PEPSA, Public Employees Pension Service Association

Mar 2, 2010

State's Pensions Need A Boost
Taken from 3-1-10 St. Paul Pioneer Press

In the late 1990's and early 2000's, retired Minnesota public employees lived like the rest of us with a stake in the stock market: high on the hog. In some years, retirees saw their pension benefits grow by double digits, and the state sprinkled around profits from multibillion-dollar retirement funds like fairy dust.

But those profits evaporated with the recession, and state retirees are now looking at a potentially long period of austerity in order to put the retirement funds back in the black.

"Speaking for the police, they're realists and they understand the environment we're in," said Dennis Flaherty, executive director of the Minnesota Police and Peace Officers Association, which has 8,000 members. "We're going to do what's necessary and responsible to keep the fund in good condition."

Hurt by a flagging stock market, retirement fund assets have slipped below their projected liabilities. And while the troubled funds are a multibillion-dollar issue affecting hundreds of thousands of current and future retirees, it is an issue flying largely below the radar.

Legislation moving through the Capitol would tweak how much goes into the funds and what level of benefits go out, and the bottom line of the new econmic reality is this: Some employees would pay more and almost all would receive less.

The state's unions have conceded to changes, but it was only Thursday that Minnesota's largest public employee union, AFSCME Council 5, offered its support.

"The employee groups may not like the solutions this year, but the solutions may be worse next year," said Sen. Don Betzold, DFL-Fridley, who co-chairs a joint legislative pensions committee.

The funds have all proposed bending down annual benefit increases to well below the normal rate of inflation. And projections show those lower benefits may have to stay in place for a while, if not decades.

One fund, the $14 billion Public Employees Retirement Association of Minnesota, would need an unheard-of 19 percent return on investments just to maintain its current funding level, plan administrator Mary Vanek said.

And so the fund, which has 231,000 current and retired members, has proposed a mere 1 percent cost of living increase in retiree benefits until the plan is in better shape. That figure is far below the 2.5 percent increase of recent years, and dramatically the 11 percent increase in 2000.

And employees may have to get used to that.

"It's going to take 20 years, unless some really good things happen over that period of time," Vanek said.

Other funds, including the $7.5 billion, 70,000- member Minnesota State Retirement System, have proposed a cost-of-living cut to 2 percent. The $14 billion Teachers Retirement Association would freeze retirement increases for two years, then cut them to 2 percent. The funds are also proposing slashing other benefits.

Betzold said the stock market is not going to take care of the problem. "They can't invest their way out of this thing." he said.

How did we get here? In the 1980's the state cut contributions to the plans in order to save money. In the 1990's, it created a separate fund to share stock market gains with employees, and in some years increases were in the double digits.

But coupled with the benefit cuts, some funds will need more in contributions from both current employees and their government employers to make up shortfalls.

Contributions are split 50-50 between employees and the government, though the mix is different for public safety funds. That only means more taxpayer dollars going into the funds, but for employees who haven't seen wage increases, it actually means a cut in take-home pay.

AFSCME Executive Director Elliot Seide said that the average AFSCME pension is $13,000 a year and pointed out that workers have taken furloughs and cuts to their hours, yet continue to support the fund--reluctantly this year. "Every time there's been an ask to step up and make these funds fiduciarily sound, we've done that," Seide said.

AFSCME's support came as good news to Minnesota's cities and counties. Already facing steep cuts in state aid, paying more into the fund without cutting benefits was not a prospect they were looking forward to.

Keith Carlson, executive director of the Minnesota Inter-County Association, said local government would still be contributing $12 million to $15 million into pension funds. "That's taxpayer's money," Carlson said.

Gary Carlson is a lobbyist for the League of Minnesota Cities, said he was pleased to see union support for the bills. "I think they now more fully appreciate the challenge that the funds face. It is bitter medicine." he said.

But for Seide, the issue remains emotional. Public employees have ssen their contributions go up in recent years, and now they are seeing benefits cut. And they still are a frequent target for politicians.

"This is one of the greatest work forces in the country. They are responsible. They are high quality. They are productive. They deserve to be praised, rather than demonized by the governor and some of these other right-wing extremists," he said.



