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Minnesota Legislature

Lawmakers eye pension reforms

Published (1/21/2011)
By Nick Busse
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Some lawmakers are questioning whether the state’s public pension funds are expecting too much money from their investments.

Members of the House State Government Finance Committee discussed the issue with pension officials Jan. 18. No action was taken.

Committee Chairman Morrie Lanning (R-Moorhead) said the actuarial value of pension fund assets — i.e. how much money pension funds can realistically earn from their investments — is emerging as a key issue for legislators this year. Some, like Lanning and Rep. Keith Downey (R-Edina), think that the assumed rate of 8.5 percent is unreasonably high, and could result in unfunded liabilities.

“Assumptions on growth in recent years, as well as assumptions about compensation increases, have proven to be inaccurate,” Lanning said.

But Howard Bicker, executive director of the State Board of Investment, disagreed. As head of the board responsible for investing the state’s public pension funds, Bicker said the state’s investments have historically performed higher than the assumed rate of 8.5 percent. In fact, they’ve seen an actuarial rate of 9.7 percent since 1980. It’s only during the recent economic crisis that their values dropped sharply, and Bicker said they’ve already picked back up again.

“I happen to believe that if we have a long-term policy, both from an investment standpoint and from a pension standpoint, 8 or 8.5 (percent) are very doable,” Bicker said.

He argued that investing the state’s pensions effectively requires an aggressively managed investment portfolio, which naturally entails short-term volatility. He urged lawmakers not to change the state’s investment policy because of short-term economic instability.

“I don’t think it’s necessary at this stage. I think the markets will recover. I think they’ve done a good job of recovering at this point,” Bicker said.

Lanning disagreed.

“I hope you’re right, but I’m not nearly as optimistic as you are,” he told Bicker.

Lanning said he’s concerned about the size of the current federal budget deficit. He suggested the debt the federal government is carrying could threaten the country’s economic stability, potentially causing turmoil in the markets.

“I don’t know if we really know what the full impact of that is going to be,” Lanning said.

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