Minnesota’s retired employees are paid about $3.8 billion a year in retirement benefits. Alarms went off last week when it was learned that pension plans for the state are underfunded by a whopping $16.7 billion. That’s $4 billion more than when the state’s lawmakers set out in 2010 to remedy the shortfall. Lawmakers back in 2010 were charged with “fixing” a then $12.7 billion deficit in the pension programs. Oops! In typical fashion, those legislators that were part of solving the problem three years ago say the reforms enacted need more time to show improvements. Why, so pensions are able to show an even greater shortfall?
Executive Director of Minnesota’s Legislative Commission of Pensions and Retirement Larry Martin indicated that there was need for concern over the shortfall.
The 2013 legislators were just sworn into office and now they’re faced with a huge pension problem for its current and former employees and a $1.1 billion state budget. Do I hear bailout?
“Public pensions operate under the principle that the current generation pays for its own benefits,” The Associated Press reported. 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. Really?
Just so everyone feels better about the pension fund being underfunded by $16.7 billion, Minnesota’s pension funding “ranks somewhere in the middle when compared with other states.” That’s not much comfort if other states are facing a similar deficit. The Pew Center on the States says the Gopher state and six other states had pension funds that “need improvement.”
Some of the problems that have caused the deficit are due to slumping investment markets. Perhaps pension programs will improve as the markets come back.
So what action needs to take place?
“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 told AP. “We need to act now because it’s easier to deal with it now than to wait 20 years.”
Sounds good. Legislators, are you listening?