ST. PAUL, Minn. (AP) — Minnesota's public pension plans for government employees are underfunded by $16.7 billion — a deficit that's $4 billion larger than it was when lawmakers took steps to fix the problem in 2010.
The underfunded pensions aren't a reason for alarm, experts say, but they say it is a problem that 11 of the state's 12 public pension plans open to new members don't have enough money coming in to cover promised benefits. Plans for state troopers, public safety workers, and local police and firefighters are among those with the largest gaps. Lawmakers will consider changes to those plans this year.
"Is there a need for concern? Yes," said Larry Martin, executive director of Minnesota's Legislative Commission of Pensions and Retirement. "We're departing — significantly — from what we think we ought to be doing."
The commission released the numbers last month. The figures are current through last June 30.
The plans pay for retirement for more than 729,000 current and retired state and local government workers and pay out about $3.8 billion in benefits annually.
In 2010, the Legislature made some changes to the pension plans to fix what was then a $12.7 billion deficit. The changes included requiring state workers and employers to pay more into the funds.
Some say the reforms need more time to show improvement.
"I know the people that run the funds; they're looking at them and keeping an eye on them," said state Rep. Michael Nelson, DFL-Brooklyn Park, who chairs the House Government Operations Committee, which heard testimony on Jan. 15 about the status of the plans. "I'm not that concerned, because I think the things we did in 2010 and moving forward are moving them in the right direction."
Others say the state must do more to avoid a pension crisis.
"We are not gaining any ground on eliminating this unfunded liability," said Mark Haveman, executive director of the nonpartisan Minnesota Center for Fiscal Excellence. "None of them are on a process, a timeline, under current law to be fully funded in 30 years. You're transferring these significant liabilities to future generations."
Haveman said the state needs to put at least $431 million into the pensions just to keep them from falling even more behind.
Public pensions operate under the principle that the current generation pays for its own benefits. The goal is to set contributions from workers and employers at amounts that would generate the right amount of return on investments to cover future benefits. But the assumptions aren't always accurate. The current problem is proof of that: The stock market hasn't yielded investment returns at the assumed level for years, and people are living longer so need more money upon retirement.
Nationwide, Minnesota's pension funding ranks somewhere in the middle when compared with other states. A 2012 report from the Pew Center on the States says Minnesota and six other states had pension funds that need improvement.
Martin said if investment markets improve, the state's pension plans will too.
The Legislature's discussion about the most-troubled plans could result in a broader look at the financial health of all the plans. Lawmakers will have to decide whether to intervene now or wait for an economic recovery that might ease some of the problems.
Some say waiting and counting on the stock market is too big a risk. Others say increasing contributions now could result in cuts to services or tax increases as budgets are stretched thin.
"Those pensions are an obligation that citizens have to public employees, and you can't just decide, 'We can't afford that,'" said King Banaian, an economics professor at St. Cloud State University who just finished a term in the Minnesota House. "We need to act now because it's easier to deal with it now than to wait 20 years."
"Minnesota has been pretty responsible," said Rep. Phyllis Kahn, DFL-Minneapolis, recently reappointed to the Legislative Commission on Pensions and Retirement. "We've always sort of stepped up. Maybe we haven't made things perfect, but we've always started to make things better."
Copyright 2013 The Associated Press.
Comments (29)
Add commentJust call Hop Sing
Hello, China, can you lend us a few million?
The last paragraph quoting
The last paragraph quoting Phyllis Kahn says it all.
Right, MN has been responsible. If Mn had been responsible the pension funds would have been set up responsible not counting on a 8% increase.
Public pensions are underfunded and something needs to be done now. Democrats will want the taxpayers to pay more to cover it, never ask for an increase from employees to their own pensions.
Sadie: There have been increased contributions from employees
"The 2010 Legislature and then-Gov. Tim Pawlenty agreed to a number of benefit cuts and contribution increases that will be phased in over the next four years. Some employee groups agreed to some of the largest pension contributions in the country. Minnesota was one of only a handful of similarly afflicted states to agree to cuts in benefits for current retirees.
"Those moves are paying off nicely in stabilizing the pension funds. Already, combined with the improving stock market, they have shaved unfunded liabilities by more than a third."
http://www.startribune.com/opinion/editorials/119508384.html?refer=y
Is there still progress to be made? By all means. It sounds like they're trying to do just that.
