Duluth teacher pension fund seeks merger with state fundIn 1993 the Duluth school district teacher pension fund had about the same number of teachers paying into it that it does retirees collecting benefits today.
By: Jana Hollingsworth, Duluth News Tribune
In 1993 the Duluth school district teacher pension fund had about the same number of teachers paying into it that it does retirees collecting benefits today.
It’s a unique problem among pension funds in Minnesota, and a big reason that a merger with the statewide Teachers Retirement Association is backed by the Duluth Teachers’ Retirement Fund Association.
“When I became a member of the board it was almost 2-to-1 actives versus retirees,” said Tom Pearson, president of the Duluth fund’s Board of Trustees, and activities director at Denfeld High School. “Now it’s completely flip-flopped. We can’t sustain that.”
A study mandated by the Legislature examined the costs and possibility of merging both the Duluth fund and the St. Paul Teachers Retirement Fund Association with the state fund. It would cost taxpayers more than $61 million annually over 24 years. Duluth’s portion would cost about $15 million annually. The St. Paul fund doesn’t want to merge, but still wants to receive $7 million annually in state aid, according to the study.
Duluth’s pension is 54 percent funded. Last year it was 63 percent. Before the market crash of 2008, it was about 90 percent funded, and has been historically robust.
Between Duluth’s demographic problem and its slow recovery from the Great Recession, a merger seems to be the best answer, said Jay Stoffel, former executive director of Duluth’s teacher retirement fund, and current deputy executive director of the Teachers Retirement Association in St. Paul.
“Baby boomers are retiring and there is a large number that will continue to retire in the Duluth system,” he said. “They are replaced with younger teachers making a smaller salary. When the contributions are based on the percentage of salary, there is less money coming in.”
That really makes a difference, he said, when the pool of workers is smaller. In 1993, there were 1,453 members paying in to the Duluth fund and 822 members collecting benefits. In 2013, 873 members paid in and 1,445 collected benefits. About 50 teachers retired from the district last year.
The Duluth fund also lost members when the state directed instructors at Lake Superior College in 1995 and Duluth charter schools in 2002 to join the statewide teachers fund.
Duluth’s unfunded liability as of June 30 is $162 million, up from $119 million last year. Much of that increase comes from the restoration of a 1 percent cost-of-living-adjustment, after not having one for three years, Stoffel said. Another chunk comes from a benefit formula increase, both approved by lawmakers. But the Legislature also approved employee and employer contribution rate increases for both last year and this year. It also approved $6 million in state aid for 2014 and 2015 to help close the funding gap.
If the merger is approved, that aid would continue, and be a part of the $15 million going to the TRA for the next 24 years. The idea, Stoffel said, is to ensure the statewide fund isn’t responsible for Duluth’s liabilities. He said St. Paul doesn’t want to merge because it doesn’t have Duluth’s demographic issues, and says it can survive independently. That fund is 60 percent funded.
Karen Kilberg is the new executive director of the Duluth fund, and formerly led the Minneapolis teachers retirement fund until its 2006 merger with the TRA. Both she and Stoffel said Duluth’s problem last year wasn’t its investments.
“Duluth had a greater return than all other entities for last year,” she said, considering other public pensions in the state.
With a 16.7 percent return, it was among the top 10 percent of public pension funds in the nation, Stoffel said. But when benefits cost $2 million a month, it’s hard to rebuild after the large loss in 2008, he said.
Kilberg is hoping the fund will soon be on a fully funded track.
“The sooner it is addressed the better it will be for all parties,” she said. “If you let it go for another year or another year, the situation becomes worse and the amount of money needed to fix it starts to increase.”
Pearson said members don’t appear worried about a transition, or about the chance it won’t be approved.
“They understand that pensions are safe,” he said. “Minnesota has a history of following through on promises to pensions and people who receive pensions.”
The Legislature will take up the issue this session. The study outlines a plan that would have the merger complete by June 30, 2015, but Stoffel said it could take longer.