2019 legislative update · employer, defined benefit plans: the general employees plan, the police...

LEGISLATIVE UPDATE2019

Minnesota State Retirement SystemPublic Employees Retirement AssociationTeachers Retirement AssociationSt. Paul Teachers’ Retirement Fund Association

Retirement Systems ofMinnesota

Minnesota’s Credit Rating UpgradedThe 2018 legislation was well received by the national rating agencies. With sound fiscal management and a balanced budget outlook, these rating agencies assigned a top bond rating for the state of Minnesota.

• Fitch’s AAA rating: “Minnesota has shown significant financial resilience”

• S & P’s AAA rating: “Reflects our view of the state’s improved financial position and recently passed pension reform”

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Last year, the legislature adopted the 2018 Omnibus Pension Act. This legislation had bipartisan support and passed unanimously at every step in the legislative process. This was the largest and most significant pension legislation in Minnesota history, resulting in improved retirement security for over 500,000 Minnesotans and an immediate $3.4 Billion liability reduction.

Benefit ReformsBenefit reforms for plan members were supported by a broad coalition of union, employer and retiree organizations representing over 500,000 Minnesotans. It was a collaborative public policy success story.

Liability ReductionThe legislation resulted in the reduction of the present value of retirement liabilities by $6.1 Billion over 30 years, with an employer present value contribution increase of $2.1 Billion over the same period. In other words, each dollar contributed by the state resulted in $3 in savings by either increasing employee contributions or benefit modifications/reductions.

2018 CHANGES

2

The 2018 Pension bill and 10.3% investment return in FY2018 resulted in an improved funded ratio for all plans.

*Source: Publicplansdata.org

2018 National Average*

Projected FundingALL Minnesota public pension plans included in the 2018 legislation are projected to reach 100% funding or more within a 30-year period.

Statewide Pension Plans Funded Ratio (in aggregate)

Current FUNDING

81.8 % 73.8 %

50

60

70

80

90

100

Fund

ed R

atio

120

MSRS General Plan

PERA Police & FireTRA Plan

PERA General Plan

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 20352034 2036 2037 2038 2039 2040 2041 2042 2043 20452044 20472046

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The Legislature established the Minnesota State Retirement System (MSRS) in 1929 to provide retirement benefits for state employees.

MSRS administers multiple retirement plans that provide retirement, survivor and disability benefit coverage for Minnesota state employees, the Metropolitan Council, and many non-faculty employees at the University of Minnesota and the Minnesota State university system.

MSRS covers over 56,000 active employees and currently pays monthly benefits to over 44,000 retirees and survivors. We also administer the Minnesota Deferred Compensation Plan (MNDCP) and the Health Care Savings Plan (HCSP).

MSRS is governed by an eleven-member Board of Directors. Three members are appointed by the Governor. Five members are elected by the membership at large. The remaining three members represent the State Patrol Retirement Plan, the Correctional Retirement Plan and the Metropolitan Council Transit Operations.

The MSRS Board has a fiduciary responsibility to act in the exclusive interest of the members and beneficiaries of all MSRS plans, the taxpayers and the State of Minnesota. While MSRS is ultimately governed by the laws and statutes, the MSRS Board is responsible for setting policies, hearing disability and benefit appeals, and overseeing the administration of all MSRS plans.

The State Board of Investment is responsible for the investment management of various retirement funds, trust funds and cash accounts. On June 30, 2018, the market value of all assets under SBI management was $96.2 billion. The combined

funds of the statewide retirement systems totaled $68.2 billion. Below is a breakdown of the combined retirement assets and how they are allocated, as well as a history of annualized returns.

