St. Paul / Teachers’ retirement fund at risk

01/27/2007

New report puts deficit at $420 million


BY DENNIS LIEN
Pioneer Press


The St. Paul Teachers' Retirement Fund has a $420 million deficit, putting it at risk of serious near-term funding problems, the Office of the Legislative Auditor said Monday.

To correct the problem, teachers, the school district, or the state — or all three — will have to kick in more money to get the fund back on track by a 2021 target date.

The revelation was part of a much larger evaluation of retirement benefits for public employees that said they appear better funded than they really are. The auditor's office, for example, said funding-ratio calculations by statewide public pension plans don't take into account a $4 billion deficit in the Minnesota Postretirement Investment Fund used to pay benefits to retirees.

Among other things, the office said the Legislature should fully fund it and require plans' funding ratios to reflect the actual value.

The auditor's office also said Minnesota's seven local pension funds are underfunded by $748 million, with the St. Paul plan facing the greatest risk of serious future funding problems as it is funded at a lower rate than the others.

For St. Paul and Duluth, which has a $51 million deficit, the office recommended the Legislature change the postretirement benefit formula to disallow certain automatic increases during deficits. It also said lawmakers should consider replacing existing formulas with ones tied to inflation and increasing contributions to St. Paul's fund.

The problem goes back to the 1970s and 1980s, when the state didn't contribute enough money to the plan, according to Phillip Kapler, executive director of the St. Paul Teachers' Retirement Fund Association.

Now, the state contributes $3.4 million a year to reduce the deficit, with the district and employees putting in another $12.6 million.

Kapler said the association plans to ask the Legislature to boost its annual payments by $4 million.

In a second report, the office looked at more than 700 pension plans covering almost 20,000 volunteer firefighters and found that most have enough money to cover future liabilities. But it found their average rate of return was 4.8 percent, well below the 7.7 percent annual rate of a State Board of Investment "medium'' risk account.

It recommended the Legislature require all volunteer firefighter relief associations to invest pension funds through the state board.