Gov. Mark Dayton did not just veto a tax bill last week that passed with an overwhelming legislative majority. He also vetoed the pension bill, which was crafted under the Pension Commission leadership of GOP Chair Rep. Tim O'Driscoll and DFL Vice Chair Sen. Sandy Pappas. It passed the House 120-3 and the Senate 61-1.
It is unusual for pension bills to be vetoed. That's because the pension bill has to pass out of the joint commission, which works closely with the pension funds and other pension players such as school districts, state and local governments, and the public employee unions. This year was no exception, and the bill passed out of the commission on a voice vote.
Dayton said he vetoed the bill because it lacked "shared commitments among employers, current employees and retirees," instead "placing sole responsibility for reducing plan liabilities on current retirees."
He said: "It is not fair, and I cannot agree to it." What did the governor find unfair?
Dayton objected to a one-year reduction in the cost of living adjustment (COLA) for retired state employees and teachers, projected to save more than $81 million over decades. Public employees get a "compound COLA," unheard of in the private sector. Compounding increases the base benefit year after year. The reduction was not intended to hurt retirees (who would still get a COLA). On the contrary, the savings would have shored up their pensions, leaving everyone's future more secure.
While COLAs have gone down since 2010 because of lower inflation and a funding crisis, pension contributions have been rising steadily. As a result, current employees and "employers" (i.e., taxpayers) are paying a lot more to fund both old liabilities and current pension benefits. These increases mean that schools cannot, for example, hire more teachers or increase teacher pay, because so much of their budget is going toward old pension liabilities.
This is not how pensions are supposed to work, but this is what happens when government falls seriously behind in funding future promises.
Most teachers are in the Teachers Retirement Association (TRA). They are already paying more toward pensions than most current retirees did when they were working, with a combined teacher/school district rate of over 15 percent of pay (teachers pay 7.5 percent, schools pay 7.7 percent). Plus, they each contribute 6.2 percent for Social Security. Imagine putting aside 13.7 percent from each paycheck — plus taxes, health care and union dues — especially if you are a young teacher with student loans. Yet the TRA only has 77 cents on the dollar of what it needs to pay benefits, and a whopping $5.9 billion shortfall.
