Voice of MN Education: PENSION FUND ADVISORY

By Charlie Kyte

This audioblog is 8 minutes and 45 seconds long. The “key question about pensions” is posed at 5:20. To hear a segment, click 'play' and slide the bar to the correct time.

As you all know, the legislature is preparing to pass a bill that would roll the Minneapolis Teachers Pension Fund into the statewide Teachers Retirement Fund (TRA). This pension advisory will help you to understand the bill as it is now progressing through the legislature and will provide you the "key question" to ask your legislators.

There is no shortage of feelings about this effort. In my conversations, I've found deep resistance in Greater Minnesota, a level of near desperation among Minneapolis retirees, and a sense of wanting to get this over with on the part of many legislators.

We have been hesitant to weigh in on one side or the other of this issue, but have been working behind the scenes to emphasize the critical elements that must be in the bill if it is to pass. As a consequence, I (and MASA) have been taking quite a bit of heat from all parties. In this past week, I have been confronted by a lobbyist for the Minneapolis teachers, officials at TRA, and a number of our own members. Apparently they all think that MASA's opinion is worth at least something.

I will explain the main parts of the deal now coming together, but will first point out that it is easy to miss the most important question. I'll pose the “key question” later in this advisory. It is this question that we hope every one of you will bring to your own legislator.

So here is the deal so far:

1) Fix the problem sooner than later: Waiting only makes it worse and Minneapolis can't fix it on their own ... all the pension contribution rates are controlled by the legislature. The legislative auditor’s office has recommended getting this problem fixed now as the looming pension failure is already showing up in the footnotes of the bond rating agencies that rate all state bonds.

2) Doesn't rely on the rest of the schools to pay for the shortfall: The proposal originally required the City and School District of Minneapolis, along with the state and the rest of the local school districts to pay for the shortfall. Recently, the proposal was changed to offset the additional 0.5% contribution of all other school districts by allowing the Districts to keep a part of the pension subtraction aid they turned back into the state. Thus the cost to all other districts is neutral. The added contributions of the state, City and Minneapolis Schools, on an annual basis over 30 years, are enough to solve the Minneapolis deficit.

3) Make sure the Minneapolis teachers get no special benefit: The story about Minneapolis teachers getting better pensions is a myth. In fact, TRA and Minneapolis have had the same benefits for 27 years. Further, TRA has paid out higher increases for COLA's for retirees than has the Minneapolis fund (190% versus 134% since 1988). Going forward all teachers will get identical benefits. In terms of payments into the fund, Minneapolis will be required to pay in at a higher rate than other school districts.

NOW TO THE REAL QUESTION:

Tom Ames of St. Charles, one of the best financial superintendents in the state, helped me understand this. The question of combining these two funds is the secondary issue. The main issue is: "Will the TRA fund be fully funded going forward?" Will the fund be fully solvent in 10 years, 20 years, 30 years and beyond? This is the question we need every legislator to look at. They need to ask the actuaries, TRA and independent analysts this question to be sure. The projections for future fund contributions, pension payouts and investment earnings must be all placed slightly on the conservative side. They must account for possible radical downturns in the investment cycle. They must count on us living longer, and they must calculate how many active teachers there will really be to pay into the fund.

The most involved legislators have already heard from the experts, but now it is time for all legislators to understand, and test, these assumptions. I for one don't want to be part of a group of retirees having to troop to the legislature 20+ years from now begging for a fix. I was saddened to see the Minneapolis retirees doing just that last Wednesday ... how degrading!

Thus I recommend that you call your legislators next week and recommend two things:

A) Get the pension funds combined and do it fairly.

B) Have them look firsthand at the actuarials and question the officials to be sure that the TRA fund is solidly funded using conservative accounting assumptions. If it isn't well enough funded, tell us how much more needs to be contributed and make us, and our schools, do what is necessary so the job is done right.

Note: This advisory is also posted as an audioblog on the MASA web site (http://www.mnasa.org). Just click on “BLOG.”

This e-mail is a publication of the Minnesota Association of School Administrators (MASA) and may be reproduced.