Legislature’s change to teacher pensions in the name of ‘equity’ results in new inequity
While teachers can now retire with full benefits at age 65 (instead of age 66) effective July 1, 2025 (unless hired before 1989), the Minnesota legislature missed an opportunity to enact meaningful pension reform — an area that Teachers Retirement Association (TRA) members are less than pleased with. (As I have written here, the state’s teacher pension system has many areas where it could improve.)
St. Paul teachers in the St. Paul Teachers’ Retirement Fund Association (SPTRFA) found themselves with a better deal from the legislature, as their members are able to retire with full benefits at age 62 with 30 years of service.
But the SPTRFA is “the second worst of any plan in the state,” with “only 69 cents in assets for every dollar of benefits already earned” according to its latest valuation report, notes the Minnesota Center for Fiscal Excellence. “How does the math work to support a major benefit increase in that condition?”
First, SPTRFA members and the St. Paul district will be contributing more than TRA members to make the benefit increase happen — 1 percentage point higher for employees and 4.59 percentage points higher for the district compared to what other districts contribute to the TRA.
Second, state aid makes up a much larger chunk of SPTRFA contributions (19.9 percent) compared to TRA (4 percent), reports the Minnesota Center for Fiscal Excellence. Pair that with SPTRFA’s one-time direct pension aid from the pension budget bill that is double what it currently receives annually “plus its share of the nearly $100 million in new ‘pension adjustment revenue’ included at the last minute in the tax bill” and not only are the dollars deemed sufficient to “pay for pension benefits employees will earn over the next year and pay off the plan’s unfunded liabilities in the established time period (2048), but also make an early retirement benefit mathematically and actuarially feasible,” continues the Minnesota Center for Fiscal Excellence. “At least on paper.”
The state justified the difference in dollars to SPTRFA to TRA due to previously stiffing “the district [for almost two decades] on making necessary supplemental contributions that other transitioned state coordinated plans were receiving,” explains the Minnesota Center for Fiscal Excellence.
This remedial effort, though, adds on to previous legislation over the years that has increased the SPTRFA annual direct aid appropriation to try and fix the plan’s funded ratio. “If there is a cautionary tale regarding the sustainability of enacting a major benefit increase in a significantly underfunded condition, it might be seen in the results obtained from almost three decades” of corrective efforts, writes the Minnesota Center for Fiscal Excellence. AKA, no real meaningful results.
Given this history, TRA members aren’t expected to stay quiet about the new changes and are, instead, “expected to flag this new inequity and question their legislators about the disparate treatment in state support for their pension plan,” concludes the Minnesota Center for Fiscal Excellence.