Minnesota teachers seek $223M bailout for pension fund

  • Article by: NORMAN DRAPER , Star Tribune
  • Updated: May 1, 2009 - 11:37 PM

They're asking the Legislature for between $207 million and $223 million over four years to restore their pension fund to economic health.

School budgets are being slashed. Teachers are being laid off and schools closed. Worse will come, educators warn, if the Legislature freezes or cuts state funding for schools this year.

Now, at such an inopportune time, teachers say their retirement fund needs a bailout.

Through their Education Minnesota labor union, retirement association and education lobbying organizations, they're asking the Legislature for between $207 million and $223 million over four years to restore their pension fund to economic health. The proposal, part of the overall pension bill making its way through legislative committees, won't kick in until 2011, an acknowledgement that the money simply isn't there this year.

"We do recognize that it's difficult for school districts and the state [to pump more money into the pension plan]," said Laurie Hacking, executive director of the Minnesota Teachers Retirement Association (TRA), which manages the pension plan. "That's why we delayed it for two years."

Already, the pension bill has made its way through committees in the House and Senate, and is awaiting action by the finance committees in both chambers.

Pension funding advocates argue that the $18 billion pension fund has been hit hard by the stock market slump, and needs to be replenished if it is to stay healthy in the years to come. They note that teachers will be contributing to the cause as their own payments to the pension fund increase over the four years. The state funding would come in aid to reimburse school districts for their increased contributions.

Critics, most notably the Minnesota Taxpayers Association, argue that the timing for such a request -- as schools are being shuttered, teachers laid off and workers in other sectors getting smacked with salary and benefit reductions -- couldn't be worse. They also note that, as part of the proposal, many teachers will get an improved retirement benefit.

"It's just astonishing how tone-deaf Education Minnesota is, how they are pushing this now," said Mark Haveman, executive director of the Taxpayers Association (which is not connected to the Taxpayers League of Minnesota).

But Hacking and Tom Dooher, Education Minnesota's president, say taxpayers are off the hook for at least the improved benefits part of the plan, which lower the age at which teachers can get full retirement benefits from 66 to 62. They say those benefits would be covered solely by increased teacher contributions to the fund. They contend that improving those benefits for teachers has long-term implications for the state of education in Minnesota.

"We have one of the lowest pensions in the country," Dooher said. "So, we're trying to move up."

Plus, Hacking said, lowering the age at which teachers can get full retirement benefits protects schools from older teachers who are just marking time until they can get their full retirement benefits. The average full retirement benefit for a Minnesota teacher is $2,203 per month, Hacking said.

But Haveman warned that the proposed increases aren't enough to fully fund the retirement plan, and that costs and the need for public contribution to teacher retirements could grow well beyond the four-year funding request.

Part of the problem, Haveman said, is the nuts and bolts of the pension proposal are so difficult to grasp that it has fallen under the radar screen of most legislators. The proposal, so far, has been on a quiet route through the legislative committees, though the price tag makes some legislators nervous.

"It's not doable; we don't have the money," said Sen. Julie Rosen, R-Fairmont, and the sole Senate Republican on the Legislative Commission on Pensions and Retirement. "That doesn't just make Republicans nervous. I've seen a lot of DFLers squirm. It's really the problem child in that entire pension plan."

Brian McClung, spokesman for Gov. Tim Pawlenty, said the governor's office is still examining the pension bill, but added that "we've got a multibillion [dollar] deficit to solve, so this isn't a year to tack on big amounts of additional spending."

Critics and proponents alike concede that the pension fund needs help. With its stock holdings depressed, Hacking said, the fund has no trouble meeting its retirement obligations, which total about $1 billion a year to 48,000 teacher retirees. But 70 percent of the fund comes from investments, Hacking said, and it's crucial that it be fully funded to keep revenues coming in. The longer it takes to get the fund back to full funding, the more expensive it will be to get it there, Hacking said.

"It's a little like when you buy a house and take out a mortgage on it," she said. "That mortgage is usually over 20 or 30 years. You move toward paying off that mortgage and owning the house without any debt ... that's what pension plans do."

The MTRA comprises 77,000 teachers, 5 percent of whom teach in the Minnesota State Colleges and Universities (MnSCU) system. Another 34,000 are inactive members, who no longer teach but are eligible for retirement benefits.

Norman Draper • 612-673-4547

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