Overview Information

on

Current Status of Minnesota Public Pension Plans,

Funding Problems of the Minneapolis Teachers
Retirement Fund Association,

and

Review of Actions in Other States to Solve
Pension Funding Problems

Materials on Minnesota Public Pension Plans, MTRFA, and the Experience of Other States With Problem Pension Plans

  1. Historic Purposes for a Pension Benefit Plan (Page 4);

  2. Growth and Development of Minnesota Public Pension Plans (Pages 5-6);

  3. Establishment of Minnesota Public Pension Plans (Pages 7-10);

  4. Types of Pension Plans (Page 11);

  5. Minnesota Defined Benefit Plans and Defined Contribution Plans (Page 12);

  6. Major and Statewide Minnesota Public Pension Plans: Plan, Fund and Administration (Page 13);

  7. Nature of Actuarial Funding (Page 14);

  8. Pattern of Recognizing Pension Costs Over Time Under Various Funding Methods (Page 15);

  9. Actuarial Reporting on Minnesota Public Pension Plans (Page 16);

  10. Actuarial Valuation Results: Summary for All Plans (Page 17);

  11. Actuarial Valuation Results: Statewide General Employee Plans Summary (Page 18);

  12. Actuarial Valuation Results: Statewide Public Safety Plans Summary (Page 19);

  13. Actuarial Valuation Results: Local Police and Paid Fire Plans Summary (Page 20);

  14. Actuarial Valuation Results: Statewide Specialty Retirement Plans Summary (Page 21);

  15. Actuarial Valuation Results: First Class City Retirement Plans Summary (Page 22);

  16. Actuarial Valuation Results: Teacher Retirement Plans Summary (Page 23);

  17. Funding Ratios Over Time: PERA-General, MSRS-General, and TRA (Page 24);

  18. Funding Ratios Over Time: TRA, MTRFA, and SPTRFA (Page 25);

  19. Normal Cost Over Time: PERA-General, MSRS-General, and TRA (Page 26);

  20. Normal Cost Over Time: TRA, MTRFA, and SPTRFA (Page 27);

  21. Employee and Employer Contributions Over Time: PERA-General, MSRS-General, and TRA (Page 28);

  22. Employee and Employer Contributions Over Time: TRA, MTRFA, and SPTRFA (Page 29);

  23. Total Requirements vs. Total Support Over Time: PERA-General, MSRS-General, and TRA (Page 30);

  24. Total Requirements vs. Total Support Over Time: TRA, MTRFA, and SPTRFA (Page 31);

  25. Minnesota Public Pension Plans: Funding Progress 1957-2003 (Page 32);

  26. Minnesota Public Pension Plans: Actuarial Experience Gains and Losses 1986-2003 (Pages 33-35);

  27. The Retirement Plan Watch List (Page 36);

  28. Actuarial Value of Pension Plan Assets Compared to Market Value

  1. Minnesota Public Pension Plan Demographics (Page 41-47);

  2. Public Pension Plan State Aid (Page 48-50);

  3. Administrative Expenses Over Time: PERA-General, MSRS-General, and TRA (Page 51);

  4. Administrative Expenses Over Time: TRA, MTRFA, and SPTRFA (Page 52);

  5. Various Minnesota Public Pension Funds: Total Portfolio Time-Weighted Rates of Investment Return (Page 53);

  6. Approaches to Address Public Pension Plan Funding Problems: Minnesota (Page 54); and

  7. Approaches to Address Public Pension Plan Funding Problems: Other States (Page 55-57).

Historic Purposes for a Pension Benefit Plan

  1. Minnesota public pension plans exist to augment the Minnesota public employer's personnel and compensation system by assisting in the recruitment of new qualified public employees, the retention of existing qualified public employees, and the systematic out-transitioning of existing public employees at the normally expected conclusion of their working careers by providing, in combination with federal Social Security coverage, personal savings and other relevant financial sources, retirement income that is adequate and affordable.

  2. Minnesota public pension plans should play their appropriate role in providing financial security to public employees in retirement.

  3. As Minnesota public employee workforce trends develop, Minnesota public pension plans should be sufficiently flexible to make necessary adaptations.

Growth and Development of Minnesota Public Pension Plans

1860’s 

1

1930’s

11

1870’s 

0

1940’s

23

1880’s 

3

1950’s

11

1890’s 

6

1960’s

12

1900’s 

6

1970’s

 3

1910’s 

8

1980’s

 5

1920’s 

2

1990’s

 2

Establishment of Minnesota Public Pension Plans

Statewide Pension Plans

Establishment Date

General State Employees Retirement Plan (MSRS-General)

1929

Correctional Employees Retirement Plan (MSRS-Correctional) 1

1973

Game Wardens Retirement Plan 2

1955

State Police Retirement Plan 3

1961

State Patrol Retirement Plan

1943

Legislators Retirement Plan 4

1965

Attorney General Retirement Plan 5

1953

State Auditor Retirement Plan 5

1955

Elective State Officers Retirement Plan (ESO) 53

1967

Supreme Court Justices Retirement Plan 6

1943

District Court Judges Retirement Plan 6

1949

Probate and County Court Judges Retirement Plan 6

1931

Uniform Judicial Retirement Plan 54

1973

Supreme Court Clerk Retirement Plan 7

1953

Military Affairs Department Personnel Retirement Plan 8

1980

Transportation Department Pilots Retirement Plan 8

1982

State Fire Marshal Division Arson Investigator Retirement Plan 8

1999

Unclassified State Employees Retirement Program (MSRS-Unclassified) 9

1971

Metropolitan Transit Commission-Transit Operating Division Retirement Plan 10

1944

Public Employees Retirement Plan (PERA-General)

1931

Public Employees Police and Fire Retirement Plan (PERA-P&F) 11

1959

Local Government Correctional Employees Retirement Plan 12

1987/1999

PERA Defined Contribution Retirement Plan 13

1987

University of Minnesota Police Retirement Plan 14

1969

Teachers Insurance and Retirement Plan 15

1915

Teachers Retirement Plan (TRA)

1931

State University and Community College Supplemental Retirement Plan

1965

Individual Retirement Account Plan (IRAP) 16

1988

 

 

Local General Employee Pension Plans

 

Minneapolis Employees Retirement Plan (MERF) 17

1919

St. Paul Bureau of Health Relief Association 18

1919

Hennepin County Supplemental Retirement Plan 19

1969

Duluth Teachers Retirement Plan (DTRFA) 20

1910

Minneapolis Teachers Retirement Plan (MTRFA) 20

1910

St. Paul Teachers Retirement Plan (SPTRFA) 20

1910

 

 

Local Police and Salaried Firefighters Pension Plans

 

