Auditor urges changes in teacher pension law

12/10/2005

BY PATRICK SWEENEY
Pioneer Press

A state law that allows retired teachers in Minneapolis, St. Paul and Duluth to share in high investment returns from their pension funds should be changed because it threatens the funds’ long-term solvency, Auditor Patricia Anderson said Thursday.

In a report on investment returns for fiscal year 2004 for a number of public pension funds, Anderson also urged the Legislature to:

• Act quickly to bail out the Minneapolis Teachers Retirement Fund Association, which is far short of having the money it needs to guarantee payment of pensions for its members.

• Limit increases in public pensions to 5 percent a year, even in years when pension funds record big investment returns.

• Force two small Minneapolis pension funds, relief associations serving retired firefighters and police officers, to merge into bigger funds to reduce what Anderson called “extremely high administrative costs.”

Anderson’s recommendations for legislative action are included in a report available at http://www.auditor.state.mn.us

The report details investment returns realized by 10 public pension funds. The fiscal year ran through June 30, 2004, for some of the funds, and through Dec. 30, 2004, for others.

The St. Paul Teachers Retirement Association, which serves about 2,400 retirees and 4,500 active teachers, had the highest rate of return — 14.1 percent — of any of the funds during its year.

But because of the law that requires part of investment returns to be put into increased pensions, the St. Paul retirement fund became less solvent, Anderson said. The report says the St. Paul teachers fund had only about 72 percent of the assets it required to meet its long-term liabilities. The Minneapolis teachers fund had only 51 percent of the assets it needed, according to the report.

Under current law and pension policies, retired St. Paul teachers get a 2 percent cost-of-living increase in pensions every year. In addition, any investment returns that exceed 8.5 percent a year on a five-year average are required to be earmarked for further permanent pension increases. There is no requirement that pensions be reduced when the five-year average return dips below 8.5 percent.

Similar investment provisions exist for the state’s biggest public pension plans, but they do not allow investment gains to be paid out until the plans are fully funded to meet long-term demands.

Phillip Kapler, executive director of the St. Paul teachers plan, said the fund’s board has not taken a position on Anderson’s proposals. He said underfunding of the teachers pension plan by the state and the city of St. Paul — not the law that allows retirees to share in investment gains — is the reason the fund does not have enough money to cover future liabilities.