May 31, 2018
Governor signs 2018 pension bill
Gov. Mark Dayton has signed the 2018 Omnibus Retirement Bill into law.
“That’s
the last bill I’ll sign as governor of Minnesota and what a great way to end
on,” Dayton said at the May 31 signing ceremony in the Capitol rotunda, which
was packed with Minnesotans from all walks of public service.
The bill includes sustainability measures for all four of
Minnesota’s public employee pension systems: the Teachers Retirement
Association (TRA), the Public Employees Retirement Association (PERA), the
Minnesota State Retirement System (MSRS), and the St. Paul Teachers Retirement
Fund Association (SPTRFA).
For TRA, the law calls for reducing the retiree cost of living
adjustment from 2 percent to a 1 percent for five years (2019-2023), then
increasing by 0.1 percent per year in each of the following five years
(2024-2028) to 1.5 percent. The law also includes a provision to delay the
initial COLA to age 66 (effective July 1, 2024). This provision exempts those
who retire under Rule of 90, age 62 with 30 years of service, disability
benefits or survivor benefits.
The 2018 law includes a 0.25 percent employee contribution increase
beginning July 1, 2023 (from 7.5 percent to 7.75 percent) and an employer
contribution increase of 1.25 percent, from 7.5 percent to 8.75 percent, phased
in over six years (fiscal years 2019-2024).
The law also changes reduction calculations for early retirement over a
five-year phase-in period (fiscal years 2020-2024). Those who retire at age 62
with 30 years of service are exempt.
These measures reduce liabilities by $2.0 billion for TRA alone.
Upon passage in the Senate in March, pension bill co-author and chair of
the Legislative Commission on Pensions and Retirement (LCPR) Sen. Julie
Rosen praised the engagement of those who have worked for three years on a
pension sustainability package with “significant benefit reforms” as well as
contribution rate increases for employers and employees. Rosen said the effort
reflects “true shared sacrifice.”
The bill reduces liabilities by about $3.4 million (all four systems)
immediately, lowers the rate of return on investments to 7.5 percent, puts the
plans on the path to full funding, provides funding to schools to offset
increased pension contributions, ensures that unfunded liabilities won’t weigh
down bond ratings, and safeguards the retirement security of public employees
for the future.
Minnesota Management and Budget Commissioner Myron Frans earlier this
year described the effort as a “very important sustainability package” that
would improve the financial health of the pension funds and the state.
“We couldn’t have done it without the support of all stakeholder
groups,,” said TRA Executive Director Jay Stoffel. “This is a great step
forward for the retirement security of the members, for the health of the
pension fund and for the state of Minnesota.”
Passage of a pension sustainability package comes after failed attempts
in 2016 and 2017 to address funding issues resulting from changes in public
employee longevity and lower anticipated investment returns.
The TRA Board of Trustees endorsed the sustainability measures with the
stipulation that contribution increases be funded, and that legislation reflect
the board’s guiding principles: shared commitment, long-term financial
stability, intergenerational equity and maintaining the recruitment and
retention value of the TRA pension.
Among the administrative provisions affecting TRA are updates to
actuarial assumptions used to assess the plan’s financial health. The most
significant of these is a lowering of the assumed rate of return on investments
from the current 8.5 percent to 7.5 percent. The assumed rate of return is a
powerful mechanism; lowering it increases TRA’s liabilities and lowers the
plan’s funded ratio.
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