Albert Lea Firefighters Relief Association 21

1895

Albert Lea Police Relief Association 22

1943

Anoka Police Relief Association 23

1948

Austin Firefighters Relief Association 24

1909

Austin Police Relief Association 49

1943

Bloomington Firefighters Relief Association 55

1947

Bloomington Police Relief Association 21

1960

Brainerd Police Relief Association 47

1952

Brooklyn Center Police Relief Association 25

1967

Buhl Police Relief Association 26

1957

Chisholm Firefighters Relief Association 27

1907

Chisholm Police Relief Association 27

1931

Cloquet Fire Department Relief Association 28

1941

Columbia Heights Fire Department Relief Association 29

1923

Columbia Heights Police Relief Association 30

1957

Crookston Fire Department Relief Association 31

1902

Crookston Police Relief Association 56

1948

Crystal Police Relief Association 32

1961

Duluth Firefighters Relief Association 32

1887

Duluth Police Relief Association 33

1905

Eveleth Firefighters Relief Association 34

1935

Eveleth Police Relief Association 34

1935

Fairmont Police Relief Association 48

1949

Faribault Fire Department Relief Association 22

1897

Faribault Police Relief Association 47

1948

Fridley Firefighters Relief Association 35

N/A

Fridley Police Relief Association 50

1966

Gilbert Supplemental Police Pension Plan 36

1957

Hibbing Firefighters Relief Association 37

1914

Hibbing Police Relief Association 37

1930

Mankato Fire Department Relief Association 38

1895

Mankato Police Relief Association 57

1947

Minneapolis Fire Department Relief Association 52

1868

Minneapolis Police Relief Association 52

1890

Moorhead Firefighters Relief Association 39

1955

Moorhead Police Relief Association 39

1945

Nashwauk Police Relief Association 40

1943

New Ulm Police Relief Association 41

1949

Red Wing Fire Department Relief Association 23

1892

Red Wing Police Relief Association 27

1948

Richfield Fire Department Relief Association 57

1942

Richfield Police Relief Association 22

1965

Rochester Fire Department Relief Association 42

1891

Rochester Police Relief Association 38

1939

St. Cloud Fire Department Relief Association 43

1906

St. Cloud Police Relief Association 44

1939

St. Louis Park Fire Department Relief Association 37

1948

St. Louis Park Police Relief Association 42

1955

St. Paul Fire Department Relief Association 32

1885

St. Paul Police Relief Association 21

1903

South St. Paul Firefighters Relief Association 21

1943

South St. Paul Police Relief Association 57

1941

Thief River Falls Police Relief Association 45

1941

Virginia Fire Department Relief Association 51

1931

Virginia Police Relief Association 47

1935

West St. Paul Fire Department Relief Association 46

1947

West St. Paul Police Relief Association 21

1967

Winona Fire Department Relief Association 37

1887

Winona Police Relief Association 42

1914

 

 

Local Volunteer Firefighters Pension Plans

 

692 volunteer firefighter relief associations as of 12/31/2001

various years

 

 

Employer-Funded Deferred Compensation and Related Plans

 

State Deferred Compensation Plan

1971

Prior Lake School District Supplemental Retirement Plan

1967

Bloomington School District Supplemental Retirement Plan

N/A

Edina School District Supplemental Retirement Plan

N/A

Hopkins School District Supplemental Retirement Plan

N/A

Minnetonka School District Supplemental Retirement Plan

N/A

Richfield School District Supplemental Retirement Plan

N/A

St. Louis Park School District Supplemental Retirement Plan

N/A

Wayzata School District Supplemental Retirement Plan

N/A

N/A means establishment year is not available

Notes:

1 Before the 1973 creation of the Correctional Employees Retirement Plan, coverage was provided by the General State Employees Retirement Plan.

2 Game Wardens Retirement Plan was replaced by the State Police Retirement Plan in 1961.

3 State Police Retirement Plan consolidated with the State Patrol Retirement Plan in 1969.

4 Before the 1965 creation of the Legislators Retirement Plan, coverage was provided by the Public Employees Retirement Plan. The plan was closed to new interests as of July 1, 1997, and existing members were permitted to elect coverage by the Unclassified State Employees Retirement Program.

5 Coverage was shifted to the Elective State Officers Retirement in 1967.

6 Coverage limited to judges who first assumed judicial office before January 1, 1974.

7 Plan was repealed in 1980. Coverage for the membership of the prior plan was transferred to the Unclassified State Employees Retirement Program in 1981, retroactive to the date of initial appointment to employment position.

8 Before creation of the plan, coverage was provided by the General State Employees Retirement Plan.

9 Before creation of the program, coverage was provided by the General State Employees Retirement Plan. Program members retain the option to select General State Employees Retirement Plan benefits if the member has at least ten years of state service.

10 The plan was acquired by the Metropolitan Transit Commission from the prior employer, the Twin City Rapid Transit Co. in 1970. The plan consolidated with the General State Employees Retirement Plan in 1978.

11 Before creation of the Public Employees Police and Fire Retirement Plan in 1959, coverage was provided by the Public Employees Retirement Plan. In 1999, the various police and salaried firefighter consolidation accounts were merged into this plan.

12 The 1987 plan was not implemented by any of the counties authorized to do so by 1997 and was repealed. A replacement plan was enacted in 1999.

13 For local government elected officials added to eligibility for coverage by the plan in 1990, coverage is optional and prior coverage, if any, was by the Public Employees Retirement Plan.

14 Before creation of the plan, prior coverage was by the General State Employees Retirement Plan. Plan consolidated into the Public Employees Police and Fire Retirement Plan in 1978.

15 Plan was replaced by the Teachers Retirement Plan.

16 Before creation of the Individual Retirement Account Plan in 1988, coverage was provided by the Teachers Retirement Plan.

17 Plan was closed to new entrants as of June 30, 1979. Coverage for applicable employees initially hired after June 30, 1979 is provided by the Public Employees Retirement Plan.

18 Plan was closed to new entrants as of December 31, 1969, in favor of the Public Employees Retirement Plan, and short service members and members opting for Social Security coverage were transferred to the Public Employees Retirement Plan. Plan was consolidated into the Public Employees Retirement Plan in 1973.

19 Plan was closed to new entrants and reemployed former members as of April 14, 1982.

20 Plan was authorized in 1909, but not implemented until 1910.

21 Plan was closed to new entrants as of June 15, 1980 and consolidated into the Public Employees Police and Fire Plan in 1993.

22 Plan was closed to new entrants as of June 15, 1980 and consolidated into the Public Employees Police and Fire Plan in 1991.

23 Plan was closed to new entrants in 1973 and consolidated into the Public Employees Police and Fire Plan in 1989.

24 Plan was closed to new entrants in 1976 and consolidated into the Public Employees Police and Fire Plan in 1998.

25 Plan consolidated into the Public Employees Police and Fire Plan in 1978.

26 Plan was closed to new entrants in 1976 and consolidated into the Public Employees Police and Fire Plan in 1987.

27 Plan was closed to new entrants in 1973, and consolidated into the Public Employees Police and Fire Plan in 1990.

28 Plan consolidated into the Public Employees Police and Fire Plan in 1973.

29 Plan was closed to new entrants in 1975 and consolidated into the Public Employees Police and Fire Plan in 1994.

30 Plan was closed to new entrants in 1977 and consolidated into the Public Employee Police and Fire Plan in 1994.

31 Plan consolidated into the Public Employees Police and Fire Plan in 1990.

32 Plan was closed to new entrants as of June 15, 1980 and consolidated into the Public Employees Police and Fire Plan in 1992.

33 Plan was closed to new entrants as of June 15, 1980 and consolidated into the Public Employees Police and Fire Plan in 1987.

34 Coverage for active members was transferred to the Public Employees Police and Fire Plan in 1977 and plan was converted to city-operated trust fund for benefit recipients.

35 Coverage for salaried firefighters was transferred to the Public Employees Police and Fire Plan in 1973; Plan continues as volunteer firefighters relief association.

