Here is a press release from PEW last week, and an article about the study from the Wall Street Journal. The PEW study (click here) notes that Minnesota is one of the states that stepped up and addressed the problem of unfunded liabilities in 2010 through tweaks to the system including increased employee and taxpayer contributions. The PEW study notes, however, that Minnesota’s pensions still fell below their recommended 80% funding ratio (PEW reported Minnesota at 78% funded on an actuarial basis).

Currently, the major plans (MSRS, PERA and TRA) are officially reported at 79.57% funded on an ACTUARIAL basis. But when you look at the MARKET value of the funds, to get a feel for what we’d have to come up with to fully fund the pensions in today’s dollars, the major plans are only at 68.55 percent (PERA and TRA are down around 66-68% while MSRS is at about 75%). And this is a pension sytem that is viewed as fairly responsible.

You have to keep in mind that we put pension funds in the market. Minnesota’s State Board of Investment has been directed by the Legislature to assume a robust  8.5% rate of return! The pension community has been fooling itself (and public employees and the public) about returns for years. One expert, Girard Miller, calls the investment assumptions “second grade math,” noting that it’s “as if investment income grew from some kind of magic beans that are peculiar to only pension funds….” (See “Poor Pension Math” Governing, February 17, 2011.)

The changes in the 2010 Omnibus Bill were good, responsible steps toward fixing the existing system of defined benefits in the very short term but the bill did not address long term funding problems, delusional investment policies or fundamental questions about what kind of retirement security (along with salaries and benefits like healthcare) the people of Minnesota want to provide for public employees. 

Do you think it is proper for Minnesota to guaranty 85% of an employee’s pre-retirement income–especially when that number is based on their highest earning periods? If so, how do we properly fund core governmnt services? As PEW noted in the press release: “In many states, the bill for public sector retirement benefits already threatens strained budgets, and is competing for resources with other critical needs, including education, infrastructure and health care,” said Susan Urahn, managing director, Pew Center on the States. “The $1.26 trillion shortfall for pensions and retiree health care will drive up annual costs and make already tough budget decisions even tougher.”