9.5% 9.1%

6.8%

7.8%

30Years

5Years

10.3%

1Year

10Years

20Years

SBI Historical Annualized Returns

1.2%CASH 13.8%

PRIVATEMARKETS

8.6%TREASURIES

19.2%INTERNATIONAL

EQUITY

41.5%DOMESTIC

EQUITY

15.7%FIXED

INCOME

Asset Allocation June 30, 2018

Minnesota State Retirement System (MSRS)

Minnesota State Board of Investment (SBI)

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117,388 Total Members

90.6% Funded Ratio


74.8% Funded Ratio

2,070 Total Members

78.4% Funded Ratio

701 Total Members

52.4% Funded Ratio

430 Total Members

Closed plan funded by a General

Fund Appropriation

Pension Plans

GeneralPLAN

Defined Contribution PlansFIDUCIARY NET POSITION

State PatrolPLAN

State PatrolPLAN

$12,485,613,702.67 Beginning of Year

$13,293,422,117.13 End of Year

$ 807,808,414.46 Change

$691,599,03.64 Beginning of Year

$729,798,519.86 End of Year

$ 38,199,488.22 Change

902 Active Members

59 Deferred Members

1,052 Benefit Recipients

3,217 Total Members

$323.9 Million Total Assets

Unclassified Employees PlanElected officials, department heads, commissioners and legislative staff. • 401(a) defined contribution plan• Mandatory participation based on position


$1.1 Billion Total Assets

Health Care Savings Plan (HCSP) Available to all public employees in Minnesota • 115 Governmental Trust• Group participation mandatory


$7.0 Billion Total Assets

Minnesota Deferred Compensation Plan (MNDCP) Available to all public employees in Minnesota• 457(b) Plan• Voluntary participation

General Employees PlanState Employees, University of Minnesota and Metropolitan Council

$13.3 Billion total assets

Correctional Employees PlanIndividuals working with inmates in the corrections system or patients in security hospitals.


State Patrol Plan State Troopers, Conservation Officers, Crime Bureau Officers and other state employed peace officers.

$729.3 Million total assets

Judges Plan Elected or appointed judges.


Legislators Plan Must be elected before 1997. Closed to new members.

No assets

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The Public Employees Retirement Association was established in 1931 by the Minnesota State Legislature to provide retirement, disability and death benefits to its members and their beneficiaries.

PERA administers three cost-sharing, multiple employer, defined benefit plans: The General Employees Plan, the Police and Fire Plan, and the Correctional Plan. Over 2,000 local governmental units participate in at least one of the cost-sharing plans. Combined, the three cost-sharing plans cover more than 490,000 current and former employees of the participating governmental units.

PERA also administers the Statewide Volunteer Firefighter (SVF) Plan which is an agent multiple employer plan. Each participating plan’s assets and liabilities are separately determined. The SVF Plan covers over 4,000 volunteer firefighters from 159 different fire departments.

Additionally, PERA administers a defined contribution plan primarily consisting of elected officials of over 1,000 different employers. PERA also acts as custodial agent to account for the investments held by various entities with the State Board of Investments to pay future Other Post-Employment Benefits (OPEB) costs.

PERA is governed by an eleven member Board of Directors. Five members are appointed by the Governor and five members are elected by the membership at large. The State Auditor is the eleventh member of the Board. Board positions include representatives for schools, cities, counties, general membership, police and fire membership, annuitants and the general public.

Similar to the other funds, the PERA Board has a fiduciary responsibility to act in the exclusive interest of the members and beneficiaries of all PERA plans, the taxpayers and the State of Minnesota.

Public Employees Retirement Association (PERA)

7,700 Total Members

4,093 Total Members






97.6% Funded Ratio

88.8% Funded Ratio

79.5% Funded Ratio

Defined Contribution PlanPhysicians, elected local government officials, city managers and governmental volunteer ambulance service personnel.

Statewide Volunteer Firefighter PlanVolunteer firefighters who provide service to a municipal fire department of an independent nonprofit firefighting corporation

Correctional PlanMembers responsible for the security, custody and control of the correctional facilities and the inmates.


Police & Fire PlanMembers include most local governmental firefighters and law enforcement officers who meet job-related duties specified by statute.


General PlanEmployees of cities, counties and school districts.


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Minnesota first established a statewide teacher pension plan in 1915. Today, the Teachers Retirement Association covers educators in all Minnesota public schools and charter schools except for educators in St. Paul public schools. TRA also covers MN State faculty who choose TRA coverage at the time they are hired or at the time they attain tenure status.

There are 83,000 active contributing members in the plan, 66,000 retired members and survivors, and 49,000 members who are in deferred status. The defined benefit plan administered by TRA provides retirement, disability and survivor benefits.