36 Plan coverage was terminated in 1973.

37 Plan was closed to new entrants as of June 15, 1980 and consolidated into the Public Employees Police and Fire Plan in 1989.

38 Plan was closed to new entrants in 1971 and consolidated into the Public Employees Police and Fire Plan in 1990.

39 Plan was closed to new entrants as of June 15, 1980 and consolidated into the Public Employees Police and Fire Plan in 1985.

40 Coverage for active members was transferred to the public Employees Police and Fire Plan in 1969 and plan operates as trust fund for benefit recipients.

41 Plan was closed to new entrants in 1974 and consolidated into the Public Employee Police and Fire Plan in 1994.

42 Plan was closed to new entrants as of June 15, 1980 and consolidated into the Public Employees Police and Fire Plan in 1990.

43 Plan was closed to new entrants in 1974 and consolidated into the Public Employees Police and Fire Plan in 1989.

44 Plan was closed to new entrants in 1973 and consolidated into the Public Employees Police and Fire Plan in 1997.

45 Coverage for active members was transferred to the Public Employees Police and Fire Plan in 1978 and plan was converted to city-operated trust fund for benefit recipients.

46 Plan was closed to new entrants as of June 15, 1980, and consolidated into the Public Employees Police and Fire Plan in 1988.

47 Plan was closed to new entrants as of June 15, 1980 and consolidated into the Public Employees Police and Fire Plan in 1996.

48 Plan was closed to new entrants in 1977.

49 Plan was closed to new entrants in 1976 and consolidated into the Public Employees Police and Fire Plan in 1993.

50 Plan was closed to new entrants in 1977 and consolidated into the Public Employees Police and Fire Plan in 1993.

51 Plan was closed to new entrants in 1974.

52 Plan was closed to new entrants as of June 15, 1980.

53 Plan was closed to new entrants as of July 1, 1997. Existing members were permitted to elect coverage by the Unclassified State Employees Retirement Program.

54 Judges who reach the service credit maximum in the Judges Retirement Plan are covered by the Unclassified State Employees Retirement Program for future service (employee contribution only).

55 The plan covers volunteer firefighters, but because it provides benefits based on the salary of a top grade Bloomington police officer, with post-retirement escalation, the plan is considered to be a salaried firefighter pension plan.

56 The plan was closed to new entrants in 1980 and consolidated into the Public Employees Police and Fire Plan in 1998.

57 The plan was closed to new entrants in 1980 and consolidated into the Public Employees Police and Fire Plan in 1997.

Types of Pension Plans

  • Pension plans will be one of two types. The types are:

    1. Defined Benefit Plans. The pension benefit amount that is ultimately payable is predeterminable or fixed using a formula or comparable arrangement. The fixed element of the benefit amount leaves a variable element, which is the funding required to provide that benefit.

    2. Defined Contribution Plans. The funding for the pension plan is fixed as a dollar amount or a percentage of payroll. The fixed element of funding leaves a variable element, which is the benefit amount that is ultimately payable.

  • There is risk shifting that is applicable to each type of plan:

    1. Defined Benefit Plans. The employer or the plan sponsor has the inflation and investment risks. If the investment return on plan assets is poor or if inflation produces ever increasing final salaries and benefit payouts, that risk is borne by the employer. The member has the turnover risks. If a plan member terminates with modest service having been rendered or at an early age, the member will receive either no benefit or an inadequate benefit.

    2. Defined Contribution Plans. The plan member bears the inflation and investment risks. If there is poor investment performance, the plan member's pension assets will be depressed. If inflation impacts the immediate pre-retirement standard of living, the plan member’s benefit will be less adequate in meeting the person’s pre-retirement standard of living. The plan sponsor or employer loses any turnover gain potential, where past plan funding becomes more concentrated on a subgroup of the total plan membership.

  • There are advantages and disadvantages to each type of plan:

    1. Defined Benefit Plans – Employee Perspective. The plan type favors long-term or long-service employees. It also favors employees who receive regular promotions and sizable salary increases throughout their careers or who achieve substantial salary increases in their compensation at the end of their career. It also favors employees who retire at or before the plan’s normal retirement age.

Defined Benefit Plans – Employer Perspective. The plan sponsor can design the plan to emphasize new employee recruitment, existing employee retention, or career employee out-transitioning. The plan sponsor will suffer cost changes over time as demographic changes occur in the membership group, as benefit plan changes are implemented, or as market fluctuations occur in plan assets.

    1. Defined Contribution Plans – Employee Perspective. The plan type favors employees who are very employment mobile, where employment changes beyond a single employer or a multiple employer group. It also favors short-term employees in comparison to defined benefit plans. It also favors employees with very stable and modestly increasing salary histories and employees who work considerably beyond the plan’s normal retirement age.

Defined Contribution Plans – Employer Perspective. The plan sponsor can budget for retirement costs without experiencing unplanned changes in those costs, either as a percentage of pay or as a dollar amount, depending on the contribution specification. The plan sponsor will likely need to expend more dollars to provide the level of benefits to career employees as a defined benefit plan because of the more even allocation of defined contribution pension benefits over the coverage group.

Minnesota Defined Benefit Plans and Defined Contribution Plans

Minnesota Defined Benefit Plans
  1. Statewide Plans
    1. General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General)
    2. Correctional Employees Retirement Plan of the Minnesota State Retirement System (MSRS-Correctional)
    3. State Patrol Retirement Plan
    4. Judges Retirement Plan
    5. Legislators Retirement Plan
    6. Elected State Officers Retirement Plan
    7. Military Affairs Personnel Retirement Plan
    8. Department of Transportation Pilots Retirement Plan
    9. State Fire Marshal Division Arson Investigators Retirement Plan
    10. General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General)
    11. Public Employees Police and Fire Plan (PERA-P&F)
    12. PERA-Local Government Correctional Service Retirement Plan (PERA-Correctional)
    13. Teachers Retirement Association (TRA)

  2. Local Plans

    1. Minneapolis Employees Retirement Fund (MERF)
    2. Duluth Teachers Retirement Fund Association (DTRFA)
    3. Minneapolis Teachers Retirement Fund Association (MTRFA)
    4. St. Paul Teachers Retirement Fund Association (SPTRFA)
    5. Fairmont Police Relief Association
    6. Minneapolis Firefighters Relief Association
    7. Minneapolis Police Relief Association
    8. Virginia Fire Department Relief Association
    9. Various volunteer firefighter relief associations

Minnesota Defined Contribution Plans
  1. Statewide Plans
    1. MSRS-Unclassified Employees Retirement Plan
    2. Higher Education Individual Retirement Account Plan (MnSCU-IRAP)
    3. Higher Education Supplemental Retirement Plan (MnSCU-Supplemental)
    4. PERA-Defined Contribution Retirement Plan
    5. Ambulance Service Personnel Longevity Plan

