OPINION | The pension problem: Another misleading conservative "crisis"

Minnesota’s pension problem is not the problem that conservative policy advocates assert. Rather, our problem is that Minnesota would be better off if more Minnesotans had pensions.

Earlier this month, the Center of the American Experiment (CAE) released a report suggesting that Minnesota’s public employee pension funds risk collapse. Nothing could be further from the truth. In fact, CAE’s report misleads Minnesotans, insinuating that state policymakers simultaneously cause and ignore pension problems.

There’s the rub. State leaders can’t ignore something that they didn’t cause. CAE’s report is conflagration of head fakes, willful misreading of data, and a not-so-subtle attempt to undermine public confidence in government. And, candidly, that’s what’s really going on in the CAE report. It’s not about pensions but an excuse to beat up government and public workers, creating a smokescreen for wealth-favoring taxation policy.

Retirement Systems of Minnesota (RSM), the state’s umbrella public pension fund management organization, administers Minnesota’s three major pension funds. They are the Minnesota State Retirement System (MSRS), the Public Employees Retirement Association (PERA) and the Teachers Retirement Association (TRA). Each fund has its own board of directors, answerable to pension fund members for fund performance.

CAE would like you to believe that RSM is hiding a looming pension funding crisis. In conservative eyes, the sky is always falling. CAE’s evaluation of Minnesota public workers pension funds is no exception. They find the disaster they’re determined to find. Except, it’s not a disaster at all.

CAE report author Kim Crockett’s central claim is that Minnesota’s public employee pension system is broken, facing $17.3 billion in unfunded liabilities. The actual figure is less than $10 billion. The strongest of three funds, MSRS, projects posting a 91.4 percent funded level this year. PERA and TRA expect to report mid-80s percentages.

The unspoken contention is that any pension fund with less than 100 percent funding must be doing something wrong. It’s not. A 100 percent funded pension fund is actually overfunded. Investment instruments are designed to meet retirement draw demands for the projected retiree population. Minnesota’s pension funds presently perform within established parameters. Pensions, after all, are just one retirement savings element. They’re designed to preserve deposited funds purchasing power at the time of deposit.

CAE suggests fund mismanagement as the cause of recession-battered pension fund performance. During the Great Recession, pension fund equity took a hit but then so did every stock fund. With improved stock and bond markets performance, pension fund return rates are up. Minnesota’s $68 billion in pension fund assets collectively yielded 18.6 percent return, well ahead of the formally targeted 8.5 percent return. CAE’s argument only works if we pretend that it's 2009 and the state and national economies are being slammed.

CAE’s solutions, however, should bear the closest scrutiny. Using carefully worded language suggesting pension fund contributor sympathy, CAE proposes doing less for current pension plan participants while ending Defined Benefit Plans for future public employees.

“COLAs (cost of living adjustments) should be further reduced on base pensions that received ‘gratuitous’ investment-based post-retirement increases,“ Crockett writes in the report’s solutions section. Notice that term, “gratuitous”? That means uncalled for, unwarranted or lacking good reason. In other words, where pension fund boards voted to do more for pensioners based on fund asset performance, CAE thinks benefit recipients should now be retroactively penalized for the same decision.

CAE also recommends, using a bolded font, the immediate termination of new employee enrollment in any retirement plan other than a Defined Contribution Plan (DCP). “To stop adding new liabilities to the current system, the defined contribution plan needs to be required for all new employees.” This is a backdoor way of radically and unilaterally cutting public worker benefits, violating collective bargaining laws.

Lastly, CAE insists that its proposals do not constitute proposed tax increases. Using a conservative policy bait-and-switch tactic, Crockett writes, “[suggested policy solutions are] a recommendation to fully fund pensions from existing revenue, which may require spending cuts elsewhere.”

Catch that? Let me repeat the important, buried part: “which may require spending cuts elsewhere.” Rather than increasing taxes, the State of Minnesota should cut funds from another budget to meet any future pension fund shortfall, should that happen. This pits public workers against school kids, food inspectors, bridges, invasive zebra mussels and every other state funded activity.

Deconstructed, we see the CAE report for what it is, a ginned-up crisis existing only to advance the conservative no-new-taxes agenda. Conservative policy activists have gone to considerable trouble and expense just to argue that Minnesota should tax the highest income earners at a lower per capita rate than Minnesota’s middle and low income earners pay. The small government crowd isn’t genuinely interested in creating a strong, responsibly compensated professional workforce. Unsurprisingly, their pension crisis concerns ring equally hollow.

Minnesota faces a genuine retirement savings shortfall. False pension fund shortfall claims distract Minnesotans from addressing real inadequate financial resources problems. DBPs and DCPs improve retirement savings. DBPs are better for workers. That’s why conservatives want to take them away.

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John Van Hecke's picture
John Van Hecke

John Van Hecke is the executive director of Minnesota 2020.