The TRA Board of Trustees is comprised of eight members: four elected active members, one elected retired member, the Commissioner of Education, the Commissioner of Minnesota Management and Budget and a representative from the Minnesota School Boards Association.

TRA’s mission is to help provide retirement security for Minnesota teachers and to support the State’s educational system by attracting and retaining teachers. This is becoming increasingly important in light of a tight labor market statewide and inadequate retirement account balances for a majority of working Americans.

The St. Paul Teachers’ Retirement Fund Association (SPTRFA) is a nonprofit organization formed in 1909 to provide retirement security for the teachers of the St. Paul.

SPTRFA administers two tax-qualified, defined benefit programs that provide retirement, survivor, and disability benefit coverage – the Basic Plan and the Coordinated Plan. Basic Plan members do not participate in Social Security through their employment. The Coordinated Plan, commenced in 1978, provides benefits for members who simultaneously participate in Social Security.

SPTRFA is governed by a ten-member Board of Trustees, nine of whom are elected by the membership at large. Additionally, SPTRFA’s largest employer, Independent School District No. 625 (“SPPS”), appoints an ex-officio member. SPPS is the central administrative body for public schools

within the City of St. Paul. While SPTRFA provides an employment-based benefit, the terms are not collectively negotiated, are not administered through SPPS and SPTRFA is not a component unit of SPPS.

Under Minnesota law, SPTRFA is subject to oversite by the Minnesota Legislature and is audited annually by the Minnesota Office of the State Auditor. Similar to the other funds, the SPTRFA Board has a fiduciary responsibility to act in the exclusive interest of its members, beneficiaries and the taxpayers of Minnesota. A nationally recognized actuarial and benefits consulting firm, Gabriel, Roeder, Smith & Company, serves as SPTRFA’s actuary.

SPTRFA is currently projected to achieve 100 percent funded status within its amortization period and, as a result of the 2018 Omnibus Pension Act, is operating with a contribution sufficiency that is intended to address historic underfunding.

Teachers Retirement Association (TRA)

St. Paul Teachers’ Retirement Fund Association (SPTRFA)


197, 910 Total Members

78.1% Funded Ratio

64% Funded Ratio

Teachers PlanPublic and charter school educators, except for members of SPTRFA. Also, some faculty of Minnesota state.


St. Paul Teachers’ PlanLicensed teachers and staff of Independent School District No. 625.


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Pensions BY LEGISLATIVE DISTRICT

The Retirement Systems of Minnesota provide secure retirement benefits to more than 200,000 Minnesotans totaling $4.4 billion. Retirees spend their pension benefits in every community around the state. The map below shows where retirees live around the state and the total benefits paid in each legislative district.

