>> LCPR testimony May 8 <<< click the link to view.
The Legislative Commission on Pensions and Retirement leaders, Chair Sen. Julie Rosen, R-Vernon Center, and Rep. Tim O’Driscoll, R-Sartell, posted a draft of their pension bill this weekend. The changes they are proposing to TRA are devastating for educators, both active and retired, and are vastly different from the changes proposed by TRA and Governor Mark Dayton.
- Increases the employee contribution by .75 percent (from 7.5 percent to 8.25 percent) phased in over four years, beginning July 1.
- Increases the employer contribution by just .75 percent (from 7.5 percent to 8.25 percent) phased in over four years, beginning July 1, with no funding for it.
- Permanently reduces the TRA cost-of-living adjustment from 2 percent to 1 percent, effective Jan. 1, 2018.
- Reduces early retirement benefits by eliminating the current augmentation used to calculate benefits. This would reduce early retirement benefit levels by approximately 18 percent for members retiring at 60 and 11 percent for members retiring at 62.
- Based on a preliminary analysis by TRA, approximately 66 percent of the proposed package would be borne by active teachers, 21 percent by current retirees and just 13 percent by employers
The Legislative Commission on Pensions and Retirement is meeting at 5:30 PM Monday, May 8 in Room 123 of the State Capitol to take public testimony on the bill.
PLEASE CALL LCPR commission members and tell them to oppose this bill in favor of the TRA proposal, which is a fair and balanced approach that includes:
- An increase in the employer contribution from 7.5 percent to 9.5 percent phased in over the next four years. The proposal includes additional funding from the state to pay for those increases for the first two years.
- A reduction in the cost-of-living adjustment from 2 percent to 1 percent for five years and then 1.5 percent thereafter.
- We also invite you to attend Monday’s hearing as a show of support and to let commission members know you are watching and paying attention to the decisions they make.
If you have any questions, please email Louise Sundin at firstname.lastname@example.org
A preliminary draft of a pension bill was posted last night on the LCPR website. It can be accessed at: http://www.commissions.leg.state.mn.us/lcpr/documents/mtgmaterials/2017/LCPR17-038.pdf.
Below is a summary of the main provisions of the bill that affect TRA. Note that some provisions may change as a result of technical refinements being worked on by Commission staff.
1% COLA (pages 41-43 of bill): Reduces TRA’s 2% COLA to 1% effective with the next January 1, 2018 COLA. 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 change including whether a new COLA methodology should be adopted. The study is due in time for the 2021 legislation session. (page 48)
COLA Delay (page 43): 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). The delay is effective for retirements beginning January 1, 2018. 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 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 (pages 10-14): 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 four-year period beginning July 1, 2018 through June 30, 2022. Compared to current law benefits, this provision, 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 (pages 88-89): Increases employEE contribution rates from 7.5% to 8.25% phased in over four years, beginning July 1, 2017. Increases employER rates from 7.5% to 8.5% phased in over four years, beginning July 1, 2017. At this point, the bill does not contain any language that would provide funding to offset the increased costs to employers.
Deferred augmentation (pages 14-16): 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.
Investment return assumption (page 22): 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 (pages 70-72; 79)
Amortization period (page 28-30): Extends TRA’s amortization period by 10 years from 2037 to 2047. Most other plans’ amortization periods are also extended to 2047.
Contribution stabilizer (page 16): The contribution stabilizer authority the TRA Board has under current law would be repealed. Under that law, the Board has authority to recommend adjustments in contribution rates to address funding deficiencies or sufficiencies. Any contribution rate change is subject to review and approval by the LCPR.
Actuarial impacts: As of this point in time, no actuarial estimates of the impact of the proposal on system funding have been made available, but we understand that the goal of the proposal is to attain a 90% funded ratio in the next 25 years.
Balance/shared sacrifice: Based on preliminary analysis by TRA, approximately 66% of the proposed package would be borne by active teachers, 21% by current retirees and 13% by employers.
For a summary of provisions affecting systems other than TRA, you may check the LCPR website for a staff memo that will be posted later (See http://www.commissions.leg.state.mn.us/lcpr/meetings/agendas/2017/050817agenda.htm for the forthcoming LCPR staff memo.)
Public testimony on the bill will be taken at a hearing scheduled for Monday, May 8, 2017, 5:30 pm in Room 123 of the State Capitol. If you wish to testify, contact Lisa Diesslin at 651-296-6806 or email@example.com BEFORE the meeting, identifying the agenda item of interest.
Courtesy of Minnesota TRA
Budget negotiations continue
Gov. Mark Dayton said Thursday that he and lawmakers negotiating budget bills spent nearly an hour on two policy provisions inside the agriculture finance omnibus bill – one of two discussions Dayton and leaders had behind closed doors for their second meeting in as many days.
