We agree with the call for fixes to the state's public pension plans made by Mark Haveman of the Minnesota Center for Fiscal Excellence ("Public pension plans: Can we Minnesotans handle the truth?" April 24). In fact, Minnesota's pension boards have proposed to fix the plans in ways that meet the interests of everyone who has a stake in the system — including public employees, retirees, governments and taxpayers.
Two of the three statewide pension plans are indeed seeking legislative changes "for the third time in 10 years." Monitoring the plans and making necessary adjustments is an ongoing, routine part of the exercise of our fiduciary duty to Minnesota's taxpayers, active and retired public workers, local government units, and school districts. We are committed to the defined-benefit (DB) pension model and believe wholeheartedly that DB pensions are the best way to provide modest retirement security for our public workers in the most cost-effective way for taxpayers.
Last year, the forecast for future longevity improvements was changed for the state's three largest plans. We have long known that Minnesotans are living longer, and our actuaries have been forecasting longer life spans for some time now. However, recent studies indicate that the previous assumption for future life span improvement should be more conservative. Adoption of this recommendation increases the plans' liability estimates while reducing the risk of future cost increases.
Despite the cost impact of the mortality assumption change, the Public Employee Retirement Association's (PERA) General Plan — the state's largest — is still on a path to achieve full funding without legislative action this year. The Teachers Retirement Association (TRA) and the Minnesota State Retirement System (MSRS) are seeking to offset the increased costs of providing retirement benefits for a longer period of time. In December, TRA and MSRS administrators, boards, active and retired employees, and employers agreed to a sustainability package that will result in over $1.4 billion in benefit cuts. The Legislature now must approve the changes.
When combined with savings from reform measures taken in 2010, previous and proposed reforms will save $8.2 billion. These are structural reforms that will produce ongoing savings and put the plans on track for 100 percent funding.
The proposed changes reflect a "shared sacrifice" philosophy. The TRA and MSRS retirees will see their cost-of-living adjustments reduced significantly. In addition, the MSRS is asking members still in the public workforce to contribute more of their pay toward their pensions. Both the MSRS and TRA are asking employers to kick in 1 percent more to help attract and retain a high-quality workforce.
Ratings agencies Moody's, Standard & Poor's and Fitch have issued harsh reports on states that have not been proactive and aggressive in managing their public pension plans. Minnesota has a history of good financial stewardship of its public pensions, which is reflected in the state's AA+/Positive bond rating. Our 2016 proposed reforms will help preserve that positive assessment.
We appreciate Haveman's general call to action, though it should be noted that we began working on detailed solutions the minute after our actuaries wrapped up their studies last summer.
We now ask the Legislature to pass our sustainability measures and continue Minnesota's tradition of fiscal excellence in public pension management.
Laurie Hacking is executive director of the TRA. Dave Bergstrom is executive director of the MSRS. Doug Anderson is executive director of the PERA.
