GOP-backed plan threatens stability of state’s retirement system

According to testimony from the state’s pension experts, a GOP-backed proposal to slash retirement benefits for public employees would actually add to the unfunded liabilities in the state’s retirement funds.

“Republicans have pushed their plan to cut public employee pensions under the veil of fiscal responsibility, but now it’s clear this is simply an attack on hard-working public employees,” said Sen. Dick Cohen, DFL-St. Paul. “This bill will add costs to state and lower governments, lower tax revenues for our state, and increase the unfunded liabilities in our retirement system. Worse, it will take money out of the pockets of working families during these difficult economic times.”

The proposal, sponsored by State Sen. Gretchen Hoffman, R-Vergas, increases the amount employees contribute to retirement accounts by 2 percent and reduces employer contributions by the same amount. That move would make Minnesota’s employee retirement contribution rates, which already are higher than the national average, the highest in the nation, and employer contributions would sink to the lowest in the nation. That change could negatively affect recruitment of teachers, nurses, college faculty and other vital professions, according to testimony heard at a hearing held late Monday evening.

“As other states grapple with catastrophic pension situations, Minnesota actually is doing quite well. We passed nation-leading, bipartisan pension reform in 2010 that lowered pension costs by $6 billion, asked employees and employers to sacrifice some benefits, and restored stability to our retirement funds. This bill would dismantle all of that good work and put us back in the same financial mess that other states are working to get out of.”

Experts at the Minnesota’s three major pension plans – the Minnesota State Retirement System, the Public Employees Retirement Association and the Teachers Retirement Association – testified that while Minnesota’s pension system is currently well-managed, the GOP proposal would add significant costs to the system, and expand the deficits in Minnesota’s retirement funds.

As introduced, the bill would have expanded the unfunded liabilities in the state’s retirement funds by $64 million. An amendment adopted to the proposal last night would reduce that figure to roughly $40 million.

“This so-called pension reform bill threatens the very stability of our state’s retirement system,” said Sen. Cohen. “At the end of the day, this bill is simply a cost increase on thousands of middle-class Minnesotans. It will bring in $30 or $40 million for our state’s General Fund, directly out of the paychecks of public workers. It is simply a pay cut disguised as reform.”

The measure was also opposed by city and county officials, nurses, firefighters, school districts, teachers, and state employee unions. Rep. Steve Smith, R-Mound, a House Republican lead on pension issues, has also questioned the merits of the proposal.

The State Government Innovation and Veterans Committee will consider whether to include the measure in a broader budget bill late Tuesday evening.


Senator Richard Cohen
Richard Cohen represents District 64, which includes portions of the city of Saint Paul in Ramsey County.

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