Pensions & Investments' June 27 editorial, Intergenerational fairness, said pension fund boards must begin to act to embrace their responsibilities to serve future generations, not only the immediate generation. Indeed, intergenerational equity is at the very heart of our governing philosophy at the Minnesota retirement systems.
Our retirement system boards historically have embraced this philosophy by consistently abiding by the concept of shared sacrifice when fiduciary duty requires financial course corrections for the plans. Minnesota was one of the first states to lower retiree cost-of-living adjustments and increase contributions to handle the funding issues caused by the Great Recession.
To address funding gaps that emerged last year due to actuarial experience studies showing improvements in member longevity, the Minnesota State Retirement Systems and Teachers Retirement Association boards exhaustively explored solutions by gathering input from stakeholder groups, including groups representing active state employees - the next generation of retirees - as well as retiree groups and employer representatives.
The resulting sustainability proposals reflected agreement by Minnesota pension system stakeholders that cutting current and future COLAs and raising contribution rates was a balanced and generationally fair solution that would put the plans on track for full funding.
The original packages reduced COLAs for both current and future retirees. The plans also included contribution rate increases for employees and employers. Unfortunately, the Minnesota Legislature was unable to reach agreement on all details of the proposal and instead passed a partial measure, which Gov. Mark Dayton vetoed because the solution focused solely on retirees. Had these original proposals been enacted, MSRS and TRA would have had a balanced, equitable approach to putting our systems back on track to reach 100% funded.
We will be introducing similar legislation next year, and Mr. Dayton and many lawmakers have gone on record supporting a comprehensive and balanced pension sustainability bill when the Legislature reconvenes.
It is noteworthy that Minnesotans' longevity exceeds that of every other state except Hawaii. To be conservative and fair to all generations, the Minnesota systems have adopted the most up-to-date mortality tables so that the higher costs of generational mortality improvements can be planned for and funded properly.
Younger state workers and teachers are aware that a defined benefit pension is superior to a defined contribution plan. Studies show that traditional pensions significantly increase employee recruitment and retention, especially at younger ages. A 2012 Towers Watson survey found that nearly two out of every three workers under age 40 said their employer's DB pension program was an important factor in accepting a job, and more than three out of every four new hires said a DB pension is an important reason to stay with their current employer. The recruitment/retention effect of defined benefit pensions also saves governments money as the turnover costs associated with hiring and training new staff and lost productivity are avoided.
We believe that a defined benefit pension plan is by far the best retirement safety net for public employees. Together with Social Security and personal savings, pension plans help reduce elder poverty by providing modest but stable retirement income. As fiduciaries, we know that nothing is more important than ensuring that our defined benefit plans are sustainable for our teachers, road repair crews and public safety personnel for decades to come.
Teachers Retirement Association of Minnesota
Minnesota State Retirement System