Harking back a couple days ago to Sen Gazelka's and Rep Kresha's idea to eliminate State tax on military retiree pensions, again, this isn't the time for that kind of tax giveaway. Don't cut anyone's military pension, just don't make it even "richer" right now. If, in the future, there are additional funds to help disabled retirees, based on financial need, let's do that. In the meantime, if we have extra monies burning a hole in our pocket, put them toward paying for underfunded healthcare for returning Iraq and Afghanistan vets.
Underfunded Pensions?
"Those pensions are an obligation that citizens have to public employees, and you can't just decide, 'We can't afford that,'" said King Banaian, an economics professor at St. Cloud State University who just finished a term in the Minnesota House. "We need to act now because it's easier to deal with it now than to wait 20 years."
Just an example of how the liberal mind works.
Bubba
The whole public/private is out of balance. The private sector not only funds the public sector but, the public sector generally has better benefits and pension. It is not sustainable. It divides people as the private sector works more days and time during the year but, also works to an older age. Private sector has to fund their own retirement.
We need a growing economy with more workers.
The Mn public sector will want to hire more workers to fund the pension fund, We can't afford it and I do agree that for now the retired military should continue paying taxes.
Some states don't have a state tax and some are thinking of not having one. MN thinks of raising taxes on the "rich" and more sales tax .Idon't know what other states do about the retired military.
Purposed: Again a strange alignment of the stars! I tend to
agree with you. We probably need to honor whatever commitments we're into, but I sure wouldn't make promises for the future, and I would not endorse making a special exception by exempting military pensions from state taxes.
Sadie: It varies by state. MN has to decide what precedents it wants to set in terms of making any exceptions to tax rules. Again, we can't afford it now. Fund the healthcare for our returning vets fully, first.
Epitaph:.
"We're departing — significantly — from what we think we ought to be doing."
Pensions/Medical Care/Taxes
What a mix of subjects, Public Pensions, which less than 10 years ago was over 100% funded, did the great recession take care of that? maybe they need to check into the investment policies of the funds.
Tax break for military retirees? maybe a few more of them would stay in the state instead of leaving for states with tax incentives. These same people are paying state taxes and sales tax with income other than the military retirement so we lose that also.
Medical care for Vets is funded federally, but like many programs often times there are delays in processing claims or the Vet does not apply or realize they have a benefit.
Time for massive changes to overly generous public pensions.
Now is the time for the public to stand up and demand changes to these incredibly generous public pensions. NO MORE retiring at 50 or 55 with full benefits including healthcare. The only private employees with similar benefits are union workers. They are another enjoying unrealistic benefits.
It is time to do what most private employers have already done and convert ALL public pensions to 401k types of plans. No longer will public employees be retiring decades before those that pay for their benefits.
The time is NOW to stop this madness and halt ridiculous benefits for public employees.
50?
I am a state employee and the only way I could retire at 50 (with less than full benefits) was if I had started my career when I was 10 years old (MN has a "Rule of 90"- age plus years of service). There are no health benefits included in my retirement package. Since my wife is 4 years younger than me, I will not be able to retire until she is eligible for Medicare, which will be when I am 69. I get tired of hearing about how state employees are "set for life". It's just not true.
So, your plan is to work
So, your plan is to work until 69 so you can cover your wife's insurance? 4 years more you will hold unto the job making it impossible for a younger person to step into that position.
In the private sector, we paid our own insurance until we hit the medicare age. We took a $3000 deductible, never had eye coverage or dental coverage. Actually, we always paid our own insurance with high deductibles.
In a way I don't blame you but, you are probably used to some cadillac coverage that I would be uncomfortable with.
It's not that you're not able to retire but, that you choose not to.
help
Not trying to be mean but, I wonder if public employees know how much their benefits cost the employees in the private sector who have less benefits. if any.
Help us out here. This is not sustainable.
Bring on universal health care!
Employment is too tied into health care provisions. People work beyond what they are physically comfortable with just to have health care. The need for health insurance brings on more physical issues among those who do manual labor well into their 60s. It prevents older folks from decreasing their hours to part time when that could help them and the health care system.
New Normal...70...(Seventy)...
And I'm not talking about an auto like this Gem...
It's the average age most folks in the future will perhaps retire at...
