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Dayton signs off on teachers pension merger

The merger of the Duluth Teachers’ Retirement Fund with the state teachers pension plan has been signed into law by Gov. Mark Dayton.

The merger is part of a larger bill that gives roughly $14 million a year to the Teachers Retirement Association beginning in 2015. The aid will continue until the Duluth pension plan is stabilized. It faces dire circumstances, with only 54 cents in the bank for every dollar it’s obligated to pay out.

Duluth’s unfunded liability as of last June was $162 million, up from $119 million the year before.

The merger means Duluth teachers hired before the consolidation won’t have to worry about receiving their pensions, said Karen Kilberg, executive director of the Duluth pension plan.

The dramatic shift over two decades from the number of teachers paying into the fund versus those collecting was a major force behind the merger, which resulted from a legislative-mandated study.

“We went from a majority of active teachers versus retired to almost 2-to-1 retired versus active,” Kilberg said.

The most recent numbers show that the Duluth school district has 873 active members, with 1,274 retired teachers and 113 of their beneficiaries. In 1995, 1,512 members contributed to the fund, while 841 pensions were being paid.

Some lawmakers saw the bill as a bailout, while others said public employee pension plans are part of the state’s contract with those employees whose contributions reflect deferred wages. It passed 79-52 in the House and 38-24 in the Senate.

Other large public pensions have received millions of dollars for years, said Rep. Mary Murphy, DFL-Hermantown, who sponsored the bill as vice chairwoman of the Legislative Commission on Pensions and Retirement.

The Duluth fund had been strong for decades until the fallout of the 2008 market crash and the effect of the demographic issue, she said, noting it could have been caught earlier.

“The handwriting was on the wall,” said Murphy, a retired Duluth educator. “The sooner we reacted in the long run, the better for our stability and the stability of the TRA.”

The merger, she said, works without threatening the much larger state teachers plan.

Much of Duluth’s unfunded liability increase last year comes from the restoration of a 1 percent cost-of-living-adjustment after not having one for three years. Another chunk comes from a benefit formula increase, both approved by the Legislature. Also approved were employee and employer contribution rate increases for both last year and this year.

The next step, Kilberg said, is for the boards of both funds to approve the merger, along with the members of the Duluth fund.

The St. Paul teachers plan — also underfunded — asked to remain independent. It will receive $7 million a year in aid as part of the law.