Home		Mar 2, 2010 State's Pensions Need A Boost Taken from 3-1-10 St. Paul Pioneer Press In the late 1990's and early 2000's, retired Minnesota public employees lived like the rest of us with a stake in the stock market: high on the hog. In some years, retirees saw their pension benefits grow by double digits, and the state sprinkled around profits from multibillion-dollar retirement funds like fairy dust. But those profits evaporated with the recession, and state retirees are now looking at a potentially long period of austerity in order to put the retirement funds back in the black. "Speaking for the police, they're realists and they understand the environment we're in," said Dennis Flaherty, executive director of the Minnesota Police and Peace Officers Association, which has 8,000 members. "We're going to do what's necessary and responsible to keep the fund in good condition." Hurt by a flagging stock market, retirement fund assets have slipped below their projected liabilities. And while the troubled funds are a multibillion-dollar issue affecting hundreds of thousands of current and future retirees, it is an issue flying largely below the radar. Legislation moving through the Capitol would tweak how much goes into the funds and what level of benefits go out, and the bottom line of the new econmic reality is this: Some employees would pay more and almost all would receive less. The state's unions have conceded to changes, but it was only Thursday that Minnesota's largest public employee union, AFSCME Council 5, offered its support. "The employee groups may not like the solutions this year, but the solutions may be worse next year," said Sen. Don Betzold, DFL-Fridley, who co-chairs a joint legislative pensions committee. The funds have all proposed bending down annual benefit increases to well below the normal rate of inflation. And projections show those lower benefits may have to stay in place for a while, if not decades. One fund, the $14 billion Public Employees Retirement Association of Minnesota, would need an unheard-of 19 percent return on investments just to maintain its current funding level, plan administrator Mary Vanek said. And so the fund, which has 231,000 current and retired members, has proposed a mere 1 percent cost of living increase in retiree benefits until the plan is in better shape. That figure is far below the 2.5 percent increase of recent years, and dramatically the 11 percent increase in 2000. And employees may have to get used to that. "It's going to take 20 years, unless some really good things happen over that period of time," Vanek said. Other funds, including the $7.5 billion, 70,000- member Minnesota State Retirement System, have proposed a cost-of-living cut to 2 percent. The $14 billion Teachers Retirement Association would freeze retirement increases for two years, then cut them to 2 percent. The funds are also proposing slashing other benefits. Betzold said the stock market is not going to take care of the problem. "They can't invest their way out of this thing." he said. How did we get here? In the 1980's the state cut contributions to the plans in order to save money. In the 1990's, it created a separate fund to share stock market gains with employees, and in some years increases were in the double digits. But coupled with the benefit cuts, some funds will need more in contributions from both current employees and their government employers to make up shortfalls. Contributions are split 50-50 between employees and the government, though the mix is different for public safety funds. That only means more taxpayer dollars going into the funds, but for employees who haven't seen wage increases, it actually means a cut in take-home pay. AFSCME Executive Director Elliot Seide said that the average AFSCME pension is $13,000 a year and pointed out that workers have taken furloughs and cuts to their hours, yet continue to support the fund--reluctantly this year. "Every time there's been an ask to step up and make these funds fiduciarily sound, we've done that," Seide said. AFSCME's support came as good news to Minnesota's cities and counties. Already facing steep cuts in state aid, paying more into the fund without cutting benefits was not a prospect they were looking forward to. Keith Carlson, executive director of the Minnesota Inter-County Association, said local government would still be contributing $12 million to $15 million into pension funds. "That's taxpayer's money," Carlson said. Gary Carlson is a lobbyist for the League of Minnesota Cities, said he was pleased to see union support for the bills. "I think they now more fully appreciate the challenge that the funds face. It is bitter medicine." he said. But for Seide, the issue remains emotional. Public employees have ssen their contributions go up in recent years, and now they are seeing benefits cut. And they still are a frequent target for politicians. "This is one of the greatest work forces in the country. They are responsible. They are high quality. They are productive. They deserve to be praised, rather than demonized by the governor and some of these other right-wing extremists," he said.
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