Two local teachers pension plans in Minnesota are on opposing sides of a merger proposal with the state teachers plan.
In separate preliminary votes Sept. 18, the board of the $926 million St. Paul Teachers' Retirement Fund Association voted against the merger with the $18 billion Minnesota Teachers Retirement Association, while trustees of the $210 million Duluth Teachers' Retirement Fund Association voted in favor of the merger.
The proposed merger of both funds with the TRA came from a request by the state Legislature to have representatives of the three funds form a study committee to look at combining the assets and administration of the local pension funds under the state teachers plan. If merged, assets of the plans would be managed by the $65 billion Minnesota State Board of Investment, St. Paul, which manages the assets of the TRA, also of St. Paul.
Paul Doane, executive director of the St. Paul teachers plan, said that despite the board's vote to remain separate from the state plan, the ultimate decision rests with the Legislature. He added: “I would say the (vote) will carry significant weight. … From the information and understanding I have, there is very little merit in joining TRA.”
J. Michael Stoffel, executive director of the Duluth plan, said the St. Paul fund's vote would have no impact on his plan's merger.
The study group continues to meet and is scheduled to issue a report to the Legislature in January. The report's findings could lead to legislation during the Minnesota General Assembly's next session, which begins in February, that would be required to merge one or both of the plans with the state plan.
According to data provided by Laurie Hacking, executive director of TRA, the St. Paul Teachers plan had $1.6 billion in liabilities, for a funded status of 58%, and the Duluth Teachers plan had liabilities of $384 million for a funded status of 55%. The TRA had liabilities of $23.6 billion, for a funded status of 76%. All assets are as of June 30. Ms. Hacking said the bill that created the study group also stipulated that state funding for the unfunded liabilities would be addressed in its report.
Mr. Doane said the cost of a merger with TRA is a big reason he opposes it. “It will be far less expensive for us to remain independent,” he said. “The cost complications, who would pay for all of this, that's the big mystery. We have a plan in place to meet our obligations.”
He said the state is providing $7 million in funding to the plan each year in 2013 and 2014. “If the state can contribute that $7 million additionally each year and we meet our 8% (assumed) rate of return, we will have full and sufficient funding in a 25-year period,” Mr. Doane said.
Mr. Stoffel said he favors the merger because of funded status problems that were the result of the “devastating” effects of the 2008-2009 financial crisis. He said before that, prior to the financial crisis, the plan was “very healthy actuarially, with about 80% to 90% funding or a surplus” each year, he said.
“To close the gap … we can't invest our way out of it,” Mr. Stoffel said. Plus, with 800 active current teachers and 1,400 retirees getting benefits, “those 800 active members can't contribute enough to make that up.”