In early 2018 the Minnesota Legislative Commission on Public Pensions and Retirement (LCPR) held a hearing on January 24 with presentations from some very troubling testifiers. The LCPR is a state-run committee comprised of state legislators.
Kurt Winkelmann, Senior Fellow, Heller-Hurwicz Economics Institute, University of Minnesota, presented to the LCPR that he believes Minnesota “faces a pension funding challenge.” Through his work at the Heller-Hurwicz Economics Institute, he believes that employees should bear all pension funding obligations and any future liabilities alone – similar to a 401(k) plan. Winklemann concludes that “alternative governance choices” for public employee pensions are warranted to “reduce budget volatility.”
The second presenter was Joseph Fox, Executive Director, Oklahoma Public Employees Retirement System. Oklahoma privatized its state pension in 2015, and moved all new state employees hired after 2015 from the Defined Benefit Plan to a Defined Contribution Plan, or 401(k)-type plan.
Fox testified to the LCPR that the pension privatization scheme was the result of lean state budgets since the Great Recession in 2009, and how the state could not raise employee pension contributions because the average Oklahoma state employee makes only $32,000 per year.
Fox was asked by an LCPR member how it was able to pay for the transition cost to the 401(k)-type plan when new hires are no longer contributing to the traditional pension plan, or Defined Benefit Plan. Fox replied that the state kept costs under control by not providing a cost-of-living-adjustment (COLA) to current retirees for over a decade.
It’s no surprise that there are legislators on the LCPR who want to privatize Minnesota’s public pension systems (MSRS, PERA, and TRA), but the Oklahoma example appeared to be a lesson on what not to do!
Just yesterday the LCPR reconvened to hear testimony from Alex Brown, Research Manager, National Association of State Retirement Administrators (NASRA) on national public pension trends.
Brown’s testimony was certainly more neutral than both Winkelmann’s and Fox’s presentations, but he concluded that “new hybrid plans are being created by legislatures nearly every year.” So-called hybrid plans are Defined Contribution Plans with Defined Benefit Plan components, and lower benefit accrual rates. Basically, hybrid plans are 401(k)-type plans where the state or governmental employer continues to take responsibility for the plan’s long-term liabilities.
The good news from Brown’s testimony was how Minnesota’s public pension plans are categorized as performing in the median to high ranges.
Teamsters Local 320 understands that the vast majority of its membership and most of Minnesota’s public employees want a traditional pension plan, Defined Benefit Plan, and not a 401(k)-type plan. We do not believe that the proponents of pension privatization in the legislature will be successful this year, but we do contend that these hearings are laying the groundwork for upcoming pension battles over reform schemes. Teamsters must remain vigilant!
What can you do to help or get involved?
On Saturday, February 24, 2018, Teamsters Local 320 will participate in a major rally at the State Capitol in St. Paul with other public employee unions such as AFSCME, Education Minnesota, IFO, MAPE, MNA, and SEIU. The rally begins at 10:30 am and its purpose is to send a message to the State Legislature that our unions will not back down when it comes to our collective bargaining rights, pensions, and benefits – all of which are under attack in one form or another.
On Tuesday, April 17, 2018, Teamsters Local 320 will host its annual Lobby Day in St. Paul where Teamster members can meet with their elected officials at the State Capitol. There will also be a reception for Lobby Day attendees on Monday, April 16 in St. Paul.