  2. Local Plans

    1. Hennepin County Supplemental Retirement Plan
    2. Various volunteer firefighter relief associations

Major and Statewide Minnesota Public Pension Plans

Plan, Fund and Administration

    Benefit Plan

    Benefit Plan Administration

    Pension Fund

    Investment Authority

    General State Employees Retirement Plan

    Minnesota State Retirement System

    State Employees Retirement Fund

    State Board of Investment

    Military Affairs Personnel Retirement Plan

    Minnesota State Retirement System

    State Employees Retirement Fund

    State Board of Investment

    Transportation Dept. Pilots Retirement Plan

    Minnesota State Retirement System

    State Employees Retirement Fund

    State Board of Investment

    State Fire Marshal Division Arson Investigators Retirement Plan

    Minnesota State Retirement System

    State Employees Retirement Fund

    State Board of Investment

    Correctional Employees Retirement Plan

    Minnesota State Retirement System

    Correctional Employees Retirement Fund

    State Board of Investment

    State Patrol Retirement Plan

    Minnesota State Retirement System

    State Patrol Retirement Fund

    State Board of Investment

    Elective State Officers Retirement Plan

    Minnesota State Retirement System

    None (State General Fund)

    N/A

    Unclassified State Employees Retirement Program

    Minnesota State Retirement System

    Minnesota Supplemental Investment Fund

    State Board of Investment

    Legislators Retirement Plan

    Minnesota State Retirement System

    None (Minnesota Post Retirement Investment Fund; State General Fund)

    State Board of Investment

    Judges Retirement Plan

    Minnesota State Retirement System

    Judges Retirement Fund

    State Board of Investment

    Public Employees Retirement Plan

    Public Employees Retirement Association

    Public Employees Retirement Fund

    State Board of Investment

    Public Employees Police and Fire Plan

    Public Employees Retirement Association

    Public Employees Police and Fire Fund

    State Board of Investment

    Public Employees Local Government Correctional Service Retirement Plan

    Public Employees Retirement Association

    Local Government Correctional Service Retirement Fund

    State Board of Investment

    Ambulance Service Personnel Longevity Plan

    Emergency Medical Services Regulatory Board

    Minnesota Supplemental Investment Fund

    State Board of Investment

    Teachers Retirement Plan

    Teachers Retirement Association

    Teachers Retirement Fund

    State Board of Investment

    MnSCU Supplemental Retirement Plan

    Minnesota State Colleges and Universities Board

    Minnesota Supplemental Investment Fund and outside investment vehicles

    State Board of Investment/ Outside Vendors

    MnSCU Individual Retirement Account Plan

    Minnesota State Colleges and Universities Board

    Minnesota Supplemental Investment Fund and outside investment vehicles

    State Board of Investment/ Outside Vendors

    Duluth Teachers Retirement Plan

    Duluth Teachers Retirement Fund Association

    Duluth Teachers Retirement Fund

    Duluth Teachers Retirement Fund Association Board

    Minneapolis Teachers Retirement Plan

    Minneapolis Teachers Retirement Fund Association

    Minneapolis Teachers Retirement Fund

    Minneapolis Teachers Retirement Fund Association Board

    St. Paul Teachers Retirement Plan

    St. Paul Teachers Retirement Fund Association

    St. Paul Teachers Retirement Fund

    St. Paul Teachers Retirement Fund Association Board

    Minneapolis Employees Retirement Plan

    Minneapolis Employees Retirement Fund

    Minneapolis Employees Retirement Fund

    Minneapolis Employees Retirement Fund Board

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

Nature of Actuarial Funding

  1. Actuarial funding is a mechanism for:

    1. Determining the magnitude of pension liabilities previously undertaken by a defined benefit pension plan;

    2. Comparing the current pension plan assets reserved for pension purposes with the accrued pension liabilities amassed by a defined benefit pension plan; and

    3. Assessing the adequacy of total annual contribution support to meet the total annual funding requirements of a defined benefit pension plan.

  2. Actuarial funding differs from non-actuarial pension funding, which is typically represented by current disbursements (pay-as-you-go) funding, as used by the Social Security System historically.

  3. Many different actuarial funding methods exist and were developed primarily to meet the budgetary needs of a plan sponsor.

  4. Minnesota utilizes the Entry Age Actuarial Cost Method (or Entry Age Normal Cost Actuarial Cost Method), which emphasizes the determination of a level actuarial cost as a percentage of covered payroll over a plan member's working career.

  5. Minnesota actuarial reporting produces:

    6. 1.  A measure of the magnitude of accrued pension

         liability:

    Actuarial Accrued Liability

    2.  A pension reserve comparison:

    Current Assets (actuarial value of assets)

    Unfunded Actuarial Accrued Liability

    Funding Ratio (assets expressed as a percentage of liabilities)

    3.  Measure of contribution adequacy:

    Funding Requirement

    1.  Normal Cost

    2.  Administrative Expenses

    3.  Supplementary (Amortization) Contribution

    Total Actuarial Requirement (1.+2.+3.)

    Contributions

    4.  Member Contributions

    5.  Employer Contributions

    6.  State Aid or Other Regular Funding

    Total Contributions (4.+5.+6.)

Pattern of Recognizing Pension Costs Over Time
Under Various Funding Methods

Source: Robert Tilove, Public Employee Pension Funds, N. Y., Columbia University

Press, 1976, pp144-145, as adapted from Charles L. Trowbridge, "Fundamentals of

Pension Funding," Transactions, Society of Actuaries, Vol. 4, 1952

Actuarial Reporting on

Minnesota Public Pension Plans

  • Before 1957, no state law required any actuarial reporting regarding Minnesota public pension plans.

  • Regular Minnesota public pension plan actuarial and financial reporting was first required in 1965, with the actuarial valuations prepared by the consulting actuaries retained by the plans.

  • Since 1984, actuarial reporting on the major and statewide Minnesota public pension plans has been required to be prepared by the consulting actuary retained by the Legislative Commission on Pensions and Retirement.

  • Actuarial reporting requirements and major economic assumptions are largely prescribed in statute. The statutory regulation of actuarial work is augmented by the Standards for Actuarial Work adopted by the Commission. Additional demographic actuarial assumptions are adopted by the plan governing boards, subject to Commission approval.

  • Actuarial reporting prepared by the Commission-retained actuary is reviewed or supplemented by the consulting actuaries retained by the various plans.

  • The cost to the Legislative Commission on Pensions and Retirement for the regular pension plan actuarial reporting prepared by Commission-retained actuary is recouped from the various statewide and major pension plans.

  • Actuarial reporting is intended to assess the adequacy of the total non-investment revenue financial support of the pension plan compared with calculated annual actuarial funding requirements of the pension plan, to assess the extent of conformance with the selected budgetary actuarial method for accumulating financial reserves for pension liabilities, and to provide required actuarial disclosure for governmental accounting purposes.

