Some education on Education Minnesota
One of the most powerful political organizations in Minnesota is not a political party or branch of the government but the state teachers’ union, Education Minnesota. The state teachers’ union…
Minnesota’s unfunded public pension obligations are not a new problem. And reform is difficult when government unions oppose necessary steps to fix the broken system and refuse to consider savings options that offer real retirement security for employees.
Several of the state’s public sector unions—including Education Minnesota, SEIU, and AFSCME Council 5—retweeted a cartoon about pensions with a perilous message about the state of defined benefit plans.
The unions are scaring their members into thinking pensions will disappear because of the Supreme Court’s recent ruling on Janus v. AFSCME, conveniently excluding the fact that Minnesota has short-changed pensions for almost two decades and failing to acknowledge the role unions play in the shortfalls. (Unions lobby actively on pension policy; they are the dominant player at the Capitol.)
In 2009, for example, the state reported an unfunded pension liability of about $15 billion for all funds, with 76 cents on the dollar to pay promised benefits. The Teachers Retirement Association (TRA) accounted for over $5 billion of the deficit.
Fast forward to 2018: the state’s overly optimistic assumptions place the size of unfunded liabilities at around $20 billion (my colleague Kim Crockett calculates the number is closer to $40-$60 billion). TRA says its share of that unfunded liability is around $9 billion, with only 70 cents on the dollar to pay teacher benefits. Its board recently acknowledged the plan’s assumed rate of return (an 8.5 percent assumption) was too high and lowered it to 7.5 percent. But this lower rate requires higher contributions to make up for the fund’s deficit, which TRA and union executives pushed off into the future even though the fund is in big trouble now. Kim Crockett explains it this way:
Today’s younger teachers pay more than retired teachers did, and about half their contribution goes to an unfunded liability. TRA gets cash aid of over $34 million a year from state taxpayers, and under the bill, school districts will get cash to cover increased employer contributions ($60 million in the next biennium). The teachers’ union, however, negotiated to delay the teachers’ contribution increase until 2024. Lawmakers familiar with TRA say this is a mistake given TRA’s severe deficit.
Minnesota stopped covering the full cost of teacher benefits in 2006, the same year TRA began to report an unfunded liability. In 2017, contributions from school districts and teachers fell short by $126.3 million. Taxpayer general funds are also used to prop up the plan. But after so many years of underfunding, it is not enough for the fund to get caught up.
Contribution deficiencies affect the plan’s ability to cover the costs of new benefits, pay for all the benefits owed, and pay off unfunded liabilities. Billions of dollars in unfunded liabilities is a problem, but so is a system that made the deficits possible and probable in the first place.
If the TRA pension fund is not appropriately reformed, Minnesota educators may not get the retirement benefit they have been promised. It’s important for teachers to understand their retirement, how it’s funded, and the state it is in, even though it can be mind-numbingly complex. It is also time for Minnesota teachers, at least new or younger ones, to insist on a portable option that their family can inherit. Most teachers exit the system long before earning a 30-year pension and often get little in return for their contributions.
Here is a helpful three-minute breakdown that explains why the current defined benefit does not work well for most teachers: