Minnesota Senate passes pension reform bill that reduces assumed rate of return

Minnesota state defined benefit plans would see reduced assumed rates of return, lower cost-of-living adjustments and mandatory contribution increases if a bill passed unanimously Monday by the state Senate clears the House of Representatives and is signed into law.

The bill would reduce the rate of return assumption to 7.5% from 8% for the $28.7 billion Minnesota Public Employees Retirement Association, $22 billion Minnesota State Retirement System and the $956 million St. Paul Teachers' Retirement Fund Association, all of St. Paul, according to a summary of the bill on the website of the Minnesota Legislative Commission on Pensions and Retirement.

The $20 billion Minnesota Teachers Retirement Association, St. Paul, will also see its return assumption lowered to 7.5%; it currently has an 8.5% return assumption.

Cost-of living increases, currently varied by plan, would be reduced to 1.5% after five years for the state plans. For the St. Paul teachers' plan, COLAs would be eliminated for two years and thereafter be set annually at 1%.

Employee contribution rates will increase by a range of 0.25% to 1% of pay, depending on the plan, by fiscal year 2020, while employer contribution increases will range from 0.75% to 2.5% of pay.

The bill, if passed by the House and approved by Gov. Mark Dayton, would provide $3.4 billion in immediate savings, according to a statement on the state plans' websites.

The Minnesota House of Representatives will take up the bill in April.

The three state plans' assets are managed by the $92.4 billion Minnesota State Board of Investment, St. Paul; the St. Paul teachers plan oversees its own investments.