Details of the teacher pension reform bill

This bill (Senate File 191/House File 723) has two goals:

• Restore financial stability to teacher pension funds for long-term sustainability
• Reform pensions to attract/retain teachers, strengthen education system, and remedy benefit inequities

Financial stability
Teacher pensions need additional funding.

• Due to the market downturn, TRA contribution levels are deficient by 3.3 percent of pay.
• SF 191/HF 723 increases employee and employer contributions by 0.5 percent of pay per year beginning July 1, 2011, phased in over four years.
• Increased employer costs are estimated for TRA at an incremental $22 million additional per year.

		Employer contribution rates				Employee contribution rates
		Current law		Proposed		Current law		Proposed
7/1/2011		5.5%		6.0%		5.5%		6.0%
7/1/2012		5.5%		6.5%		5.5%		6.5%
7/1/2013		5.5%		7.0%		5.5%		7.0%
7/1/2014		5.5%		7.5%		5.5%		7.5%

After 2014, an automatic stabilizer (similar to PERA/MSRS law), would maintain future contribution rates at levels to achieve actuarial balance. If deficiencies continue, both employee and employer contribution rates rise by 0.25 percent per year until the fund is stabilized. Employees contribute to solving the deficiency. If markets rebound and contribution increases are not needed, they would be suspended or rolled back.

Pension reforms
SF 191/HF 723 reforms with three changes:

• Increased formula multiplier – 2.1 percent for future years of service
• Lower normal retirement age – age 62 for career teachers working 30 or more years
• Lower normal retirement age – from 66 to 65 for other teachers who work less than 30 years

TRA’s cost for these reforms is 1.9 percent of payroll to be borne fully by employee contribution increases.

Why is this needed?

• Puts teacher funds back on path for full funding – waiting will increase costs
• Important to increase contribution rates to maximize potential investment gains
• Phased, measured approach balances current fiscal realities with the need for stable teacher funds
• Helps attract/retain teachers for a strong education system
• Addresses pension equity for teachers hired post-1989
• Moves Minnesota teacher pensions up from the bottom compared to other states
• Builds on past precedents: teachers pay for benefit improvements and employer/employee contributions rise to stabilize fund
• Balanced package with shared employee/employer responsibility

Both the Duluth and St. Paul Teacher Retirement Funds are included in the financial stability and pension reform elements of the proposal.
(Updated March 17, 2009)

Organizations supporting SF 191/HF 723

• TRA Board of Trustees
• Education Minnesota
• MN Association of School Administrators (MASA)
• MN Elementary School Principals Association (MESPA)
• MN Association of Secondary School Principals (MASSP)
• Minnesota Rural Education Association (MREA)
• Retired Educators Association of Minnesota (REAM)
• Education Minnesota Retired
• Interfaculty Organization (IFO)
• Committee of 13 (Minneapolis Teachers)
• St. Paul Teachers Retirement Fund Assn. Board
• Committee of 9 (St. Paul Teachers)
• Duluth Teachers Retirement Fund Assn. Board
• Duluth Active and Retired Teachers Group (DART)

May 05, 2009