_______
Look at it another way
I agree it would be best that health insurance and employment not be tied. Hmm I wonder how that got started?
I propose each person/family unit have their own policy and it be portable. The employer be it public/private can add a health benefit dollar amount to the salary. The employee can choose what they want to be insured for and choose their own insurance. The employer contributes to the employees chosen insurance but, directs the money to the employee instead of the insurance company,.
When employee moves to another company, the insurance policy moves with them.
Good idea, Sadie
Why don't they do that?
Gone Southie
"Good Idea,Sadie. Why don't they do that?" Here's your answer-Unions and DFL'rs. Southie, do you enjoy being stupid.
I agree, Southie -- every American could be on a modified
Medicare-type plan, and it would result in lower healthcare costs and coverage for all. But we don't view healthcare as a right in this country -- it's still really a privilege for the few.
Sadie, here's a good article about how healthcare got tied to employment, among other things. http://www.boston.com/business/healthcare/articles/2005/10/16/why_is_hea...
It's a long story
During WW 2 the War Labor Board ruled that wage and price controls did not apply to fringe benefits.
1940's National Labor Relations Board said that health insurance and other benefits was subject to collective bargaining.
1954 - IRS said that health insurance premiums paid by employers were exempt from Income taxation.
Then there is more, I will read the article from Bubba for my own interest.
Amazing
Quote:
"You public employees retire at 50 with Cadillac benefits and a full pension!"
"Wait, you don't?"
"You public employees lap at the trough until you are 69 just to get health benefits. What pigs!"
It seems no matter what is true, you will find some reason to get upset and complain.
Fact: Most people in any public profession will not be retiring before age 60 anymore. Those days are long gone.
Fact: Public employees contribute money to their pensions and the employer also contributes.
You cannot expect these funds to be pre-funded for employees' entire retirements all at once when the paradigm just recently shifted to that concept. In the past, it was expected that current employees would pay for the retired ones. It is obviously going to take some time to get to the point where everyone's retirement is entirely paid for on the day they retire. It is definitely a fine goal, though, and something we should continue working toward.
However, the vitriol toward public employees, who are people just like everyone else doing a job, is reprehensible. It really says something about people who default into that mode.
Like looking in a mirror
In Illinois, we are over 80 billion in debt because of pensions. Police, fire, teachers & other public employee unions raping the taxpayer.
Teachers - file your retirement papers & they automatically get 6-8% for the next three years so this will increase their pension. Get 90% of their salary.
Fire - some fire chiefs are collecting two pensions & working at a third house, easily making over 200K
My neighbors - both worked for the state, now retired, making $50/mo. Less than when working. They get cola 3% every year& don't contribute to full medical coverage.
Me- I pay $6k (yr) taxes for a 1,400 sq ft home, 9.25% sales tax on everything I buy. In 2011 the state raised our personal income tax 67% (that's right 67%). I have 8 taxing agencies reaching into my pocket.
MINNESOTA - this is where you'll be in a few years, unless spending is controlled, pensions become realistic, and taxes stablized.
ME - Illinois' situation is not sustainable, so I just laugh & I must try & figure out where I can move to.
long grove
Thank you, we aren't able to explain it in simple terms so that it is understood.
Snackfu:
Fact: Public sector employees pay into their retirement funds with the money they earn . That money is taxpayer money. The employer pays into the fund. The employer is the taxpayer.
The bottom line that the taxpayer funds the employee and employer contributions. This is unsustainable. It has nothing to do with liking or disliking anyone. It is not sustainable.
Did you all know that
Did you all know that government employees also pay taxes, making them taxpayers as well? The More You Know........ (in the sing songy voice) :)
Really?
I always thought once someone performed a service for their pay, the money was theirs!
I'm going to have to go to Rafferty's and tell them how to spend my money I gave them for the pizza I had there last weekend! I suppose I should get in touch with the server so I can tell her how to spend that tip as well.
Things just get more and more ridiculous on these boards every day.
Sadie-
unless you are prepared to build and maintain your own roads, educate your own children, make sure your food is safe, obtain your own water (and take care of your wastewater), fight your own housefire, deal with a crime committed against you, care for your own disabilities (no matter how severe), etc., etc., etc., I suggest you tone back the vitriol.
Not everyone
works banker's hours with weekends and holidays off...