Deliberations within the Legislature’s Commission on Pensions and Retirement (LCPR) represent the major focus of the Board’s attention during the current season. The Legislative session formally started on January 24 and is scheduled to run for 10 weeks. However, the LCPR began its work with hearings this past September, October and November, 2011. Additionally, the Commission has been meeting every Tuesday at 5 p.m. since the session started in January. It expects to conclude its work with action on an Omnibus Pension Bill on Tuesday, March 13.
(The “projected outlooks” at the end of each item addressed below are merely my best guess and are not based on any official statement, indication, or comment from the LCPR or its staff.)
Of specific interest to SPTRFA before the Commission are the following bills:
- H.F. 1555/S.F. 927(Sponsors: Representative Mary Murphy, DFL-Duluth; Senator Julie Rosen R-Fairmont) would expand the investment authority of the Fund and place it on a level playing field with the State’s Board of Investment (SBI), effectively removing the existing limits on private equity and other alternative investments that represent important sources of risk balancing return. The bill is the result of a year-long Blue Ribbon Panel, headed by the State Auditor, that addressed a variety of investment issues in its proposal. To date, the Commission has rejected unfriendly amendments and has favorably moved the bill. It is expected to become part of the panel’s Omnibus Bill, pending final review and action from the LCPR in early March.UPDATE 5/9/12 – The legislation was included in the Omnibus Bill and has been approved with Governor Dayton scheduled to sign it. The Bill grants expanded investment authority for the Board and is very welcomed in light of the recently approved Asset Liability Study.
- H.F. 2168 (Sponsor: Chairman Morrie Lanning, R-Morehead) would alter the Plan’s present investment rate of return assumptionand revise other economic assumptions, such as salary and payroll growth rates. These are important factors in determining the Plan’s funded ratio and long-term liability exposure. Currently, the annual target investment return for the portfolio is 8.5%. This level does represent the highest investment hurdle among the nation’s public funds. However, to date, the long-term investment return (20+ years) has achieved that target level. This legislation calls for a lowering of that assumption to 8%. This would have a significantly negative effect on the existing funded ratio of the Plan, reducing it from the current 70% to the mid 60% level. It is hoped that LCPR Chairman Lanning will be receptive to a compromise that might lower the rate to 8.25 or 8% for the short-term, 3-5 year period, then restore the long-term rate at 8.5%. This approach is referred to as the “select and ultimate” concept. Furthermore, it would be preferable to have salary and payroll growth assumptions tied to the results of the actual Experience Study, due to be completed for SPTRFA in early March. The Chairman would prefer to see Minnesota’s pension systems’ investment target lowered , based on declining investment return projections but may be amenable to a compromise that would soften the impact of such a change on a Plan’s fiscal status.UPDATE 5/9/12– This item was made part of the Omnibus Bill as well. The assumed investment rate of return has now been dropped from 8.5% to 8% meaning that no longer will Minnesota’s pension systems have the highest return targets in the nation. The downside is that Plan funded ratios have declined slightly with the lower expected returns.
- H.F. 2411 (Sponsor: Chairman Lanning) would, in part, reverse the action of 2010 Legislature regarding the lowering of augmentation interest earned on deferred retirement benefits for members of the Teachers Retirement Association (TRA). The proposal does not applyto either SPTRFA or Duluth Teachers, as neither Board favored the concept. The impact of this legislation would reverse an important step previously taken by the TRA Board and the Legislature in 2010 designed to share the burden in helping to shore up the long-term fiscal status of the plan.UPDATE 5/9/12– H.F. 2411 was not reported out of the Pension Commission during the past session. SPTRFA opposed this legislation which would have serve to undue some of the recent efforts aimed at improving the Plan’s fiscal sustainability.
- H.F. 1987/ S.F. 1692(Sponsor: Chairman Lanning, Senator Rosen) would make certain correctional changes and administrative adjustments to all MN pension plans, along with certain specific technical items for TRA in particular. Of specific value to SPTRFA was an approved amendment to the bill that would adopt two earlier Congressional actions, the HEART Act in 2008 and the Pension Protection Act in 2006, which included the ability to utilize ROTH IRAs as eligible rollover options for pension plan participants and a provision that covered plan members that died while in military service.UPDATE 5/9/12– This item was added to the Omnibus Bill by the Commission and will now accommodate certain important Congressionally mandated pension benefits for families of deceased veterans among other features.
- H.F. 2179 (Sponsor: Rep. Kiffmeyer R-Big Lake) would, among other items, require teachers who earned additional income beyond the regular teaching salary responsibilities (i.e. extra curricular roles) to have those “non salary”, irregular compensation earnings deposited in the state’s “unclassified” retirement program (a defined contribution plan), and thereby exclude such amounts from any calculation related to determining final average salary under an existing defined benefit plan. Testimony was presented in opposition to this proposal that detailed the administrative complications and costs issues related to distinguishing and depositing these different sources of income. The matter was held for further review.
UPDATE 5/9/12 – H.F. 2179 was not reported favorably by the Commission and was opposed by SPTRFA. However, there is a reasonable likelihood, depending upon the outcome of the November elections, that legislation, like this one, calling for consideration of certain “hybrid type” pension features will be revisited.