What Counts as a “Crisis” at the Teachers’ Pension Funds?
A number of teachers around the state sent me the Fall 2017 Teacher Retirement Information Bulletin (thank you!).
The Bulletin is sent to any teacher with funds in the Teachers Retirement Association. TRA manages the pensions for all teachers except St. Paul Teachers, the last so-called “independent” teachers’ pension. These concerned teachers read my op-ed in the Star Tribune in September explaining why Bloomberg Markets and others have called out the financial state of Minnesota’s public employee pensions—especially the teachers’ funds.
The “Bulletin” is a cheerful newsletter designed to inform and sooth fears– by calling out/answering TRA critics (usually me). The content this month was: the need for “sustainability” measures; TRA announced that after a “nationwide search” the current second in command, Jay Stoffel, was named as Executive Director; and then the board president attacked me with the same old tired rhetoric.
First, the new guy they hired from that national pool of talent? Jay Stoffel is the guy who rode the Duluth teachers fund down the hill, across North Shore Drive and into Lake Superior, where it sank like a petrified log. The fund was in such bad shape after 20 some years of his leadership that it had to merge, propped up with now-annual cash assistance from state taxpayers, into TRA. Instead of firing Mr. Stoffel, he got a promotion. Stoffel always blamed the stock market. And that teachers are living longer than expected. And that parents are fleeing the district–shifting their kids to those darned charter schools and to neighboring schools in Hermantown. The dog ate my homework.
Second, TRA is working on a “Sustainability Proposal” because “(w)hile not in crisis, TRA must make adjustments periodically to keep the fund on a positive trajectory.” I wonder what counts as a crisis at TRA? Forget my analysis, let’s see what TRA’s says: Here is the TRA handout from the September 20, 2017 pension commission meeting. TRA admits to a $30.7 billion liability but only has $21.2 billion to cover those promised pensions.
TRA says, further, based on the 2017 valuation, that it only has $0.69 on the dollar to pay pensions to teachers. If there are no changes, it will only have 50% of funds in 2046. TRA used 2017 numbers because the markets were up—a lot. If it uses the 2016 valuation when the funds were in negative territory, the fund is expected to have only 37% of the needed funds in 2046. And these financial projections use wildly optimistic assumptions (8.5%) about how much the funds are going to make in the market (that let them down in 2008)—and hard to defend calculations of their future liabilities.
Why isn’t this a crisis?
By the way, remember that I said that the St. Paul teachers’ pension was “independent?’
“Independent” is an interesting word. Both the St. Paul teachers’ fund and TRA get huge direct annual subsidies from the Minnesota general fund ($11 million to St. Paul, $35.6 million to TRA in 2016). And neither fund has paid the full actuarial contribution required to cover current teachers since 2002 and 2006, respectively. So, all taxpayers are not only paying for the pensions as “employers’ but they are propping up someone else’s pension with cash, with no improvement in their funding status.
Third and finally, President Martha Lee (Marti) Zins (pictured here), who is a long-time union operative, defended TRA against my analysis in “Anti-pension rhetoric ramps up.”
President Zins did her TRA-best to defend the fund’s financial health. But the nearby article on “sustainability” makes admissions that should give teachers pause,not to mention the admission at the pension commission.
I have gone more than a few rounds with these folks over the years. It gives me no joy to tell you that in the end, the numbers are much worse than they admit, and the math will win. TRA can attack the Center over and over. But it will not change the hard facts.
Here is how I put it in the Strib:
Once pension funds get behind, it gets harder to recover. This is partly because the pension funds pay out set benefits to retirees while saving and investing for current employees. Unlike in Wisconsin, the benefit paid out to retirees in most states, including Minnesota, does not depend on the fiscal health of the fund. So even if public employers failed to put enough aside to cover the pensions promised to employees, the benefit must be paid.
Bloomberg is right to sound the alarm in Minnesota, because the pension system is designed to fight change. But we must figure this out, because hundreds of thousands of Minnesotans are counting on the state to make good on their retirement, and we are all counting on government to keep its promise of delivering services for our tax dollars.
A link to the TRA Bulletin is here.