Actuarial Valuation Results Summary, Summary

Actuarial Valuation Results Summary, Statewide General Employee Plans

Actuarial Valuation Results Summary, Statewide Public Safety Plans

Actuarial Valuation Results Summary, Local Police and Paid Fire Plans

 

 

 

 

 

 

 

 

 

 

 

Total Local Police

 

Bloomington Fire

Fairmont Police

Minneapolis Fire

Minneapolis Police

Virginia Fire

and Paid Fire Plans

 

2002

2002

2002

2002

2002

2002

Membership

 

 

 

 

 

 

 

 

 

 

 

 

  Active Members

 

152

 

0

 

76

 

53

 

0

 

281

  Service Retirees

 

115

 

11

 

436

 

674

 

14

 

1,250

  Disabilitants

 

12

 

0

 

8

 

0

 

1

 

21

  Survivors

 

14

 

3

 

190

 

254

 

3

 

464

  Deferred Retirees

 

9

 

0

 

2

 

3

 

0

 

14

  Nonvested Former Members

 

0

 

0

 

  --

 

0

 

0

 

0

     Total Membership

 

302

 

14

 

712

 

984

 

18

 

2,030

 

 

 

 

 

 

 

 

 

 

 

 

 

Funded Status

 

 

 

 

 

 

 

 

 

 

 

 

  Accrued Liability

 

$81,361,778

 

$7,830,552

 

$292,677,962

 

$463,486,555

 

$3,305,628

 

$848,662,475

  Current Assets

 

$78,447,409

 

$6,431,374

 

$255,194,400

 

$309,667,154

 

$2,483,426

 

$652,223,763

  Unfunded Accrued Liability

 

$2,914,369

 

$1,399,178

 

$37,483,562

 

$153,819,401

 

$822,202

 

$196,438,712

     Funding Ratio

96.42%

 

82.10%

 

87.19%

 

66.80%

 

75.10%

 

76.85%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing Requirements

 

 

 

 

 

 

 

 

 

 

 

 

  Covered Payroll

 

$9,172,896

 

$0

 

$5,539,933

 

$3,955,413

 

$0

 

$18,668,242

  Benefits Payable

 

$2,445,360

 

$454,858

 

$24,064,274

 

$30,724,261

 

$371,244

 

$58,059,997

 

 

 

 

 

 

 

 

 

 

 

 

 

  Normal Cost

31.84%

$2,921,050

 

$0

21.74%

$1,157,861

21.56%

$852,946

 

$0

26.42%

$4,931,857

  Administrative Expenses

0.94%

$86,558

 

$20,272

0.00%

  -- 

0.00%

  -- 

 

$0

0.57%

$106,830

     Normal Cost & Expense

32.79%

$3,007,608

 

$20,272

21.74%

$1,157,861

21.56%

$852,946

 

$0

26.99%

$5,038,687

 

 

 

 

 

 

 

 

 

 

 

 

 

  Normal Cost & Expense

32.79%

$3,007,608

 

$20,272

21.74%

$1,157,861

21.56%

$852,946

 

$0

26.99%

$5,038,687

  Amortization

4.68%

$429,215

 

$230,291

114.34%

$6,334,535

657.19%

$25,994,756

 

$138,655

177.45%

$33,127,452

    Total Requirements

37.46%

$3,436,823

 

$250,563

136.08%

$7,492,396

678.75%

$26,847,702

 

$138,655

204.44%

$38,166,139

 

 

 

 

 

 

 

 

 

 

 

 

 

  Employee Contributions

0.00%

$0

 

$0

8.00%

$443,195

8.00%

$316,433

 

$0

4.07%

$759,628

  Employer Contributions

37.46%

$3,436,823

 

$250,563

13.74%

$731,713

670.75%

$26,531,269

 

$138,655

166.53%

$31,089,023

  Employer Add'l Cont.

0.00%

$0

 

$0

-- 

-- 

-- 

-- 

 

$0

0.00%

$0

  Direct State Funding

0.00%

$0

 

$0

-- 

-- 

-- 

-- 

 

$0

0.00%

$0

  Other Govt. Funding

0.00%

$0

 

$0

-- 

-- 

-- 

-- 

 

$0

0.00%

$0

  Administrative Assessment

0.00%

$0

 

$0

  -- 

  -- 

  -- 

  -- 

 

$0

0.00%

$0

     Total Contributions

37.46%

$3,436,823

 

$250,563

21.74%

$1,157,861

678.75%

$26,847,702

 

$138,655

170.60%

$31,831,604

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Requirements

37.46%

$3,436,823

 

$250,563

136.08%

$7,492,396

678.75%

$26,847,702

 

$138,655

204.44%

$38,166,139

Total Contributions

37.46%

$3,436,823

 

$250,563

21.74%

$1,157,861

678.75%

$26,847,702

 

$138,655

170.60%

$31,831,604

     Deficiency (Surplus)

0.00%

$0

 

$0

114.34%

$6,334,535

0.00%

$0

 

$0

33.84%

$6,334,535

Actuarial Valuation Results Summary, Statewide Specialty Retirement Plans

Actuarial Valuation Results Summary, First Class City Retirement Plans

Actuarial Valuation Results Summary, Teacher Retirement Plans (1st Class Cities TRA)

 

Funding Ratio

Normal Cost as a Percentage of Payroll

Employee and Employer Contributions

Total Requirements vs. Total Support

Minnesota Public Pension Plans: Funding Progress 1957-2003

 

 

General State Employees

Plan (MSRS)

Major Three Plans

(MSRS, PERA, TRA

Minneapolis Teachers Retirement Fund

Association (MTRFA)

First Class City Teacher Retirement

Fund Associations

All Plans

1957:

Actuarial Accrued Liability

 

$69,000,000

 

$291,738,421

 

$63,923,400

 

$99,349,200

 

$564,829,533

 

Assets

 

$42,300,000

 

$107,088,150

 

$26,517,000

 

$35,596,700

 

$177,900,430

 

Unfunded Accrued Liability

 

$26,700,000

 

$184,650,271

 

$37,406,400

 

$63,752,500

 

$386,929,103

 

Funding Ratio

61.30%

 

36.71%

 

41.48%

 

35.83%

 

31.50%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Normal Cost

6.29%

$5,289,890

9.03%

$26,414,703

12.75%

$2,023,700

13.17%

$3,800,800

9.37%

$34,192,946

 

Expenses

--

--

0.07%

$193,895

--

--

--

--

0.05%

$193,895

 

Amortization

1.37%

$1,152,170

11.61%

$7,345,006

3.19%

$506,300

5.63%

$1,625,300

3.92%

$14,306,194

 

Financial Requirements

7.66%

$6,442,060

20.71%

$33,953,604

15.94%

$2,530,000

18.80%

$5,426,100

13.34%

$48,693,035

 

 

 

 

 

 

 

 

 

 

 

 

 

Member Contributions

3.00%

$2,523,000

5.14%

$15,024,358

6.00%

$952,300

5.76%

$1,662,800

5.17%

$18,881,196

 

Employer Contributions

5.00%

$4,205,000

6.69%

$19,557,757

13.72%

$2,177,700

11.29%

$3,258,000

7.38%

$26,931,655

 

Total Contributions

8.00%

$6,728,000

11.83%

$34,582,115

19.72%

$3,130,000

17.05%

$4,920,800

12.55%

$45,812,851

 

 

 

 

 

 

 

 

 

 

   

 

1975: 

Actuarial Accrued Liability

 

$429,700,000

 

$2,286,800,000

 

$177,235,900

 

$330,125,800

 

$3,406,858,458

 

Assets

 

$255,800,000

 

$1,311,400,000

 

$101,094,100

 

$173,018,400

 

$1,799,398,021

 

Unfunded Accrued Liability

 

$173,900,000

 

$975,400,000

 

$76,141,800

 

$157,107,400

 

$1,607,460,437

 

Funding Ratio

59.50%

57.30%

57.04%

52.40%

52.80%

  

 

 

 

 

 

 

 

 

 

 

 

 

 

Normal Cost

6.91%

$26,486,000

8.53%

$138,946,000

12.65%

$7,201,500

10.24%

$13,105,500

9.92%

$196,674,000

 