Dayton has previously said – and echoed Thursday – that putting policy provisions into budget-related bills is problematic, although not a deal-breaker in some instances. While the agriculture finance and higher education omnibus bills were the first targeted for discussions, the governor told reporters the parties haven’t agreed on numbers yet.
“If they’re willing to drop the policy and deal with the budget, then I’m very confident we’ll conclude on time,” Dayton said. “If they insist on going through every policy item blow by blow, we’ll be here until January.”
The Legislature has a constitutional May 22 deadline to pass bills for Dayton’s consideration. While policy provisions often make it into appropriations bills, Dayton said Wednesday he counted 609 policies in the omnibus bills and wanted a more manageable number.
House Speaker Kurt Daudt (R-Crown) and Senate Majority Leader Paul Gazelka (R-Nisswa) didn’t comment after the meeting.
Thursday marked Daudt’s self-imposed deadline for three-way budget targets with the administration after House and Senate leadership agreed to a proposed $45.95 billion state budget on Monday.
The groups expect to meet Friday afternoon with a possible Saturday morning meeting as well.
Next Week at the Capitol
Monday, May 8
Legislative Commission on Pensions and Retirement
5:30 PM, Room: 123 Capitol – NOTE ROOM CHANGE
Chair: Sen. Julie A. Rosen
- Approval of April 25, 2017, meeting minutes.
- LCPR17-035 (Murphy, M.): PERA; Authorizing an eligible Duluth township employee to elect PERA general plan coverage and receive retroactive coverage.
- LCPR17-036 (Murphy, M.): MSRS-Unclassified; Grandfathering current factors used in the calculation of annuities under the MSRS Unclassified Program.
- SF 1705 (Rosen); HF 2126 (O’Driscoll): MSRS; Revising enhanced augmentation rates and the related exception from enhanced augmentation for certain terminated privatized employees (Fairview). Public testimony will be taken.
- LCPR17-034 (will be posted by end of day Friday); Minnesota public employee pension plans; Benefit and contribution changes.
Public testimony will be taken:
Testimony on provisions affecting PERA-administered plans
Testimony on provisions affecting MSRS-administered plans
Testimony on provisions affecting SPTRFA
Testimony on provisions affecting TRA
Draft legislation and staff materials are posted on the Commission website in both PDF and HTML versions.
Tuesday, May 9
Legislative Commission on Pensions and Retirement
5:30 p.m., 1200 Minnesota Senate Building
The Legislative Commission on Pensions and Retirement (LCPR) met on Tuesday, and Minnesota Management and Budget (MMB) Commissioner Myron Frans testified regarding Gov. Mark Dayton’s recommendations (SF2233/HF2486). These recommendations contain measures endorsed by a Blue Ribbon Panel convened at the governor’s request earlier this year and included in the governor’s biennial budget.
For TRA, the bill calls for a 1 percent retiree cost-of-living adjustment for five years and 1.5 percent thereafter, as well as a 2 percent increase in employer contribution rates. For MSRS, the bill calls for a reduction in the COLA from 2 percent to 1.5 percent.
Frans said bipartisan support is needed for pension reform. He was questioned about why the employer contribution rate increase for Teachers Retirement Association (TRA) was only funded for two years, and why St. Paul Teachers Retirement Fund Association (SPTRFA) does not receive its requested $5 million direct appropriation in the bill. Frans said MMB believes it cannot commit to these dollar amounts beyond two years.
Sen. Dave Senjem asked about how much the bill is going to cost and what funding ratio trajectory is projected for each of the funds over the next 30 years. With regard to the investment return assumption, Rep. Tim O’Driscoll said that it’s difficult for the State Board of Investment to target one rate for TRA and a different rate for the other systems. TRA has proposed moving to 8 percent while a data-driven study is conducted on best practices for setting the investment assumption. Frans and the blue-ribbon panel recommended 7.5 percent for all systems immediately (July 1, 2017).
Sen. Julie Rosen, commission chair, asked LCPR members whether it would be helpful to get actuarial costing on the governor’s proposal. Members agreed to proceed with a cost study. Separately, Deloitte actuary Michael DeLeon testified on actuarial studies on the retirement systems’ reported actuarial liabilities. Deloitte has only minor recommendations for the system actuaries for the fiscal year 2017 valuation work.
The Pension Commission is expected to meet again next Tuesday, April 25th but no agenda has been set for that meeting
Courtesy of Minnesota TRA Communications
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.
It’s just about picking the right stocks. Right?
What does distributing risk look like? What do the fees actually cost over the 60 years between 25 and 85? Oh and then there’s the health savings account for you medical costs. Everyone will have to save for the average cost of medical care including end of life. Right? And there won’t be any downturns in investments ever again. Right?
Now let’s see how many dollars will it take 20 or 50 years from now? So I’ll need to save how much out of my checks? I don’t make that much yet. Shouldn’t my school district or university or the state have to pay this? Who benefits from my work, after all?
Credit Christopher Capozziello for The New York Times