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PENSIONS: Keeping the Promise

Securing Retirement Benefits for Current and Future Public Employees

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On July 15, 2014, Center of the American Experiment released the second chapter of The Minnesota Policy Blueprint: Prescription for Prosperity, a package of innovative policy recommendations that emphasize personal initiative, free enterprise and a limited, frugal government. This second chapter argues that Minnesota’s defined benefit pension system is no longer financially sustainable which puts both public employee retirement funds and taxpayers at serious risk. We need to keep our promise to retirees while redesigning how public employees save for a secure retirement. The Minnesota Policy Blueprint, in its entirety, was released in January 2015.   


Updated August 13, 2015


Summary of the problem: Minnesota’s public employee pension system is broken. The state’s reported unfunded liabilities are estimated by the state to be $17.6 billion. If reasonable economic assumptions are used, the amount is far larger. This is a ticking fiscal time bomb for Minnesota. Escalating costs will force us to choose between reducing spending on core services that are essential to our quality of life, raising taxes by a far larger amount than the Legislature did in 2013, or breaking our promises to retirees. These choices can be avoided if we redesign the system now.

Summary of our solution: First, maintain and fully fund the defined benefit plan for retirees and current employees, honoring all earned benefits. Second, accurately state and fully disclose the true cost of pensions. Third, create a defined contribution plan for all new public employees that puts them on a path to a secure retirement without creating future unfunded liabilities. Fourth, take immediate steps to preserve and prudently grow pension assets while paying down the unfunded liability.

Summary of why this works: This solution keeps our promise to retirees and current employees while updating the retirement system to meet the needs of today’s public workforce. More importantly, it avoids a predictable fiscal crisis that will put school districts, and local and state government in the untenable position of choosing between funding past pension promises and delivering core services. It also takes backroom politics out of retirement savings and investments. These reforms would position Minnesota as a leader among states; we will be rewarded with more cost effective government and a stronger economy that will provide more good paying jobs.

Why you should care: Ignoring the problem puts everybody at risk—current and future retirees, taxpayers and consumers of public goods and services.

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