A new investment method could be used to invest state retirement funds


The State Board of Investment could start investing state retirement and other funds in swap contracts, an investment tool recently regulated by the federal government.

Howard Bicker, the board’s executive director, said swap contracts would save the state money by lowering the amount of individual investment transactions.

The provision is part of the first omnibus pension bill, HF629, sponsored by Rep. Mary Murphy (DFL-Hermantown). The House Government Operations Committee approved and referred the amended bill to the House Ways and Means Committee Friday. The companion, SF489, is sponsored by Sen. Sandy Pappas and awaits action in the Senate State and Local Government Committee.

Murphy said she plans a second omnibus pension bill with more significant policy and state financial impacts; but HF629, which includes routine changes and administrative provisions, is the less controversial of the two.

Republicans shared concerns that legislators were moving too quickly to allow the State Investment Board to use swap contracts, a new market that opened this month.

Rep. Steve Drazkowski (R-Mazeppa) said the provision seems to coincide with the low level of pension returns.

In January, the committee heard about struggling pension plans, including the local police and fire pension plan with a funding deficiency of 22 percent, and the state patrol’s funding deficiency of 27.2 percent.

What’s in the bill? The following are selected bills that have been incorporated in part or in whole into the omnibus transportation policy bill:

HF156 – Dean
HF340 – Nelson
HF347 – Kahn
HF420 – Hilstrom
HF705 – Bly
HF1152 – Murphy, M.

Bicker said the provision to use swap contracts coincides with the Dodd-Frank Act, a federal law regulating the investment market that came about in response to the 2008-2009 stock market crash. Previously, swap contracts were not regulated by the federal government.

“We’re only going to play in government-regulated contracts,” he said.

He added that the State Board of Investment, if granted the authority, would make preparations first then start making the investments in about a year or so.

Drazkowski also raised concerns about the bill’s addition of the Minnesota Association of Professional Employees (MAPE), a group of about 20 employees, to retirement coverage provided by the state retirement system.

Rep. Phyllis Kahn (DFL-Mpls) said the group is only a small portion of the total number of employees in the pension plan.

“In general, adding what are probably healthy, well-earning people to a pension plan is kind of a good thing to do,” she said.

– Liz Stoever