Expenses

0.14%

$537,000

0.12%

$1,981,000

0.52%

$296,000

0.38%

$481,700

0.15%

$2,916,000

 

Amortization

3.11%

$11,921,000

4.46%

$72,751,000

9.44%

$5,374,000

8.99%

$11,503,900

5.97%

$118,440,000

 

Financial Requirements

10.16%

$38,944,000

13.11%

$213,678,000

22.61%

$12,871,500

19.61%

$25,091,100

16.04%

$318,030,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Member Contributions

4.00%

$15,332,000

4.62%

$75,244,000

6.50%

$3,700,400

6.08%

$7,773,300

5.02%

$99,459,000

 

Employer Contributions

6.00%

$22,998,000

6.57%

$107,066,000

14.03%

$7,987,000

10.67%

$13,645,800

8.78%

$174,017,000

 

Total Contributions

10.00%

$38,330,000

11.19%

$182,310,000

20.53%

$11,687,400

16.75%

$21,419,100

13.80%

$273,476,000

 

 

 

 

 

 

 

 

 

 

 

 

1992: 

Actuarial Accrued Liability

 

$3,125,299,000

 

$16,227,774,000

 

$840,840,000

 

$1,498,845,000

 

$21,696,883,910

 

Assets

 

$2,613,472,000

 

$12,916,315,000

 

$457,978,000

 

$930,468,000

 

$16,182,748,253

 

Unfunded Accrued Liability

 

$511,827,000

 

$3,311,459,000

 

$382,862,000

 

$568,377,000

 

$5,514,135,657

 

Funding Ratio

83.62%

 

79.59%

 

54.47%

 

62.08%

 

74.59%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Normal Cost

6.58%

$109,348,000

7.78%

$484,644,000

12.81%

$18,672,800

12.01%

$37,593,700

8.95%

$635,565,597

 

Expenses

0.23%

$3,815,000

0.31%

$19,386,000

2.16%

$3,148,600

1.51%

$4,726,600

0.42%

$29,673,009

 

Amortization

1.46%

$24,218,000

2.49%

$155,114,000

12.46%

$18,162,600

8.62%

$26,972,900

3.37%

$239,396,412

 

Financial Requirements

8.27%

$137,381,000

10.58%

$659,144,000

27.43%

$39,984,000

22.14%

$69,293,200

12.74%

$904,635,018

 

 

 

 

 

 

 

 

 

 

 

 

  

Member Contributions

4.07%

$67,512,000

4.35%

$271,099,000

6.64%

$9,678,900

6.22%

$19,454,200

4.72%

$335,020,962

 

Employer Contributions

4.20%

$69,669,000

5.76%

$358,409,000

9.69%

$14,124,900

8.77%

$27,452,300

7.28%

$517,346,923

 

Total Contributions

8.27%

$137,181,000

10.11%

$629,508,000

16.33%

$23,803,800

14.99%

$46,906,500

12.00%

$852,367,885

 

 

 

 

 

 

 

 

 

 

 

 

2003: 

Actuarial Accrued Liability

 

$7,830,671,000

 

$38,463,248,000

 

$1,671,982,000

 

$3,152,452,000

 

$50,077,427,255

 

Assets

 

$7,757,292,000

 

$36,337,373,000

 

$956,913,000

 

$2,134,140,000

 

$46,877,353,153

 

Unfunded Accrued Liability

 

$73,379,000

 

$2,125,875,000

 

$715,069,000

 

$1,018,312,000

 

$3,200,074,102

 

Funding Ratio

99.06%

 

94.47%

 

57.23%

 

67.70%

 

93.61%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Normal Cost

9.03%

$193,153,000

8.78%

$837,393,000

10.36%

$27,426,000

10.21%

$54,314,000

10.01%

$1,106,317,400

 

Expenses

0.21%

$4,492,000

0.29%

$27,406,000

0.30%

$794,000

0.33%

$1,763,000

0.29%

$32,513,100

 

Amortization

0.19%

$4,064,000

1.10%

$105,132,000

21.30%

$56,395,000

14.73%

$79,066,000

1.98%

$218,713,500

 

Financial Requirements

9.43%

$201,709,000

10.17%

$969,931,000

31.96%

$84,615,000

25.27%

$135,143,000

12.28%

$1,357,544,000

  

 

 

 

 

 

 

 

 

 

 

 

  

Member Contributions

4.00%

$85,554,000

4.82%

$459,886,000

5.84%

$15,460,000

5.82%

$31,219,000

5.01%

$553,867,600

 

Employer Contributions

4.00%

$85,554,000

5.02%

$478,243,000

8.59%

$22,750,000

8.41%

$45,138,000

5.96%

$659,469,600

 

Direct State Funding

0.00%

$0

0.00%

$0

7.11%

$18,829,000

4.40%

$23,632,000

0.41%

$45,309,100

 

Other Govt. Funding

0.00%

$0

0.00%

$0

0.94%

$2,500,000

0.47%

$2,500,000

0.03%

$3,265,100

 

Administrative Assessment

0.00%

$0

0.00%

$0

0.00%

$0

0.00%

$0

0.00%

$0

  

 Total Contributions

8.00%

$171,108,000

9.84%

$938,129,000

22.48%

$59,539,000

19.10%

$102,789,000

11.41%

$1,261,911,400

Minnesota Public Pension Plans

Actuarial Experience Gains (-) and Losses (+)
(1986-2003)

Salary Increase Assumption

 

The Retirement Plan Watch List

As Reported by Milliman USA, the

Consulting Actuarial Firm Retained by the

Legislative Commission on Pensions and Retirement (2/10/2004)

 

In order of the severity of the problem and

the need for corrective action

Retirement Plans With Current Funding Problems:

Plan

Funding Ratio/1

Contribution
Deficiency (Sufficiency)/2

Minneapolis Teachers Retirement Fund Association

58.97%

9.47%

Public Employees Police and Fire Plan

111.10%

4.02%

St. Paul Teachers Retirement Fund Association

79.00%

3.46%

MSRS-Correctional State Employees Retirement Plan

105.62%

2.16%

MSRS-General State Employees Retirement Plan

105.49%

1.43%

PERA-General Employees Retirement Plan

86.94%

1.24%

Retirement Plans Without Current Funding Problems:

Plan

Funding Ratio/1

Contribution
Deficiency (Sufficiency)/2

Minneapolis Employees Retirement Fund

93.44%

(0.01%)

Duluth Teachers Retirement Fund Association

99.65%

(0.02%)

PERA-Local Correctional Retirement Plan

101.05%

(0.45%)

Teachers Retirement Association

110.59%

(1.63%)

Judges Retirement Plan

79.85%

(1.69%)

State Patrol

119.01%

(3.19%)

 

Source: 7/1/2003 Actuarial Valuations and Summary of 2003 Valuations, Milliman USA

 

Notes:

/1 The actuarial value of plan assets expressed as a percentage of the actuarial accrued liability of the plan.

/2 The difference between the total actuarial requirements of the plan and the total contributions and other remaining support, expressed as a percentage of covered payroll.

 

Public Pension Plan State Aid

The State of Minnesota has established 16 different aid programs dedicated to or specifically applicable to public employee retirement plans.

