Download
1 / 13
130 likes | 242 Views
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.
E N D
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) 8.5% 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 100% 52% 82% * 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 ’95-99 18%/yr returns EE/ER Rate = 5.5% Funding Ratio ‘83-87 20%/yr returns 1998: EE/ER Rate Cut to 5% 82% 1987: Deficiency eliminated 1995: Employee Rate Rise to 6.5% 52% 1985: Employer Rate Rise to 9%
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
