Here’s why funding is at issue

Late Sunday night the Senate unanimously approved the pension bill. Action today will move to the House. TRA’s financial stability measures were not initially included in the bill, but a floor amendment added back the TRA sections.  The TRA provisions, however, become effective only “if an appropriation is made to TRA in the 2017 legislative session for the employer contribution increase.”  It remains unclear whether in the final hours of the session legislative leaders and the governor will agree to provide the funding needed to cover the costs.  A summary of the TRA provisions in the Senate-passed bill are described below.  Note that none of these provisions are effective unless funding is provided in the 2017 session.

  • COLA: Reduces TRA’s 2% COLA to 1% for five years, effective 2018-2022; for the next five years (2023-2027), the COLA increases 0.1% per year until reaching 1.5% in 2027.  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 the 2021 legislative session.
  • COLA Delay: 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). Implementation of the normal retirement age COLA is delayed five years, until January 1, 2023.  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 at age 62+ with 30 years of service or 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: 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 five-year period beginning July 1, 2018 through June 30, 2023.  Members who retire at age 62+ with 30 years of service would retain the more favorable early retirement benefit provisions available to them under current law.  For members not eligible for 62/30 provisions, the proposed change 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: Increases employEE contribution rates from 7.5% to 7.75%, beginning July 1, 2022.  Increases employER rates from 7.5% to 8.75% phased in over six years, 2017-2023). 
  • Deferred augmentation: 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.
  • Refund interest rate: Lowers interest rate paid on refunds from 4% to 3%.
  • Investment return assumption: 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.
  • Amortization period: Extends TRA’s amortization period by 10 years from 2037 to 2047.  Most other plans’ amortization periods are also extended to 2047.

Courtesy of MN TRA

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A pro-rich, anti-government services bill

The House State Government Finance Committee approved the omnibus pension bill (HF 565) by a voice vote this morning and referred the bill to the House Ways and Means Committee.  Rep. O’Driscoll said the bill would likely be held in Ways and Means until global budget targets are agreed to.  Before approving the bill, the Committee approved an amendment to take TRA out of the pension bill as well as remove $5 million in annual state aid for the St. Paul Teachers Retirement Fund Association and $4.5 million in annual state aid for the PERA Police and Fire.  O’Driscoll said the state aid was being removed because it violates the House’s current budget targets.

Julie Bleyhl, AFSCME Legislative Director, testified on behalf of the 20 organizations that make up the Public Employee Pension Coalition and indicated that the group supports a pension package with funding.

TRA’s Executive Director Laurie Hacking testified and emphasized the need to have a pension bill this year to address financial problems.  She stated that while the bill met the TRA board’s goal of financial stability, the bill did not meet the other goals of maintaining the recruitment/retention value of pensions and shared commitment.  Hacking pointed out that under the proposed bill, members (active and retirees) would bear 87 percent of the cost of the reforms (66 percent by actives and 21 percent by retirees).

Jodee Buhr, representing Education Minnesota stated that the organization supports the TRA proposal and supports being part of the bill.  She indicated that Education Minnesota continues to be at the table with other stakeholder groups to worked toward an equitable solution.

Courtesy of TRA Communications

House Government Operations Committee OKs pension bill

The House Government Operations Committee approved the omnibus pension bill (HF 565) this morning on a voice vote.  TRA’s provisions remain in the bill. The bill was referred to the House State Government Finance Committee, which could meet as early as Monday at 10 am (in Room 10 State Office Bldg) to consider the bill. That Committee has not yet posted an agenda for its Monday hearing.

Rep. Tim O’Driscoll, as author of the pension bill, described the provisions of the bill and said that he did not have an amendment to delete TRA out of the bill (as was done Thursday in the Senate Finance Committee) and that there is still “work in progress” with TRA’s section of the bill.  In response to questions about funding for the bill, O’Driscoll acknowledged that there is no funding mechanism in the bill and that as the bill moves forward to other committees, he hopes pension funding will be added as part of a global agreement.  Rep. Mike Nelson stated that he could not support the bill, especially since no funding is included.

Several people testified on the bill. TRA’s Executive Director Laurie Hacking and Deputy Director Jay Stoffel testified and stated that while the bill met oboxne of the board’s four goals relating to financial stability, the bill did not meet the other goals of inter-generational equity, maintaining the recruitment/retention value of pensions and shared commitment.  Hacking pointed out that under the proposed bill, members (active and retirees) would bear 87 percent of the cost of the reforms (66 percent by actives and 21 percent by retirees).

