LEGISLATIVE COMMISSION ON PENSIONS AND RETIREMENT

Representative Harry Mares, Vice Chair of the Legislative Commission on Pensions and Retirement, called the meeting to order at 9:05 a.m. and invited Commission members and meeting attendees to join him in the Pledge of Allegiance.

Representatives Philip Krinkie, Harry Mares, and Mary Murphy
Senators Don Betzold and Roy Terwilliger

Representatives Ann Lenczewski and Steve Smith
Senators Dean Johnson, Lawrence Pogemiller, and Dan Stevens

Mr. Lawrence Martin, Executive Director, Legislative Commission on Pensions and Retirement, referred members to the staff memo and to the bills.

Mr. Ken Holker, attorney representing Ms. Joan Flygare, testified on behalf of his client, regarding the inadequacy of the teacher retirement benefit and the high cost of purchasing prior service. He provided two handouts, a monthly retirement estimate from TRA’s online calculator and Ms. Flygare’s member account ledger from TRA showing the poor variable annuity fund earnings during the early years of her teaching service. Mr. Holker told members that Ms. Flygare and others like her are locked in to those early years of terrible returns. They would like the Commission to take a look at how the formula works, that they would like an equitable and fair distribution, and they would like some increases so that someone after 30 years of teaching can make more than $1,000 per month.

Mr. Gary Austin, Executive Director, TRA, discussed in general the cost of a purchase of service, and Ms. Flygare’s 40-day service credit purchase specifically.

Rep. Mares asked Mr. Austin how many people have purchased service as a result of the 1999 legislation. Mr. Austin estimated that approximately 500 people purchased service during the past three years. Mr. Austin said that many of the purchases were small, and the largest purchase was $90,000.

Mr. Martin then discussed in more detail the bills and the information contained in the staff memo.

Rep. Mares said that he said that he had recently been told that 81 percent of Minneapolis teachers have been hired since 1989 and are therefore not under the Rule of 90, and he asked the Minneapolis Teachers Retirement Fund Association (MTRFA) to confirm.

Mr. J. Michael Stoffel, Executive Secretary, DTRFA, testified regarding S.F. 1455 and the proposed benefit improvements. Mr. Stoffel informed members that the DTRFA is a very healthy fund. DTRFA recently received its actuarial valuation for 2001, and the funding ratio jumped from 103.7 percent to 107.7 percent funded, which makes it the healthiest teacher fund in the state. The contribution sufficiency ratio went from 3.7 to 4.7, so they are very interested to improve some of their benefits. They have not yet developed their legislative agenda for this year because they’re waiting to see the impact of the proposed actuarial assumptions on the funding. He also noted that because DTRFA’s funding ratio has surpassed that of TRA, they will no longer receive any additional state aid. DTRFA has been receiving $486,000 in additional state aid since 1997, but the law that granted that additional aid indicates that if they have a funding ratio higher than TRA’s they will lose that state contribution. Mr. Stoffel said that their priority list will likely include an age 65 retirement age for post-89 hires, the Rule of 90 for all members, and a prorated cost of living adjustment.

Representative Murphy asked Mr. Stoffel to prepare numbers as to how many people currently working who are not currently eligible would qualify for Rule of 90.

Mr. Martin reviewed the staff memo and an additional two-page handout on the subject.

Rep. Mares asked representatives from the various teacher plans to testify regarding their current contribution enforcement mechanisms and planned internal improvements, and to provide an opinion on the possibility of having TRA cover all charter school teachers.

Mr. Eugene Waschbusch, Secretary/Treasurer, StPTRFA, testified that there are 26 charter schools in the city of St. Paul. He said that they monitor the Department of Children, Families and Learning (CFL) sites in the newspapers and school board minutes to find out which charter schools have been approved and to find out when they will be starting up. At that time, StPTRFA sends a welcome letter to tell them that they will be members of StPTRFA. They then follow up by sending someone out in person to talk to the administration about the plan. StPTRFA staff then tells them how to report data, what information is needed, and when and how to make payments. They then continue to monitor to ensure that timely payments are made. Mr. Waschbusch stated his preference for potential solution #4 (from the two-page handout), to require contribution deduction from state aid. Regarding the possibility of putting all members into TRA, Mr. Waschbusch does not believe it would be any easier for TRA to administer, and it may actually be easier for StPTRFA to monitor than TRA.

Ms. Karen Kilberg, Executive Director, MTRFA, testified that they also follow many of the procedures that Mr. Waschbusch mentioned. After their experience with the Frederick Douglass charter school, they had some meetings with CFL and MTRFA has actually participated in sessions CFL provides to new charter school staff, giving an overview of what the requirements are and what to expect. Ms. Kilberg said that has been somewhat helpful, but has not been consistent on a year-to-year basis. She said that many of the charter schools do very well. Their problem with Frederick Douglass was that it was one of the first charter schools they dealt with. When MTRFA threatened to go to CFL to have funds withheld, the school would send some money and promise another check. Ms. Kilberg said that getting correct information is probably their biggest problem. The $23,000 MTRFA is owed from Frederick Douglass doesn’t seem like a lot of money in the scheme of things, but there are teachers who had those dollars withheld from their paychecks for pension coverage who are not able to withdraw the funds because the funds were not passed along to MTRFA, and they don’t have pension credit.

