On Friday, April 2, Vermont House Speaker Jill Krowinski tabled an effort to reduce the state’s unfunded liabilities. The proposal would have required public employees to increase their contributions, stay in the workforce longer, and reduce or eliminate the cost-of-living adjustments (COLAs) they receive in retirement. Vermont lawmakers drafted the plan without input from the public employees who would have been affected by the proposed changes. The state legislature is now considering creating a task force that would study the state’s pension systems, whose members would include public employees.
Today, we are re-sharing a post on how Minnesota successfully confronted its unfunded liabilities in 2018 by including all who have a vested interest in pensions, including public employees, during the discussions on changes to the system.
We frequently write on this blog about states where politicians are attacking public pensions. For much of the past decade, public pensions have been criticized by anti-pension ideologues and opportunistic politicians have sought to undermine them. Today we want to tell a different story. At the end of its legislative session this year, Minnesota showed how bipartisan cooperation and compromise can yield positive results. It also showed that when you bring everyone to the table and act in good faith, you can achieve a fair outcome for everyone.
Minnesota’s public pension plans face billions of dollars of unfunded liabilities. As we’ve discussed before, having an unfunded liability does not mean that the sky is falling. The long lasting effects of the financial crisis continue to bedevil many public pension plans. Minnesota also has a good problem: its people are living longer. Men in Minnesota live longer than those in any other state. Minnesota women rank fourth. This is a good thing, but it does mean the state has to pay more in pension benefits as people live longer and collect more benefits.
For several years, politicians in Minnesota have been considering how to address the unfunded liabilities in the state’s pension plans. On the last day of the 2018 legislative session, the Minnesota House and Senate both unanimously passed SF 2620. Governor Mark Dayton signed the bill just days later- the last bill he will sign as governor.
The pension legislation will eliminate $3.4 billion in unfunded liabilities. The state will contribute $141 million to the pension plans over the next three years. Current employees will increase their contributions to their pensions and retirees will see some changes to their cost-of-living adjustments (COLAs). The legislation also lowers the assumed rate of return for all of the pension plans to 7.5 percent, which is in line with the current national average.
The Minnesota pension legislation represents the triumph of collaboration, compromise, and shared sacrifice. In many states, public employees are often excluded from the debate over public pensions in favor of wealthy special interests. Minnesota shows that when public employees are included in the process, they will work with lawmakers to preserve their pensions and their retirement security.
Upon signing the legislation, Gov. Dayton said: “Hard working Minnesotans who have dedicated their lives and careers to serving our state deserve the security of retirement benefits they have rightly earned. This bipartisan legislation stabilizes pension benefits for 511,000 workers, retirees, and their families.”