Julie Bleyhl, AFSCME Legislative Director, read a statement on behalf of the 20 organizations that make up the Public Employee Pension Coalition and indicated that the group supports the governor’s pension proposal.  She pointed out that while some of the groups in the coalition support certain provisions of the proposed bill, they may have concerns with other provisions.

Education Minnesota Secretary-Treasurer Rodney Rowe stated his support for the TRA Board proposal because of its shared responsibility approach.  He voiced opposition to the proposed bill and warned that the benefit cuts in the bill would make the dire teacher shortage situation much worse. Retired Educators Association of MN President Lonnie Duberstein testified about how pensions are critical to the recruitment and retention of teachers. He said teachers are willing to accept modest wages from teaching if they can be assured of a modest retirement.

Doug Anderson, PERA executive director, indicated that while PERA supports lowering the investment assumption to 7.5 percent, its board opposes inclusion of the PERA General Plan provisions in the bill. Anderson commented that the board had reviewed the General Plan and found that it is sustainable with no changes needed at this time. Anderson indicated opposition to the bill’s proposed changes to the PERA Correctional plan but support for the PERA Police and Fire Plan changes, which are consistent with board recommendations.

Minnesota School Boards Association Government Affairs Director Grace Keliher testified that she was shocked by action taken by the Senate Finance Committee yesterday to remove TRA from the bill while the committee acted to include funding in the bill for other employer costs. She said that TRA has had several major cost increases for school districts in the past 10 years, and the latest proposal is “too much,” requiring the state to provide funding to cover the costs. Minnesota Association of School Administrators Executive Director Gary Amoroso similarly stated that additional dollars from the state are needed to cover the costs.

Jill Schurtz, SPTRFA Executive Director, testified in strong support of the bill and indicated that the St. Paul school district, retirees and actives are all supportive of the proposal.

courtesy of Minnesota TRA Communications

Pension commission OKs its staff bill on party line vote

MAY 10 – The Legislative Commission on Pensions and Retirement approved the omnibus pension bill this morning on a party line vote of 8-4. Members voting against the bill were Sen. Sandy Pappas (D-St. Paul), Sen. Dan Schoen (D-St. Paul Park), Rep. Paul Thissen (D-Minneapolis) and Rep. Mary Murphy (D-Hermantown).

The bill begins moving through other House and Senate committees starting today.

Before tboxhe bill passed, Pappas said she was disappointed there was not agreement in LCPR but indicated there is still potential to reach agreement on a bill that the governor would sign if everyone remains flexible. Pappas said most of the disagreements pertain to the TRA provisions and she is hopeful that with a few adjustments an agreement could be reached. Sen. Julie Rosen, (R-Vernon Center; LCPR chair), indicated she was willing to continue to work on the bill with the governor and feels that the commission has a good foundational bill.

Before considering a series of amendments to the bill, Thissen asked about funding to offset pension costs for state agencies and school districts. Rosen stated that as the bill moves through other committees, funding can be added, including a possible increase in the school aid formula for schools. Rosen said she and Rep. Tim O’Driscoll (R-Sartell) expected to meet with the governor on Monday regarding pensions but the meeting was cancelled.

Pappas said she has concerns about elimination of augmentation and the COLA delay, which she believes will create a rush to retire and have the unintended consequence of exacerbating the teacher shortage. She also advocated for more of a phase-in for lowering the investment assumption to 7.5 percent for TRA. Pappas criticized the 1 percent COLA proposal and the proposed increase in employee contributions, saying these measures are “too much” and do not achieve shared sacrifice.

With regard to a provision that would delay receipt of a retiree’s first COLA until the retiree reaches normal retirement age (66 for most TRA members), Pappas successfully offered an amendment to delay implementation from 2018 to 2023 for all the pension systems. She explained that members near retirement need time to accommodate the change. Rosen said she supported the amendment and it passed.

An amendment to replace the TRA provisions in the bill with proposals supported by the TRA Board of Trustees and stakeholders was offered by Pappas with support from Thissen, but the amendment failed on a party-line vote. Thissen noted that the commission usually proceeds with major pension changes only when the pension system boards and stakeholders are in agreement.

Thissen offered an amendment to remove PERA provisions from the bill since all who testified on these measures indicated opposition, including the PERA board, employees and retirees. This amendment failed on a voice vote.

Courtesy TRA Communications and Committee of Thirteen

YOUR VOICE IS NEEDED NOW!

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.

The bill:

  • 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 info@committeeof13.org

A preliminary draft of a pension bill

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 lisa.diesslin@lcpr.leg.mn BEFORE the meeting, identifying the agenda item of interest.

Courtesy of Minnesota TRA