Pension subsidies pass the House

[Watch a full video archive of Thursday's floor session here.]

The long-term financial outlook for Minnesota pensions would improve if a bill that passed the House Thursday becomes law.

Rep. Mary Murphy (DFL-Hermantown) sponsors HF1951.

The omnibus pension bill, HF1951, sponsored by Rep. Mary Murphy (DFL-Hermantown), which passed 79-52, contains several provisions aimed at shoring up unfunded liabilities for public pensions. It now goes to the Senate, where Senate President Sandy Pappas (DFL-St. Paul) is the sponsor.

The bill would merge the Duluth teacher pension fund into the statewide Teachers Retirement Association. The Duluth pension was 54 percent funded as of July 1, 2013, and the demographics of the plan suggest it won’t be able to recover on its own, according to testimony earlier this session in the Legislative Commission on Pensions and Retirement. The merger comes with $15 million in annual state aid for 24 years so TRA members won’t have to cover the unfunded liabilities in the Duluth plan.

Rep. Mike Benson (R-Rochester) unsuccessfully tried to amend the bill to delay the merger and study moving the Duluth pension to a defined contribution plan similar to those offered in the private sector. He said the current defined benefit style of pension, in which the government assumes the risk for paying retiree benefits, could create larger pension costs in the future.

“We’re going to pump money into a system that can’t survive,” Benson said. “It’s going to continue to shrink. And we’re going to be back here when the market has a 30 percent correction going, ‘What are we going to do now?’”

Rep. Michael Nelson (DFL-Brooklyn Park) said the problems with the Duluth pension are the result of bad policies enacted by previous state Legislatures. “These pensions are things that people earn while they were working, and we owe them that promise,” Nelson said.

Similar to the state aid for Duluth, the bill would provide $7 million in annual funding to stabilize the St. Paul teachers pension fund, which was 64 percent funded as of July 1. But the bill leaves the St. Paul pension independent rather than merging it with TRA. Rep. John Lesch (DFL-St. Paul) said it would cost more than $38 million to merge St. Paul teachers with TRA. “This is far less expensive to do it this way,” he said.

The bill also contains contribution increases for employers and employees in two statewide pension plans: the Minnesota State Retirement System and the Public Employees Retirement Association. Because the two pensions have had funding deficiencies for the last two years, state law requires them to request increased contribution rates to stabilize the plans.