Blue Ribbon Panel's View: Sacrifice together, make good on Minnesota's public pension promises
There are 511,000 public workers and retirees in Minnesota covered by a state pension plan. This number includes teachers, firefighters, police officers, snowplow drivers, veterans-home care workers, and so many others who live in our communities. These men and women spend their careers dedicated to public service, working every day to make the lives of everyone in our great state better. They depend on their pension for their economic security. In fact, some of these employees and retirees are not eligible for Social Security, so a pension is their only source of retirement income.
A vital part of retirement security for these Minnesotans needs attention now.
That's because the state's pension plans do not currently have the funding to pay future pension benefits that our public workforce already earned. Minnesota's pension plans are about $16.2 billion short, in part due to Minnesotans living longer and lower-than-expected investment returns.
In 2016, Gov. Mark Dayton convened our group, the Blue Ribbon Panel on Pension Reform, to look at the status of state pension plans and to offer recommendations to improve funding and ensure sustainability. As panel members, our professional backgrounds span a variety of areas in both the public and private sector, including business, finance, legal, and academia.
Our panel recommended serious changes, such as more conservative assumptions about the investment growth of pension assets, lower cost-of-living adjustments for retirees' benefits, reduced benefit amounts for current employees, and increased contributions by employees and government employers. These proposed changes follow a shared-sacrifice philosophy, where the costs of shoring up our pension plans do not fall just to employees, retirees, or taxpayers. Instead, everyone chips in to ensure we keep our promise to Minnesota's public workforce.
Paying for their pensions is not just the right thing to do for Minnesota's public retirees, it is a necessity for sound fiscal management of the state budget. Pension management is a critical component in a state's credit rating, and in speaking with Minnesota Management and Budget Commissioner Myron Frans, it is a topic of concern his department hears regularly from the state's three credit-rating agencies. Lower credit ratings due to pension liabilities result in higher borrowing costs for the state when we fund critical infrastructure projects.
The pension reform bill approved by the Legislative Commission on Pensions and Retirement incorporates many of our recommendations. This bill stays true to the value of shared sacrifice, and the proof is in the numbers. Looking at the 30-year cost savings of this bill, for every $1 paid by taxpayers in higher employer contribution rates, employees and retirees contribute $2.90 in lower benefits and higher employee contributions.
This bill, unanimously approved by the Senate in March, would improve long-term funding and reduce the state's pension liabilities by $3.4 billion the day it passes.
Gov. Dayton endorsed this bill and included funding for it in his budget recommendations. We urge the Minnesota House of Representatives to take up the Senate bill and pass it in its current form.
If not addressed, these unfunded obligations will continue to grow and negatively affect Minnesota's employees, retirees, and taxpayers. The consequences of inaction are seen in the tremendous toll these issues take on state budgets and credit ratings around the country.
However, as our panel's final recommendation indicated, more work remains to be done. This year's actions are vital to help stabilize the plan's financial condition, but real and considerable long-term risks remain with respect to younger public employees, future taxpayers, and the delivery of future government services. These include both structural and accounting changes to better support transparent and fiscally responsible pre-funding of our pension promises. We should look at the reform bill passed by the Senate as a vital step in Minnesota's journey for pension reform.
Our state is fortunate that we still have time to make reforms to address our pension shortfall. The longer we wait, the harder it will be to address and the more costly it will be for everyone.
We applaud the Legislative Commission on Pensions and Retirement, especially the leadership of Sen. Julie Rosen and Rep. Tim O'Driscoll, for including our recommendations in a reform bill, and we applaud the Senate for approving it. We now look forward to the House following suit.
Together, through legislative action, we can make good on our promise of retirement security for Minnesota's public employees for years to come.
David Crosby of Hamel, Minn., is managing director at Piper Jaffray. He wrote this on behalf of the governor-convened Blue Ribbon Panel on Pension Reform. The panel's other members are Thomas Borman of Minneapolis, an attorney at Mason Edelman Borman & Brand; Brenda Brannan of Duluth, chief wealth management officer at North Shore Bank; James Campbell of Edina, Minn., who's a retired Wells Fargo president and CEO; Ambassador Samuel L. Kaplan of Minneapolis, an attorney at Kaplan Strangis & Kaplan; Morrie Lanning of Moorhead, Minn., a former Minnesota state representative and former chairman of the Legislative Commission on Pensions and Retirement; and professor Colleen Manchester of the Carlson School of Management at the University of Minnesota in Minneapolis.