Dose of Reality for Underfunded MN Public Pensions

American Experiment has long warned taxpayers and legislators to the threat posed to taxpayers and recipients by Minnesota’s underfunded public pension system. But a new Bloomberg analysis of our state public pension system might be the wake up call that cuts through the politics that prevent progress on pensions.

Here’s how American Experiment’s Kim Crockett put it in a column for today’s Star Tribune.

Bloomberg has called attention to the fact that the financial stability of Minnesota pensions, relative to other states, has plummeted, and that even judged against its own standards, the system is in big trouble. The system admits to an $18 billion unfunded liability for state, local and school district employees. But the Bloomberg report puts our total unfunded liability at $108.9 billion. That’s more than $20,000 for every resident.

That’s what you happens when the politicians in charge of state public pension funds get held to the more demanding accounting standards they demand for private pension funds.

A new Bloomberg study applied something called GASB reporting (Governmental Accounting Standards Board) to public-pension funds. Minnesota fell from having a system that was about 80 percent funded, and 30th in the nation, to having the seventh-worst-funded in the country, with only 53 cents on the dollar to pay pension promises. The study, by the way, lumps state and municipal funds together. In reality, each has its own funding ratio, but Bloomberg did that to give us the big picture.

When applying the same standards to public funds across the country, it makes sense that Minnesota fell to nearly the bottom. This is because the state has failed to move as fast as others in lowering expectations about what it can earn on pension investments and in updating how it calculates its liabilities.

You can read the rest of Crockett’s column here.