Pension reform bill introduced into the Minnesota legislature

From John Curry, February 11, 2010

http://www.twincities.com/localnews/ci_14377410

Fix sought for Minnesota teacher pension fund

Legislators must OK increased employee, district contributions

By Megan Boldt
twincities.com, 2/10/2010

The board that oversees pensions for teachers and administrators is asking legislators to increase employee and employer contributions and reduce annual increases for retirees.

Last year, the Teachers Retirement Association fund dropped from $18.1 billion to $13.8 billion because of falling investments and increasing benefit costs. Its assets could be exhausted by 2032 if nothing is changed.

"Doing nothing is not an option," said John Wicklund, assistant executive director of administration for the TRA. "Investments are up, but we just can't count on that. We're not going to invest our way out of this. The hole is just too deep."

A bill was introduced this week in the Senate to make the changes. The TRA is not looking for state funds, but the changes would cost local school districts millions of dollars and reduce paychecks for thousands of teachers and retirees.

It will be difficult for school districts to pay for increased contributions, said Bob Meeks, executive director of the Minnesota School Boards Association. "But it has to be fixed. The more we put it off, the more it's going to cost."

The TRA covers about 50,000 retirees and 77,000 active teachers across the state. Teachers in St. Paul and Duluth are covered by their own pension funds.

Employees and employers each put 5.5 percent of the employee's salary into the fund. The association's board wants to increase that amount incrementally to 7.5 percent over four years.

Retirees get a 2.5 percent cost-of-living increase annually. That would be frozen for 2011 and 2012. In 2013, the increase would be 2 percent.

Benefit payouts are determined by salary and years of service. Wicklund said members who retired this past summer on average received a monthly pension of about $2,200.

Meeks said his group supports the fix, but he hopes lawmakers will give school districts additional levying authority to help pay for their increased contributions. He also would like to see a more stringent freeze on retiree payouts until the fund is stabilized.

"We need access to some property-tax dollars," Meeks said. "Otherwise, we'll have to cut more employees to save employees' retirements."

The TRA's $4.3 billion fund drop in 2009 is mainly due to falling investments — $3.3 billion to be exact. Benefit payments made during that time totaled about $1.4 billion. The fund brought in about $453 million in employee and employer contributions last year. As of last June, 23 percent of the pension's long-term liabilities were unfunded.

Pensions of the Minnesota State Retirement System, which represents state workers and those at the University of Minnesota and the Metropolitan Council, and the Public Employees Retirement Association, which represents city, county and nonteaching school workers, experienced similar declines in 2009.

Sen. Don Betzold, DFL-Fridley, said each fund has a unique situation, but the funds share some problems: fewer active employees paying into the system, more retirees who are living longer and a bad economy. All three funds will need to be fixed this session, he said.

"There is not going to be any state money to do it," said Betzold, who chairs the Legislative Commission on Pensions and Retirement. "But the stakeholders recognize that it needs to be done and are on board, as long as everyone involved shares in the pain."

Tom Dooher, president of Education Minnesota, said the statewide teachers union is not endorsing any specific solutions at this time. In a statement, Dooher said stable pensions, equitable contributions and competitive benefits are critical to attracting and retaining the best teachers.

Dooher said previous legislative actions played a part in weakening the pension fund and any remedy should include state contributions.

"Minnesota's pension plan for teachers already significantly lags behind most other states, and it's important that we address these issues," he said.

There is a major sticking point that observers say could crumble the whole deal — disagreement over whether the fix should include better benefits for teachers hired after 1989.

Those teachers are not eligible for full retirement benefits until age 66, unlike those hired before 1989, who can qualify for retirement when their age and years of service add up to 90.

Charlie Kyte, executive director of the Minnesota Association of School Administrators, said changes need to be made now to stabilize the fund, and better benefits can be dealt with later.

"It would be irresponsible not to fix this," Kyte said.

Megan Boldt can be reached at 651-228-5495.