The aid programs are:

  1. Fire State Aid;

  2. Minimum Volunteer Firefighter Fire State Aid;

  3. First Class City Fire Insurance Premium Tax Surcharge;

  4. Police State Aid;

  5. Local Police and Paid Fire Relief Association Amortization Aid;

  6. Supplemental Police and Paid Fire Amortization State Aid;

  7. Additional Amortization State Aid;

  8. Minneapolis Employees Retirement Fund (MERF) State Contribution;

  9. Volunteer Fire Lump Sum Supplemental Benefit State Reimbursement;

  10. Pre-1974 Retiree MERF Special Post Retirement Adjustment Aid;

  11. Teacher Retirement Plan State Categorized Aid and State Funding;

  12. 1993 State Supplemental MTRFA/SPTRFA Contributions;

  13. 1996 State Supplementary MTRFA/SPTRFA Contributions;

  14. 1997 State Supplemental First Class City Teacher Retirement Fund Association Funding;

  15. 1997 State Aid for the PERA-General Employer Contribution Rate Increase; and

  16. Ambulance Service Personnel Longevity Award and Incentive State Aid.

The following summarizes these aid programs, specifying their governing statutes, the establishment year, the source of the aid, the aid recipient or recipients, and the recent total aid amounts:

State Aid Program 

 Governing Statute

Year In Which Aid Program
Established

 Aid Source

 Aid Recipient(s)

 Recent Total Aid
 Amounts

1.  Fire State Aid

Minnesota Statutes, Sections 69.011 to 69.051

1885

State General Fund (Dedicated proceeds of equivalent to two percent insurance premium tax)

Municipalities and nonprofit firefighting corporations with fire department with at least 10 firefighters

2000: $16,055,136
2001: $16,899,053
2002: $18,066,489

2.  Minimum Volunteer Firefighter Fire State Aid

Minnesota Statutes, Sections 69.021, Subdivision 7, Paragraph (d), and 423A.02, Subdivision 3, Paragraph (e)

1996

30 percent of excess amortization and supplemental amortization state aid freed up by fully funded relief associations or consolidation accounts

Municipalities and nonprofit firefighting corporations eligible to receive fire state aid

2000: $1,210,366
2001: $1,065,323
2002: $1,846,119

3.  First Class City Fire Insurance Premium Tax Surcharge

Minnesota Statutes, Section 297I.10

1934

State General Fund (Dedicated proceeds of two percent of fire insurance premium amount in Duluth, Minneapolis, and St. Paul)

Duluth (approx. 13%)
Mpls. (approx. 55%)
St. Paul (approx. 32%)

2000: $1,092,207
2001: $1,321,161
2002: $1,382,374

4.  Police State Aid

Minnesota Statutes, Sections 69.011 to 69.051

1971

State General Fund (Dedicated proceeds of equivalent to two percent insurance premium tax)

Counties, cities, townships, the Metropolitan Airports Commission, Indian tribal governments, the Dept. of Public Safety, and the Dept. of Natural Resources.

2000: $45,915,460
2001: $44,843,783
2002: $47,384,086

5.  Local Police and Paid Fire Relief Association Amortization State Aid

Minnesota Statutes, Section 423A.02, Subdivision 1

1980

State General Fund

Cities with local police or paid firefighter relief associations

2000: $1,639,219
2001: $1,616,837
2002: $3,451,988

6.  Supplemental Police and Paid Fire Amortization State Aid

Minnesota Statutes, Section 423A.02, Subdivision 1a

1984

State General Fund

Cities with local police or paid firefighter relief associations

2000: $529,703
2001: $279,229
2002: $749,526

7.  Additional Amortization State Aid

Minnesota Statutes, Section 423A.02, Subdivision 1b

1995

State General Fund (one-half of excess police state aid after ambulance longevity award program deduction)

Cities with local police or paid firefighter relief associations

2000: $4,164,411
2001: $8,665,401
2002: $5,161,643

8.  Volunteer Fire Lump Sum Supplemental Benefit State Reimbursement

Minnesota Statutes, Section 424A.10

1988

State General Fund (line item appropriation to the Dept. of Revenue)

Volunteer firefighter relief associations paying lump sum service pensions in prior year which apply for reimbursement

2000: $378,000
2001: $420,000
2002: $420,000

9.  State Contribution to MERF

Minnesota Statutes, Section 422A.101, Subdivision 3

1979

State General Fund

Minneapolis Employees Retirement Fund (MERF)

2000: $7,032,750
2001: $3,085,000
2002: $3,224,000

10.  Pre-1974 MERF Retiree Special Post-Retirement Adjustment Aid

Minnesota Statutes, Section 356.43

1991

State General Fund

MERF

2000: $510,647
2001: $483,729

2002: Incorporated into State contribution to MERF

 

11.  State Funding of Teacher Retirement

Minnesota Statutes, Sections 126C.10 to 126C.23

1915/
 1931/
 1967/
 1985/
1987

State General Fund

School districts and other educational employers

2000
TRA: $134,418,833
TRFA’s: $44,929,291

2001
TRA: $139,799,408
TRFA’s: $46,580,142

2002
TRA: $142,221,589
TRFA’s: $44,970,000

 

12.  1993 State Supplemental MTRFA/SPTRFA Contributions

Minnesota Statutes, Section 354A.12, Subdivision 3b

1993

State General Fund

Minneapolis Teachers Retirement Fund Association (MTRFA) and St. Paul Teachers Retirement Fund Association (SPTRFA)

2000: $3,000,000
2001: $3,000,000
2002: $3,000,000

13.  1996 State Supplementary MTRFA/SPTRFA Contributions

Minnesota Statutes, Section 423A.02, Subdivision 3

1996

State General Fund

MTRFA and SPTRFA

2000: $4,480,000
2001: $5,040,000
2002: $4,715,000

14.  1997 State Supplemental First Class City Teacher Retirement Fund Associations Funding

Minnesota Statutes, Section 354A.12, Subdivision 3a

1997

State General Fund

Duluth Teachers Retirement Fund Association (DTRFA), MTRFA, and SPTRFA

2000: $15,767,000
2001: $15,767,000
2002: $15,767,000

15.  1997 State Aid for PERA-General

 

Minnesota Statutes, Sections 124.2141 and 273.1385

1997

State General Fund

General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General)

2000: $14,586,176
2001: $14,585,456
2002: $14,585,074

16.  Ambulance Service Personnel Longevity Award and Incentive Program State Aid

Minnesota Statutes, Sections 69.021, Subdivision 11, Paragraph (c), and 144E.42

1993

State General Fund (deduction from excess police state aid)

Ambulance service personnel longevity award and incentive program

2000: $1,000,000
2001: $1,000,000
2002: $1,000,000

Administrative Expenses

Various Minnesota Public Pension Funds:

Total Portfolio Time-Weighted Rates of Return

Year

SBI Combined 
Fund

SBI Basic 
Fund

SBI Post 
Fund

MTRFA

DTRFA

SPTRFA

MERF

1990

 

-0.7%

5.0%

-2.5%

3.2%

4.6%

-5.9%

1991

 

26.3%

19.6%

25.0%

22.0%

19.8%

13.3%

1992

 

6.8%

8.0%

8.2%

6.5%

7.2%

8.8%

1993

 

12.2%

11.6%

12.3%

12.8%

11.3%

13.7%

1994

-0.4%

 

 

0.1%

0.2%

0.3%

1.2%

1995

25.5%

 

 

25.0%

25.5%

26.2%

23.4%

1996

15.3%

 

 

13.6%

13.4%

12.6%

12.9%

1997

21.5%

 

 

15.5%

15.5%

19.6%

18.5%

1998

16.1%

 

 

14.2%

11.1%

12.0%

15.7%

1999

16.5%

 

 

21.6%

29.4%

13.6%

15.5%

2000

-2.8%

 

 

-6.0%

-1.6%

-0.2%

-1.3%

2001

-6.0%

 

  

-7.7%

-4.3%

-1.7%

-6.1%

2002

-11.6%

 

 

-16.1%

 

 

 

2003*

12.8%

 

 

12.3%

 

 

 

* 1/1/03-9/30/03

Approaches to Address Public Pension Plan Funding Problems:
Minnesota

  • Minnesota has had financially distressed pension plans in the past and has taken various actions to address those funding problems.

