Teacher pension reform proposal
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Teacher Pension Reform Proposal. TRA Financial status Investment returns Current financial status Funding ratio history Contribution rate history Teacher Pension Reform Proposal Funding Stability Benefit Reforms. Fund Returns Exceed 8.5% in Long-Term But Not Short-Term.

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Teacher Pension Reform Proposal

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Teacher Pension Reform Proposal

TRA Financial status

  • Investment returns

  • Current financial status

  • Funding ratio history

  • Contribution rate history

    Teacher Pension Reform Proposal

  • Funding Stability

  • Benefit Reforms

Fund Returns Exceed 8.5% in Long-Term But Not Short-Term

State Board of Investment Returns

(for periods ending 6/30/2008)


Actuarial Required Return for Full Funding

Returns since 7/1/08:

- 21%

Source: State Board of Investment FY 2008 Annual Report

TRA Has Weathered Funding Problems in PastFunding Ratio History




* Funding ratio = ratio of assets to benefit liabilities

Note: Beginning in FY07, rule change required market value of Post Fund to be included in funding ratio.

Extra Contributions and High Returns Helped Address TRA’s Past Funding Problems


18%/yr returns


Rate = 5.5%

Funding Ratio


20%/yr returns

1998: EE/ER

Rate Cut to 5%


1987: Deficiency eliminated

1995: Employee

Rate Rise to 6.5%


1985: Employer

Rate Rise to 9%

TRA Funding and Contribution Rate Milestones

TRA Contribution Rates Higher in Past

Low funding ratio/deficit

Full funding reached

ER Rate

EE Rate

Teacher Pension Reform ProposalGoals

TRA Mission: Ensure fund’s financial stability, provide benefits to attract and

retain quality teachers, support strong education system which is vital to state’s

economic growth

  • Financial stability

    >> Puts teacher funds on track for full funding <<

  • Reform benefit structure

    >> Recruit / retain experienced teachers, part of transforming education system for 21st century<<

    House File 592/Senate File 506

Teacher Pension Reform ProposalFunding Stability

Why Needed?

  • Investments down: -5% FY2008, -21% (July – Dec 2009)

  • Funds need more revenue to stay on track for full funding

  • TRA contribution rates are 5.5% -- lower than 9% in mid-1980s

  • If not addressed, pension shortfall can impact state’s bond rating

  • Public pensions are good investment

    • Pension payments from 3 statewide pension systems provide $3.3 billion in stimulus to state and act as a stabilizer during hard economic times

    • Public pensions are one of largest economic sectors of state, almost as large as agriculture

    • Public pensions add 22,500 jobs for state

    • Add $800 million annually in tax revenue, $80 million more per year than what public employers contribute to the pension systems

Teacher Pension Reform ProposalFunding Stability – Proposal Details

  • Employer (school district) rates increase from 5.5% to 7.5%, phased in gradually over 4 years, increase school aid to offset costs

  • For TRA, added incremental costs are $22 million per year for 4 years

  • TRA employer rates rise gradually beginning July 1, 2011 as follows:

  • Automatic contribution stabilizer: After 2016, if financial markets improve and contribution increases are not needed, they are suspended or reduced. If a deficit persists, both employee and employer contributions would continue to increase by 0.25% per year until the fund is stabilized.

Teacher Pension Reform ProposalBenefit Reforms

Why Needed?

  • Adequate pensions needed to attract / retain teachers and strengthen education system

  • MN teacher pensions rank at very bottom compared to other states

  • Full benefit retirement age for post-89 hires is age 66, highest in nation

  • Average post-89 teacher retiring at age 60 must have over $200,000 in savings to replace 80%-90% of pre-retirement earnings

    Key Features:

  • Improve retirement options for career teachers hired post-1989

  • Add incentives for teachers to work longer

  • Teachers would pay for improved benefits, estimated at 1.9% of pay

  • Employee rates rise in tandem with employer rates, effective 7/1/2011, phased-in over 4 years

  • Duluth and St. Paul Teacher Retirement Funds are included in proposal

Teacher Pension Reform ProposalBenefit Reforms – Proposal Details

  • Formula multiplier increased to 2.1% of high-five salary for years of service after July 2011 – helps all teachers

  • Retirement penalties lessened for career teachers with 30+ years of service, allowing them to retire at age 62 with adequate benefits

  • Full benefit retirement age lowered from age 66 to age 65

  • Effective date of benefit reforms: July 1, 2011

  • TRA employee contributions increased beginning July 1, 2011 as follows:

Teacher Pension Reform ProposalBenefit Impacts

TRA Monthly Benefits, assumes Hi-Five of $60,000

-------Hired 7/1/89------- ------Hired 7/1/2009------

Teacher Pension Reform ProposalAdvantages

  • Puts teacher funds back on path for full funding

  • 7/1/2011 effective date gives state time to plan financially

  • Balances current economic realities with financial stability needs

  • Positive impact on state’s bond rating

  • Builds on past precedents – employer/employee contributions rise to stabilize fund and teachers pay for benefit increases

  • Improves pension equity for teachers hired after 1989

  • Allows for improved retirement options for career teachers who need to retire while providing incentives to continue teaching

  • Teacher and school district rates increase in tandem

  • Balanced package – shared employee/employer responsibility

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