88%OF RETIREES

ARE MINNESOTA RESIDENTS

$4.4 Billion

PENSION BENEFITS PAID ANNUALLY

200,000RETIREES RECEIVE A

PENSION BENEFIT

530,000TOTAL MEMBERS

LIVE IN MINNESOTA

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Benefit Recipients

Total Members

Benefit Recipients

Total Members

A 1,400 3,526 $26,001,494 A 965 2,497 $23,394,489B 1,839 4,709 $33,769,019 B 938 2,872 $22,360,430A 2,801 6,227 $55,063,721 A 1,267 3,647 $30,271,150B 2,486 5,551 $45,062,456 B 1,497 4,575 $36,191,145A 3,447 7,050 $67,618,480 A 1,442 3,789 $32,679,813B 3,048 6,087 $66,494,972 B 1,141 3,809 $26,860,302A 309 823 $7,516,394 A 1,565 5,364 $37,273,457B 1,941 5,023 $40,710,244 B 2,206 4,818 $55,595,294A 2,057 4,101 $41,821,315 A 1,794 4,332 $43,560,281B 2,646 5,098 $51,730,994 B 2,273 4,902 $56,762,600A 2,086 4,333 $44,123,966 A 798 2,468 $18,313,779B 2,668 5,335 $55,541,614 B 810 2,941 $17,630,147A 568 1,481 $11,915,416 A 1,622 4,011 $40,529,923B 1,303 2,819 $27,948,829 B 1,058 3,097 $24,832,688A 2,149 4,522 $45,320,227 A 2,311 5,156 $59,523,528B 2,088 4,536 $40,204,102 B 2,061 5,043 $52,218,424A 2,194 4,860 $41,916,449 A 1,816 4,299 $44,204,880B 1,594 3,762 $29,160,459 B 1,472 3,881 $35,530,121A 1,484 2,953 $32,258,529 A 1,255 3,130 $32,636,191B 3,271 5,975 $68,213,488 B 1,504 3,240 $37,120,480A 2,232 5,097 $45,558,177 A 999 2,846 $21,142,289B 2,039 4,574 $37,535,489 B 1,352 3,610 $33,452,381A 2,099 5,174 $37,619,849 A 1,367 4,082 $36,840,269B 2,369 5,392 $46,575,322 B 886 2,518 $23,324,646A 1,591 3,825 $34,470,094 A 1,394 4,867 $29,642,608B 1,347 3,945 $29,407,134 B 875 2,808 $20,621,984A 1,320 2,898 $30,503,514 A 1,330 3,742 $35,324,488B 994 2,342 $22,980,781 B 797 2,412 $19,287,708A 1,515 4,021 $28,256,190 A 1,516 3,168 $42,647,286B 1,686 5,571 $37,225,867 B 1,835 4,138 $48,952,703A 1,746 4,808 $30,056,378 A 1,101 2,971 $27,093,314B 1,184 3,523 $21,055,684 B 1,533 3,544 $38,445,136A 1,925 5,373 $33,279,549 A 1,354 3,652 $32,722,475B 2,666 5,724 $54,687,249 B 1,254 4,051 $32,808,581A 1,681 4,530 $30,558,100 A 1,741 3,777 $41,916,175B 1,450 3,921 $26,157,369 B 1,863 4,575 $47,849,609A 2,412 5,743 $47,796,139 A 1,737 5,002 $44,505,396B 550 1,285 $12,073,978 B 1,355 4,177 $35,115,788A 1,553 5,064 $34,120,061 A 1,469 4,710 $32,290,004B 1,425 4,162 $29,065,453 B 1,132 3,015 $26,784,777A 1,713 3,786 $36,549,980 A 605 2,394 $14,402,964B 1,314 3,460 $25,466,712 B 1,159 3,832 $26,612,849A 1,806 4,892 $28,657,080 A 778 2,840 $19,140,736B 1,549 4,132 $26,400,264 B 760 2,307 $18,868,898A 1,768 4,385 $33,238,173 A 993 3,122 $23,948,308B 2,714 6,974 $54,532,270 B 1,321 4,284 $28,896,051A 807 2,274 $15,675,520 A 553 2,038 $13,305,245B 2,234 5,255 $44,770,096 B 2,547 8,228 $57,213,869A 1,222 3,719 $25,927,110 A 601 2,779 $12,968,538B 722 2,119 $15,836,853 B 750 2,758 $18,698,126A 336 845 $8,103,727 A 1,025 3,790 $25,142,496B 2,194 6,041 $50,505,835 B 516 2,003 $12,224,859A 1,741 4,275 $34,030,459 A 1,047 3,514 $28,416,439B 1,206 2,994 $22,643,561 B 1,203 3,836 $32,542,397A 1,483 3,490 $33,066,613 A 394 1,919 $8,247,996B 1,330 3,304 $22,415,811 B 763 2,889 $17,996,507A 1,440 4,202 $31,870,021 A 1,350 5,004 $31,765,413B 1,033 3,171 $22,939,803 B 1,612 4,791 $38,619,574A 745 2,704 $17,464,348 A 1,397 4,550 $34,053,081B 808 3,495 $19,743,489 B 1,874 4,560 $47,183,438A 2,005 6,364 $44,121,715 A 707 2,720 $17,249,328B 2,234 6,790 $52,088,526 B 1,193 4,089 $27,344,892A 1,773 4,289 $35,332,874 A 2,260 5,120 $55,657,377B 1,611 4,039 $35,647,374 B 749 2,590 $17,324,965A 1,409 4,180 $35,333,310 A 556 1,905 $12,122,336B 915 2,350 $22,707,285 B 1,075 3,779 $25,744,303A 1,407 4,349 $34,613,944B 1,038 2,893 $26,604,873