Mr. J. Michael Stoffel, Executive Secretary, DTRFA, testified that the almost 100 charter schools teachers in Duluth represent 10% of DTRFA’s active members. Mr. Stoffel said they spend more time on charter school teachers, but he believes it is easier for DTRFA to monitor locally than it would be for TRA.

Mr. Gary Austin, Executive Director, TRA, testified that they have not had a major problem with collections from charter schools, and they have improved their payroll reporting system so they are better able to monitor. Mr. Austin said that most of the charter schools are located in the cities of the first class, and that he agrees with Mr. Stoffel that those first class city teacher plans are closer to monitoring them. He said that TRA could handle it, but he feels it would probably be better to leave coverage in the plan of the city in which the school is located.

Ms. Mary Vanek, Executive Director, PERA, testified that PERA has had no success in getting information directly from the Right Step Academy. PERA has worked with StPTRFA to make an estimate of the possible contributions that should have been paid to PERA on behalf of the support staff. Ms. Vanek said that there should have been three years’ worth of contributions for an estimated 71 individuals. PERA continues to work with CFL to clarify eligibility. They also continue to work with their legal advisor because some charter schools hire management firms and assert that some support staff individuals are employees of that firm and not eligible for PERA membership while others are considered eligible.

Mr. Chris Cowen, Political Action Director for AFSCME, which represents non-licensed school personnel throughout the state, testified that there seems to be an accountability issue regarding their finances, at least for some charter schools. Mr. Cowen suggested that the charter school employees should be members of the bargaining units within the school districts where the charter schools are located.

Mr. Bob Meeks, Director of Governmental Relations, Minnesota School Boards Association, testified that a large number of charter school sponsors are not school districts, so there may not be a bargaining unit in existence. Mr. Meeks believes that this is not a sponsor problem. Because the Legislature has given great flexibility to charter schools, the sponsors have very little control – the sponsors are not the governing board for the charter school. Mr. Meeks suggested that if the sponsors were required to come up with the revenue it would be after the fact, and they would be expected to take on an obligation that they did not realize when they agreed to sponsor. He said that the charter school board is the governing body and employer, so the board should be the responsible party. Mr. Meeks said that MSBA would recommend the following potential remedies discussed in the staff memo: A-1 (LCPR01-223), A-3 (LCPR01-243), A-7 (LCPR01-228) and A-8 (LCPR01-229).

Ms. Jan Alswager, Education Minnesota, testified that they had a bill last year that would have required the sponsor of a charter school to have fiduciary responsibility. They also saw the concern expressed by Mr. Meeks for those sponsoring schools who did not sign up with the fiduciary responsibility, and they are willing to go prospectively on the issue. Ms. Alswager said that she believes it is the responsibility of the sponsor, since the sponsor decides every three years whether or not to renew a charter. She also said they feel that requiring the deduction of contributions from charter school state aid is a possibility, and that there should be a state obligation for the unpaid contributions. She believes that the member identification problem must be solved, and that there is a need to start the accountability process.

Mr. Edward Burek, Deputy Director, Legislative Commission on Pensions and Retirement, reviewed the staff memo on the subject.

Ms. Mary Vanek, Executive Director, PERA, provided information regarding the actuarial value of assets and data collection issues. Ms. Vanek said that they are working with the school districts to get more current information so the 9,000 people who were reported with $0 salary and no service credit awarded are reported to PERA as terminated if they are. She said that there employees who are on an "on-call" basis – they are qualified to be PERA members and are not now working, but they remain available on an "on-call" basis so the employer can call them when needed.

Ms. Bonnie Wurst, William M. Mercer, Inc., consulting actuary for PERA, testified to clarify the data discrepancies. Ms. Wurst said that they collect data at the same time Milliman USA does and Mercer conducts its own evaluation. They do not produce a formal report, but they do review the report prepared by Milliman. She pointed out that the data issues this year were extreme, more so than usual. There were a number of active employees identified with zero pay; if those employees also had zero service reported to be earned during the year, they were shifted to inactive status and then determined to be either vested or non-vested. For the employees with zero salary but with some service earned, they took the employee’s prior fiscal year’s earnings and used that amount as an approximation of what data was not reported. Ms. Wurst also noted that Milliman had double-counted 728 individuals.

Ms. Vanek said that the PERA Board will discuss the valuation results and proposed actuarial assumption changes at its next meeting and will develop a position regarding those recommended changes.

Mr. Lawrence Martin, Executive Director, Legislative Commission on Pensions and Retirement, reviewed the staff memo and proposed draft legislation to clean up. Mr. Martin said that this is for circulation purposes inform interested parties and to allow them time to review the proposed draft legislation.

The meeting adjourned at 11:25 a.m.