Crockett and Actuary Testify at the Pension Commission: Keeping the Pension Promise
Kim Crockett was asked to testify at the Legislative Commission on Pensions and Retirement (LCPR) on Tuesday, March 21. She was accompanied by Ross Bowen, an actuary and financial advisor with over thirty years in the field. Mr. Bowen is a volunteer actuary for the Center’s Pension Project.
Kim presented an overview of the pension plans which, when using the state’s faulty assumptions, shows an unfunded liability of almost $18 billion. When using more realistic market return and discount rate assumptions, the shortfall grows to more than $44 billion. Kim noted that Warren Buffet has called public pensions a “gigantic financial tapeworm.”
Teamsters Local 320 tweeted out “Kim Crockett @MNThinkTank to testify against pensions…we will fight back?” and later said the Center wanted to scare the public, suggesting that Crockett was like “Chicken Little.” (See nearby post from Kim Crockett.)
Kim called for all pensions to be fully funded, and testified that, “We have made promises without paying for them, shifting the costs on to young employees and our children.” She concluded that the Pension Commission should seriously begin to consider closing at least some of the plans to new employees to avoid further unfunded liabilities. She said, “When you are in a deep hole, it is a good idea to stop digging.”
Mr. Bowen told the Commission members, “Valuations are just estimates. These estimates understate how much we owe. It’s like your house – you don’t know its value until you actually sell it. If we tried to “sell” this liability we’d find the shortfall might be three or four times as big. I’m afraid we are fooling ourselves about how serious the problem really is.”
Crockett also noted that younger, more mobile employees should welcome a defined contribution plan that offers them great options, noting that the employees of MNSCU are very pleased with their plan and options. Crockett noted, “Why would young employees want to join an underfunded pension plan? With a defined contribution, they would start saving toward their own future and control their own assets.”
According to the LCPR website, there are 311,152 retirees and disabled Minnesotans relying on these pensions, with only 318,849 active public employees to help shore up promises that were made but not funded, in addition to paying toward their own retirement. That means that 11.5% of Minnesota’s population is counting on a pension.
Crockett said, “Getting pensions handled will be the hardest and best thing we have ever done.”