The Free Press, Mankato, MN

State, national news

January 20, 2013

State pension plans underfunded by over $16 billion



Haveman said the state needs to put at least $431 million into the pensions just to keep them from falling even more behind.

Public pensions operate under the principle that the current generation pays for its own benefits. The goal is to set contributions from workers and employers at amounts that would generate the right amount of return on investments to cover future benefits. But the assumptions aren’t always accurate. The current problem is proof of that: The stock market hasn’t yielded investment returns at the assumed level for years, and people are living longer so need more money upon retirement.

Nationwide, Minnesota’s pension funding ranks somewhere in the middle when compared with other states. A 2012 report from the Pew Center on the States says Minnesota and six other states had pension funds that need improvement.

Martin said if investment markets improve, the state’s pension plans will too.

The Legislature’s discussion about the most-troubled plans could result in a broader look at the financial health of all the plans. Lawmakers will have to decide whether to intervene now or wait for an economic recovery that might ease some of the problems.

Some say waiting and counting on the stock market is too big a risk. Others say increasing contributions now could result in cuts to services or tax increases as budgets are stretched thin.

“Those pensions are an obligation that citizens have to public employees, and you can’t just decide, ‘We can’t afford that,”’ said King Banaian, an economics professor at St. Cloud State University who just finished a term in the Minnesota House. “We need to act now because it’s easier to deal with it now than to wait 20 years.”

“Minnesota has been pretty responsible,” said Rep. Phyllis Kahn, DFL-Minneapolis, recently reappointed to the Legislative Commission on Pensions and Retirement. “We’ve always sort of stepped up. Maybe we haven’t made things perfect, but we’ve always started to make things better.”

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