was 78.

His daughter Karin Mantor said Mr. Sabo, a longtime smoker, had been hospitalized for a week because he was having trouble breathing.

Mr. Sabo, a Democrat, served 28 years in Congress, easily winning each re-election and eventually becoming chairman of the House Budget Committee. He announced his retirement in 2006 and was succeeded by Keith Ellison, the first Muslim elected to the House.

Minnesota politicians praised Mr. Sabo for his understated manner and ability to deliver millions of dollars to the Minneapolis-St. Paul area for road and housing projects.

Mr. Sabo was born on Feb. 28, 1938, in Crosby, N.D., the son of Norwegian immigrants. He grew up on his family’s wheat farm, and graduated in 1959 from Augsburg College in Minneapolis.

Before his election to Congress in 1978, he served 18 years in the Minnesota Legislature. He was first elected in 1960 at age 22, and he rose to House minority leader, then speaker.

Besides his daughter Karin, he is survived by his wife, Sylvia; another daughter, Julie; and six grandchildren.

In announcing his retirement after a 46-year political career, Mr. Sabo called putting together the 1993 federal budget and deficit reduction package as the House Budget Committee chairman one of his proudest accomplishments. The measures resulted in a budget surplus in 1998, the first in almost 30 years.

Mr. Sabo also took pride in never publicly disparaging another politician. He said Congress had become more polarized during his time there.

“I’ve always believed the fundamental problem with politics today are people who over-promise and overstate. I’ve tried to do the opposite,” Mr. Sabo said. “I’ve also tried to treat my colleagues with respect. I don’t recall ever making a public statement critical of my colleague, whether it’s Democrat or Republican.”

In Memory of Andrew James ‘Jim’ Heller

Heller, Andrew James “Jim” Age 94 of Edina, MN, passed away peacefully at home on July 4, 2015. He was born on a farm in South Dakota in 1920. He attended college in Sacramento, CA earning an Associate of Arts degree. Returning to South Dakota in 1940, he attended Northern State University in Aberdeen, SD where he earned a teaching certificate.


He enlisted in the Marine Corps in 1942 and was assigned to Gustavus Adolphus where he earned a B.S. degree. Following boot camp at Paris Island, SC he was transferred to Camp Lejeune, NC for advanced training and then to Quantico, VA for officer’s training, and commissioned a 2nd Lt. After further training at Camp Pendleton, CA he was assigned to amphibious attack vessel APA-221 Oneida for 14 months, all spent in various landings in the South Pacific theater, including the invasion of Okinawa. He was discharged as a Captain in 1946.

He had a deep love of music. Through both his college and post-war years, Jim was a performing musician in various touring dance bands. Beginning in 1946 he spent seven years as a principal and band teacher in McLaughlin, SD. Starting in 1953 he taught in the Minneapolis Public Schools for 34 years until his retirement. Most of those years were spent at Roosevelt H.S. teaching social studies and as a work coordinator. He also taught at Lincoln Jr. High, South and Henry high schools.

He was actively involved in professional organizations. He was President of the Minneapolis Federation of Teachers, VP of the Minnesota Federation of Teachers and VP of the American Federation of Teachers – AFL/CIO. He was one of the leaders of the 1970 teachers’ strike that led to the passage of the Public Employees Labor Relation Act of 1971 which provided collective bargaining rights for all public employees in Minnesota.

From 1973 to 1988 he was an elected trustee of the Minneapolis Teachers Retirement Fund. After retirement he was President of the Minneapolis Retired Teachers Organization.

Always interested in furthering his education, during his teaching years he spent summers studying at several institutions. He earned a Masters of Education at the University of Colorado. He also studied at the Universities of Minnesota, Wisconsin (Madison), Connecticut, Washington (St. Louis), Hawaii (on an East-West Center grant), Singapore (on a Fullbright Scholarship), and at the College of St. Catherine.

Jim was preceded in death by his parents, Andrew and Ida; four sisters and one brother. He is survived by his wife of 47 years, Nancy; son, John Heller (Laura); stepchildren, Rick Dahlen (Holly), Ron Dahlen (Jamie) and Cynthia Rasmussen (Peter); 12 grandchildren and 13 great-grandchildren.

A celebration of Jim’s life will be held on Wednesday, July 15 at St. Edward’s Catholic Church, 9401 Nesbitt Ave S., Bloomington, MN. Mass at 11:00 a.m. with visitation one hour prior. Memorials to Sharing & Caring Hands or charity of your choice. Cremation Society of MN (952-924-4100).

Published Star Tribune, Minneapolis, MN, July 12, 2015

Minnesota Deferred Compensation Plan and Health Care Savings Plan News from MSRS

Minnesota State Retirement System (MSRS) is pleased to announce the selection of Empower Retirement (formerly Great-West Financial) as our new recordkeeper. Effective July 1, 2015, Empower will replace Voya Financial® as the recordkeeper.

MSRS selected Empower, a leader in the financial services industry, as a result of a thorough vendor selection process. Empower is a retirement plan provider to many state, municipal, and county governments.

Which MSRS Plans are affected?
The following MSRS-administered plans are affected:

·         Minnesota Deferred Compensation Plan (MNDCP)

·         Health Care Savings Plan (HCSP)

·         Unclassified Retirement Plan

·         Hennepin County 1% Supplemental Retirement Plan


What do I need to do?
The transition to Empower will happen automatically and should be relatively transparent to you. However, starting in late June there will be a blackout period during which time you will not be able to make changes to your account. Detailed information about the blackout period will be mailed to you in May.

What’s changing?
The account online website and access will change to improve the user experience. In early July, a new PIN and login instructions will be mailed to you. Otherwise, almost everything else will remain the same: MSRS will continue to administer the plans, answer participant calls, and process transactions.


How will MSRS keep me informed during the transition?
Information and updates about the upcoming recordkeeper change will be available on this website and in plan newsletters. In May, you will receive a Transition Guide with more detail about the blackout dates.

What is a recordkeeper?
A recordkeeper provides investment accounting services, access to the account online website that allows you to view your account information and process transactions, and other functions needed to operate a retirement plan.

We are excited about our new relationship with Empower Retirement.