5

6

7

8

9

10

1

2

3

4

19

20

21

11

12

13

14

15

16

34

35

36

37

38

39

$84,195,171

$63,877,228

$53,484,295

$65,482,057

28

29

30

31

32

33

22

23

24

25

26

27

17

18

47

48

49

50

51

40

41

42

43

44

64

65

66

67

District Annual Benefits District

$71,076,908

$100,472,018

$83,093,666

58

59

60

61

62

63

52

53

54

55

56

57

45

46

Annual Benefits

$59,770,513

$100,126,177

$134,113,452

$48,226,638

$93,552,309

$99,665,579

$39,864,245

$85,524,330

$41,763,963

$58,609,561

$56,674,020

$51,112,062

$87,966,798

$56,715,469

$59,870,117

$63,185,514

$62,016,691

$54,594,669

$60,164,915

$50,264,592

$54,612,196

$91,599,988

$61,218,817

$45,754,919

$66,462,296

$59,540,115

$92,868,751

$100,322,881

$35,943,926

$65,362,611

$111,741,952

$79,735,000

$55,482,424

$54,809,823

$37,207,837

$96,210,240

$70,980,248

$58,040,595

$55,057,344

$87,770,443

$60,445,616

Total 200,193 529,691

Annual Benefits Paid by Legislative District in 2018

$4,421,609,889

$26,244,503

$70,384,987

$81,236,519

$44,594,221

$72,982,342

$37,866,639

$38,009,634

$52,844,359

$70,519,113

$31,666,663

$37,367,355

$60,958,836

$65,538,450

$65,531,056

$89,765,784

$79,621,184

$59,074,781

$41,015,813

$69,756,671

2018 Annual Benefits Paid by Legislative District

9

Changes affecting all plans: Lowered the investment rate of return assumption to 7.5%. Eliminated future deferred augmentation accruals. Increased the early retirement reduction cost to employees. Reset the amortization period to a new 30-year period. Eliminated authorization for Board to set contribution rates.

Funding to plans: Funding for employer contributions was included in 2018 legislation. Increase to E-12 formula to fund increased employer costs in teacher plans. Direct funding for the SPTRFA ($5 Million) and PERA Police and Fire ($9 Million) Plans.

*Phased in over multiple or future fiscal years.**Plans are not coordinated with Social Security.

MSRS General PERA General TRA SPTRFA

Employee Contribution Increases Prior Rate 5.5% No Change (6.5%) 7.5% 7.5% New Rate 6%* 7.75%* 7.75%* Employer Contribution Increases Prior Rate 5.5% No Change (7.5%) 7.5% 6.5% New Rate 6.25%* 8.75%* 9.0%* Supplemental - - - 3.84% Postretirement Increases (COLAs) Prior COLA 2% 1% 2% 1%

New COLA

1% for 5 yrs 1.5% thereafter

½ of inflation; between 1% and 1.5%

1% for 5 years then increase to 1.5% by 0.1% per year

1% decrease for 2 years, 1% thereafter

Other Provisions Removes COLA trigger increases based on funded ratios Starting in 2024, first COLA increases will not occur until after members reach normal retirement age.

MSRS PERA State Patrol** Correctional Police & Fire** Correctional

Employee Contribution Increases Prior Rate 14.4% 9.1% 10.8% No Change New Rate 15.4%* 9.6% 11.8%* Employer Contribution Increases Prior Rate 21.6% 12.85% 16.2% No Change New Rate 23.1%* 14.4% 17.7%* Supplemental 7%* 4.45%* - - Postretirement Increases (COLAs) Prior COLA 1% 2% 1% 2.5%

New COLA

No Change 1.5% No Change Full inflation; between 1% and 2.5%; max lowered to 1.5% if funding falls below 85%

Other Provisions Removes COLA trigger increases based on funded ratios

Expenditures made by retirees of state and local governments provide a steady economic stimulus to Minnesota communities and the state economy. In 2016, 258,808 residents of Minnesota received a total of $4.7 billion in pension benefits from state and local pension plans.

The average pension benefit received was $1,521 per month or $18,256 per year. These modest benefits provide retired teachers, public safety personnel and others who served the public during their working careers income to meet basic needs in retirement.

