Pension Omnibus Bill: Show Me the Money
The pension bill’s next stop is Ways & Means in the House. If it passes there, it will go to the floor of both chambers. There has been no fiscal bill issued to date, so I cannot tell you what the bill, as written, would cost taxpayers.
Recall that last year, Dayton vetoed the pension bill because taxpayers had not contributed enough to someone else’s (guaranteed) pension. He mumbled something about “not enough shared sacrifice.”
The funds admit to being almost $18 billion in the hole (using the right assumptions bumps this to $30-$40 billion); the funds have not made the fully required contributions since the early 2000’s and many funds are being propped up with lots of extra cash from the general fund and “additional employer contributions, totaling $120 million in 2016. That amount goes up this year, if the bill passes, with no fundamental reform.
The session started off with the Governor engaging on the issue for the first time in six years. His “Blue Ribbon” report basically said the plans should raise contributions (again), lower the rate of return to 7.5% and reduce COLAs. Those tweaks would be great if the funds were closer to full funding. Unfortunately, they will be too little too late. And instead of dealing with the unfunded liability, Dayton’s Blue Ribbon folks said, “Let’s just push the balloon payment out to 2047.” By then, we should all be safely tucked away in Naples, senile or dead.
The omnibus has undergone many changes, and it is not over yet so I will report after the session in detail. But here is a broad sketch:
- TRA has, for now, been stripped out of all provisions below, so stay tuned.
- Lowers the investment return assumption to 7.5% apparently for all funds except TRA (TRA still at 8.5%) effective 7/1/2017: this is good, will produce a more realistic picture of the true liability and required contribution rates.
- Lowers payroll and salary growth assumptions.
- Updates the mortality tables to more realistic assumptions (people are living longer).
- Lowers pension benefit for employees who leave before reaching retirement age (augmentation).
- Pushes the amortization date out to 2047 (look for big balloon).
- Re-jiggers and lowers COLAs (different rates for each plan) and eliminates auto-increases. This is good; we will know they are serious when the eliminate it altogether.
- Increased contribution rates for employers (taxpayers) and employees. It still won’t be enough.
- Increases state aid for PERA Police &Fire by another $4.5 million to $13.5 million ($9 million now).
- Increases state aid for St. Paul Teachers another $5 million to $15 million a year ($10 million now).
If you think that is bad, TRA is getting $35.6 million a year in extra cash (includes aid for Duluth teaches that merged a few years ago). PERA, the local government plan gets $6 million.
Except for TRA, the bill is an serious attempt by the funds to sober up (more realistic assumptions, paying more in contributions while lowering COLAs) but still sneaks the old sauce hoping no one will notice (big increases for taxpayers, modest increases for employees, without fully funding the base benefit).
And then there’s that big balloon floating out there over 2047.
To be fair, this commission needs a new governor, state auditor, and new plan administrators, who are willing to overhaul the system (fully fund past promises while putting new employees in plans that do not rely on politicians and unions to fund their retirement). And TRA needs a new board not dominated by Education Minnesota unions reps.
If this passes, it will bring some clarity to the true state of Minnesota’s defined benefit system.