  • Approaches to address public pension plan funding problems have included:

    1. Benefit reductions;

    2. Closing off benefit plans to new hirees;

    3. Employer contribution increases;

    4. State assistance; and

    5. Consolidations/mergers.

  • An outright benefit reduction was part of the aftermath of the 1931 default of the 1915 Law Teacher Retirement Plan (predecessor to TRA), when retiree benefits were reduced by one-half and the reduction was not reversed until 1957.

  • Benefit plans have been closed to new members in a number of instances (TRA-Basic in 1957; PERA-Basic in 1967; MTRFA-Basic in 1978; SPTRFA-Basic in 1978; MERF in 1979; DTRFA Old Law Plan in 1979; 46 local police and paid firefighter relief associations over the period 1969-1980).

  • Employer contributions have been increased in a number of instances (PERA employer contribution increase in 1957; local police and paid firefighter relief associations financing Guidelines Act in 1969; additional school district and/or city funding for MTRFA in 1993 and 1996).

  • State aid for public pension plans has been added or augmented on several occasions (State funding of TRA and first class city teacher plans from sales tax proceeds in 1967; Police State Aid in 1971; State aid to MERF in 1979; local police and paid fire relief association amortization aids in 1980, 1984, and 1996; volunteer fire lump sum supplement in 1987; MTRFA and SPTRFA State aids in 1993, 1996, and 1997; minimum volunteer fire state aid in 1996; PERA-General State aid in 1997).

  • Public pension plans with problematic funding have been consolidated or merged on various occasions (St. Paul Bureau of Health Retirement Plan consolidation into PERA-General in 1967; State Police Retirement Plan and Game Wardens Retirement Plan consolidation into the State Patrol Retirement Plan in 1969; Supreme Court Justices Retirement Plan, District Court Judges Retirement Plan, and Probate and County Court Judges Retirement Plan consolidation into the Uniform Judicial Retirement Plan in 1973-1978; local police and paid firefighter relief associations consolidated into PERA-P&F 1973-1999).

Approaches to Address Public Pension Plan Funding Problems:
Other States

Hawaii (2002): Amortization Requirement Change

Problem: Large increase in Hawaii Employees Retirement System employer contributions from increasing unfunded actuarial accrued liabilities.

Legislation: The amortization period for the plan was extended by 13 years.

Illinois (2003): Bonding for Employer Contributions

Problem: The State Employees Retirement System unfunded actuarial accrued liability increasing.

Legislation: $10 billion in pension obligations bonds issued to pay the annual state contribution and to reduce the plan unfunded actuarial accrued liability.

Kansas (2003): Bonding to Reduce Unfunded Liabilities

Problem: Large unfunded actuarial accrued liabilities increased from the transfer of higher education employees to the Public Employees Retirement System and from a converted "13th check" benefit.

Legislation: $540 million in revenue bonds issued to reduce unfunded actuarial accrued liabilities.

Maine (2001): Minimum Employer Contribution

Problem: Variable employer amortization contributions to the Maine State Retirement System.

Legislation: State contribution to amortize the unfunded actuarial accrued liability in the previous year is minimum amount for successive year.

New Jersey (2003): Bonding for Unfunded Liabilities

Problem: Unfunded actuarial accrued liabilities in the State Retirement System for 1991 and 1993 local government early retirement incentives causing large local government contributions.

Legislation: Local governments participating in the statewide retirement plan are allowed to refinance their unfunded actuarial accrued liabilities from early retirement incentives by issuing refunding bonds.

New York (2003): Bonding for Employer Contributions

Problem: State and Local Retirement Plan employer contributions were variable and growing in recent years.

Legislation: A minimum employer contribution rate was established, without ability to be suspended during good investment performance periods, and bonding for employer contributions in excess of 7 percent of pay was permitted.

Oregon (2003): Pension Plan Restructuring

Problem: Public Employee Retirement System unfunded actuarial accrued liability grew from $1 billion to $15 billion in three years due to outdated actuarial assumptions and Variable Annuity guaranteed investment return.

Legislation: Old plan was closed to new entrants, who were covered by a new benefit tier, the Variable Annuity program was closed to additional contributions, and more current actuarial assumptions implemented.

Pennsylvania (1984): Financially Distressed Municipal Pension System Recovery Program

Problem: Over 2,200 local government pension plans with various funding levels, including the Pittsburgh Public Pension Plan with a 0.09 percent funded ratio and the Pittsburgh Fire Pension Plan with a 0.16 percent funded ratio in 1982.

Legislation: For local government plans, comparable actuarial reporting was required, minimum funding requirements were based on the actuarial reporting, an existing state aid program was revised to allocate amounts more consistent with plan cost, and a recovery program was established for plans and municipalities determined to be financially distressed that involved an aggregation of pension trusts, increasing member contributions to a minimum level, exempting employers from statutory contribution limits, requiring the establishment of a new benefit plan for new employees, adding additional special taxing authority, phasing-in the implementation of the funding standards, extending the amortization period, requiring the formulation of a plan for administrative improvements, a $35 million assistance account was established for allocation on the basis of relative distress, and providing emergency loans from the assistance account to avoid defaults.

Pennsylvania (2002): Variable Employer Contributions

Problem: State Employees Retirement System employer contributions became too variable.

Legislation: Employer contribution set based on system funding experience, but with a minimum contribution amount.

Virginia (2004 Proposal): Consolidated Contribution Rates

Problem: Virginia Retirement System employer contribution rates for teachers doubled after period of decrease.

Proposal: Permit local governments to consolidate higher teacher and lower general employee contribution rates.

West Virginia (1991): Teacher Retirement Coverage Restructuring

Problem: The unfunded actuarial accrued liability and the cost of the Teachers Retirement Plan were growing.

Legislation: The defined benefit plan was closed to new entrants and a defined contribution was created, with existing members allowed to transfer to the new plan, the amortization period was extended to 40 years, an additional state contribution was provided, and the issuance of pension obligation bonds were authorized.

West Virginia (2003): Retirement Liability Bonding

Problem: Unfunded actuarial accrued liabilities growing in teacher, state trooper, and judges retirement plans.

Legislation: $3.9 billion in bonding authorized (not implemented pending the result of litigation over its constitutionality).

Source: Except for the information on the Pennsylvania 1984 legislation, the summaries presented were derived from information provided by Ron Snell of the National Conference of State Legislatures.

Information on the Pennsylvania 1984 legislation was provided by the Pennsylvania Public Employee Retirement Commission.