Governor Vetoes Bill Containing 2017 Pension Reforms
Governor Mark Dayton vetoed special session S.F. 3 on Tuesday, May 30, 2017. This bill contained the contents of the 2017 Omnibus Retirement Bill passed by the Legislative Commission on Pensions and Retirement (LCPR) and the Minnesota Senate during regular session (S.F. 545)
The Governor vetoed the bill due to provisions related to labor standards that would have preempted local governments’ ability to set wage and benefit levels higher than state law. Dayton explained is rationale for the veto in a letter to the legislature.
Most notably for MSRS, the vetoed bill included increased employer and employee pension contributions, a lower cost-of-living adjustment for retirees, and numerous other administrative modifications.
Omnibus Retirement Bill Provisions by Plan
Including General, Correctional, State Patrol, & Unclassified Retirement Plan
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2017 Omnibus Retirement Bill S.F.545 / H.F. 565
May 19, 2017: The Legislative Commission on Pensions and Retirement (LCPR) has completed its work on the 2017 Omnibus Retirement Bill. The Minnesota House and Senate versions of the bill are now working their way through the legislature.
For updates on the status of the two bills, visit the LCPR’s webpage.
The language in the bill is similar to the MSRS Board’s proposal for the Correctional and State Patrol Retirement Plans. The LCPR voted to make several changes to the Board’s proposal for the General Employees Retirement Plan.
Omnibus Retirement Bill Provisions by Plan
Including General, Correctional, State Patrol, & Unclassified Retirement Plan
The bill achieves plan funding similar to the Board’s proposal. None of the changes to the plans create an incentive to retire before July 1, 2017.
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MSRS Board Approves 2017 Maintenance Proposal
The MSRS Board of Directors approved a new maintenance proposal for the 2017 legislative session to increase funding to the General, Correctional, and State Patrol Pension Plans.
Why more funding is needed?
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People are living longer. Sixty-five-year-olds are expected to live two years longer today than they were 15 years ago. Two more years of collecting a benefit is expensive! It costs about $700 million. This change has already been approved by the legislature.
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We expect to make less money on our investments in the future. The economy has changed since the “Great Recession.” A lot of factors go into determining the correct investment assumption. We consider things like: interest rates, expected inflation, asset allocation, and asset performance projections. All of the data indicates lower returns over the next 10 to 20 years. The board proposal lowers the investment assumption from 8% to 7.5%. This assumption is defined in Minnesota Statute and a change still needs to be passed by the legislature and signed by the Governor.
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Low investment returns for the last two years. Fiscal year 2015 investments returned 4.4%. In fiscal year 2016, the return was -0.1%. MSRS is a long term investor and we don’t react to a couple years of low returns. However, these lower-than-expected returns directly impact today’s funded ratio.
What happens if changes are not made?
Without any changes, MSRS will be able to meet its obligations for a long time – more than 40 years. But, some changes are necessary to add additional funds to the plans. The longer we wait to make those changes the more expensive they become. Our preliminary 2016 valuation shows the General Plan 81% funded. We are projecting that if legislative action isn’t taken to address funding, then next year our funded ratio will be about 77%.
General Employees Retirement Plan Proposal
|
Proposed Change |
Savings/Impact % of Payroll |
Savings/Impact Millions of $/Year |
|
July 1, 2017 |
||
|
Increase Employee Contributions from 5.5% to 6% |
0.5% |
$14 |
|
Increase Employer Contributions from 5.5% to 7% |
1.5% |
$43 |
|
Re-amortize Unfunded Liability from 26 years to 30 years |
0.4% |
$10.9 |
|
January 1, 2018 |
||
|
Lower Post-Retirement Increase Rate from 2.0% to 1.5% |
1.9% |
$51.8 |
|
July 1, 2019 |
||
|
Increase Employer Contributions from 7% to 8% |
1% |
$28 |
|
Total: |
5.3% |
$147.7 |
Projected funding (based on preliminary 2016 actuarial valuation)
Correctional Employees Retirement Plan Proposal
|
Proposed Change |
Savings/Impact % of Payroll |
Savings/Impact Millions of $/Year |
|
July 1, 2017 |
||
|
Increase Employee Contributions from 9.1% to 9.6% |
0.5% |
$1.2 |
|
Increase Employer Contributions from 12.8% to 14.4% |
1.55% |
$3.6 |
|
Re-amortize Unfunded Liability from 22 years to 30 years |
2.2% |
$5.2 |
|
Additional State Contribution of 2.3% |
2.3% |
$5.3 |
|
January 1, 2018 |
||
|
Lower Post-Retirement Increase Rate from 2.0% to 1.5% |
2.8% |
$6.6 |
|
July 1, 2019 |
||
|
Increase Additional State Contribution from 2.3% to 5.5 |
2.2% |
$5.2 |
|
Total: |
11.5% |
$27.1 |
Projected funding (based on preliminary 2016 actuarial valuation)
State Patrol Retirement Plan Proposal
|
Proposed Change |
Savings/Impact % of Payroll |
Savings/Impact Millions of $/Year |
|
July 1, 2017 |
||
|
Increase Employee Contributions from 14.4% to 14.9% |
0.5% |
$0.3 |
|
Increase Employer Contributions from 21.6% to 22.35% |
0.75% |
$0.5 |
|
Re-amortize Unfunded Liability from 22 years to 30 years |
4.2% |
$3 |
|
Additional State Contribution of 3.5% |
3.5% |
$2.5 |
|
July 1, 2019 |
||
|
Increase Employee Contributions from 14.9 to 15.4 |
0.5% |
$0.3 |
|
Increase Employer Contributions from 22.35% to 23.1% |
0.75% |
$0.5 |
|
Increase Additional State Contribution from 3.5% to 7% |
3.5% |
$2.5 |
|
Total: |
13.7% |
$9.6 |
Projected funding (based on preliminary 2016 actuarial valuation)