The Minnesota State Senate has unanimously approved a pension overhaul bill that proposes mandatory contribution increases, reduced cost-of-living adjustments, and a lower investment rate of return for the state’s public retirement plans.
Backers of the reform say the proposed bill would save Minnesota $6.1 billion over a 30-year period, $3.4 billion of which will be in immediate savings. They also say that if enacted, the state’s public pension plans’ funded status will be between 85% and 95% by 2048 from approximately 77.8% in 2017.
“This is the largest pension reform bill in Minnesota’s history,” said the bill’s author, Sen. Julie Rosen (R), in a statement, adding that it “took years of work and negotiations.”
The bill updates assumptions for investment rate of return and resets the amortization period for all plans to a new 30-year period that would end in 2048. The bill would reduce the assumption for investment rate of return valuation for each plan to 7.5%, down from 8% per year, except for the pension plan covering the state’s teachers, which is 8.5%.
The proposed legislation also reduces or temporarily suspends the cost-of-living increases automatically applied to retiree pension benefits, and changes the method for determining the amount of increases for two of the plans to tie them to increases in federal Social Security pensions.
It also calls for the elimination of early retirement subsidies over a five-year period for all four of the state’s public pension systems. Early retirement benefits are calculated by adding in augmentation, typically 2.5% or 3%, depending on hire date, that an early retiree would have otherwise received had he or she waited until normal retirement age to begin receiving a pension.
Additionally, the bill imposes contribution increases for employers and employees in all the pension plans, except for the public employees’ general plan and the plan for employees of the state’s correctional facilities.
According to the Minnesota Public Employees Retirement Association’s 2017 annual report, all of its plans currently have a contribution deficiency, which it said means that the contributions scheduled to be made to the fund will not meet the goal of full funding by the statutory amortization date without changes. The pension plans cover approximately 329,000 current or former county, school, and local public employees, their survivors, and dependents.