Between 1993 and 2016, 15.5% of Minnesota’s pension fund receipts came from employer contributions, 12.52% from employee contributions, and 71.98% from investment earnings. Earnings on investments and employee contributions—not taxpayer based contributions—have historically made up the bulk of pension fund receipts.

$3.1 BillionDIRECT IMPACT

$2.2 BillionINDIRECT IMPACT

$1.9 BillionINDUCED IMPACT

Total Economic Impact $7.2 Billion

71.98%INVESTMENT

EARNINGS

12.52%EMPLOYEE

CONTRIBUTIONS

15.50%EMPLOYER

CONTRIBUTIONS

Erin LeonardExecutive [email protected]

Holly DaytonLegislative [email protected]

Jay StoffelExecutive [email protected]

Rachel Barth Legal & Legislative Director651.215.9541 [email protected]

Doug AndersonExecutive [email protected]

Amy Strenge Policy Coordinator651.201.2669 [email protected]

Jill SchurtzExecutive [email protected]

Christine MacDonaldDeputy [email protected]

Economic IMPACT

Contact INFORMATION





71.98%INVESTMENT

EARNINGS

12.52%EMPLOYEE

CONTRIBUTIONS

15.50%EMPLOYER

CONTRIBUTIONS

Source: Pensionomics 2018: Measuring the Economic Impact of Defined Benefit Pension Expenditures, National Institute on Retirement Security

10

Changes affecting all plans: Lowered the investment rate of return assumption to 7.5%. Eliminated future deferred augmentation accruals. Increased the early retirement reduction cost to employees. Reset the amortization period to a new 30-year period. Eliminated authorization for Board to set contribution rates.

Funding to plans: Funding for employer contributions was included in 2018 legislation. Increase to E-12 formula to fund increased employer costs in teacher plans. Direct funding for the SPTRFA ($5 Million) and PERA Police and Fire ($9 Million) Plans.

*Phased in over multiple or future fiscal years.**Plans are not coordinated with Social Security.

MSRS General PERA General TRA SPTRFA

Employee Contribution Increases Prior Rate 5.5% No Change (6.5%) 7.5% 7.5% New Rate 6%* 7.75%* 7.75%* Employer Contribution Increases Prior Rate 5.5% No Change (7.5%) 7.5% 6.5% New Rate 6.25%* 8.75%* 9.0%* Supplemental - - - 3.84% Postretirement Increases (COLAs) Prior COLA 2% 1% 2% 1%

New COLA

1% for 5 yrs 1.5% thereafter

½ of inflation; between 1% and 1.5%

1% for 5 years then increase to 1.5% by 0.1% per year

1% decrease for 2 years, 1% thereafter

Other Provisions Removes COLA trigger increases based on funded ratios Starting in 2024, first COLA increases will not occur until after members reach normal retirement age.

MSRS PERA State Patrol** Correctional Police & Fire** Correctional

Employee Contribution Increases Prior Rate 14.4% 9.1% 10.8% No Change New Rate 15.4%* 9.6% 11.8%* Employer Contribution Increases Prior Rate 21.6% 12.85% 16.2% No Change New Rate 23.1%* 14.4% 17.7%* Supplemental 7%* 4.45%* - - Postretirement Increases (COLAs) Prior COLA 1% 2% 1% 2.5%

New COLA

No Change 1.5% No Change Full inflation; between 1% and 2.5%; max lowered to 1.5% if funding falls below 85%

Other Provisions Removes COLA trigger increases based on funded ratios

Changes Affecting All Plans • Lowered the investment rate of return

assumption to 7.5%.

• Eliminated future deferred augmentation accruals.

• Increased the early retirement cost to employees.

• Reset the amortization period to a new 30-year period.

Funding to Plans

• Funding for employer contributions was included in 2018 legislation.

• Increase to E-12 formula to fund increased employer costs in teacher plans.

• Direct funding for the SPTRFA ($5 Million) and PERA Police and Fire ($9 Million) Plans.





71.98%INVESTMENT

EARNINGS

12.52%EMPLOYEE

CONTRIBUTIONS

15.50%EMPLOYER

CONTRIBUTIONS

*Phased in over multiple or future fiscal years. **Plans not coordinated with Social Security.

2019 legislative update · employer, defined benefit plans: the general employees plan, the police...

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