KSTC 45 | Can Taxpayers Afford Minnesota's Pension Plans?

TUA’s study on Minnesota’s public pension system was featured in a story by KSTC-TV Channel 45.
How would you like to collect $14,000 a month, for life, in retirement? It’s possible and legal under Minnesota’s pension plans.
Take Kenneth Young. He’s at the top of the list.
Young, a former Hennepin County worker, collects the highest annual pension of any retiree in the county – $183,000 a year.
David Landswerk was the Superintendent of the Wayzata School District. He collects the highest annual pension for a retired educator – $176,000.
There are retired public workers from all walks of life that collect a six figure pension. Like one time Hennepin County Administrator Dale Ackmann, who gets $170,000 a year. Retired Ramsey County Sheriff Charles Zacharias collects $157,000 a year.
We counted 312 six-figure pensions in Minnesota as we checked records of the three biggest state pension programs. We looked further and found 165,000 Minnesotans received a total of $3.4 billion dollars in benefits from state and local pension plans in 2009.
Here’s how a public pension works:  important to know because you help pay for it.  An employee contributes 13% of their income to a pension.  Their public employer contributes 14%.  The money is invested and the gains from those investments make up the remaining 73% of an employees promised pension.  If the investment return doesn’t match or exceed what’s needed to make up that 73%, the money must come from somewhere.
Right now, the state is $246 million short of that difference on a yearly basis.  Taxpayers make up the rest.  One more thing, public employees are guaranteed a return on their investment of 8%.  That’s down from 8.5% last year.
Jim Tobin with Taxpayers United of America studies public pensions, including Minnesota’s.  He says the state can’t keep doing this indefinitely.
Richard Maus is a typical pensioner.  He’s a retired teacher from the Robbinsdale School District and collects $30,000 a year in retirement benefits.  He says he contributed more than $300,000 to his pension during his career.  Maus calls it a promise between him and the state.  The state got his money and now it’s time they start to pay me back.
The average pension for a retired teacher in Minnesota is about $28,000 a year.  Laurie Hacking runs one of the state’s three main pension plans.  Hacking says the state has been disciplined, proactive and really has had fairly modest benefit levels.
When the economy crashed in 2008, lawmakers made some reforms to pension plans.  Dave Bergstrom is with the MSRS, Minnesota State Retirement System.  He says we reduced our overall costs by $6 billion by freezing cost of living adjustments and tweaking other benefits.
Those reforms don’t stop a select group of people from earning two, even three public pensions.  It’s completely legal, state law allows it.
We knocked on doors, sent dozens of letters and found many of them reluctant to talk about doubling or tripling up.  Only Ramsey County Commissioner Tony Bennett would sit down with us.
Bennett collects $54,000 a year as a retired St. Paul Cop.  Another $17,000 a year for his time as a state legislator and now earns a salary of $84,000 a year as a Commissioner.  When he retires, Bennett will collect a third pension that he is entitled to.  That makes him what some call a triple dipper – something opponents raised when he ran unsuccessfully for reelection as a County Commissioner earlier this year.  To his critics he says: “I guess I would say some of them ought to walk in the shoes of the people who have had to do them.  I don’t begrudge any police officer or fireman, or soldier today who is getting a pension from anything and what they’ve had to go through”.
How many double or triple dippers are there?  We looked, we checked, we can’t tell you.  The state doesn’t keep track.  Minnesota’s pension system is running to catch up with its’ commitments.
Representative Morrie Lanning – District 9A – wishes the general public were more tuned in.  As a state lawmaker, Lanning sees potential trouble.  A look at the recent Pew Center Study and you’ll see why.  it reveals Minnesota pensions are 80% funded.  That means, for every dollar paid to a pensioner, the state is 20-cents short.  Lanning says if we don’t do the right things with regards to pensions the taxpayers are going to have to pay more in the future.  Lanning thinks the state needs to look at lowering the rate of return promised to state employees.
Lawrence Martin oversees pension law at the capitol and helps write it.  He sees two options: either the members or employers are going to have to pay more or there will be additional taxes for the state in the form of incomes, sales or property taxes.
Critics of public pensions suggest a private sector solution like  401K or Social Security.
Even retired teacher Richard Maus agrees, in order to keep the state’s pension plans afloat, change has to happen.  Maus say’s it’s a fixable, rational, recognizable problem, but the longer the state waits, the bigger the bump it’s going to take.
The three main public pension plans are: MSRS, the Minnesota State Retirement System, TRA, Teachers Retirement System and PERA, Public Employee’s Retirement Association.  Police officers, firefighters, sheriff’s deputies, correctional officers, teachers, administrators, college faculty, state employees, some Met council workers, judges, city & county workers qualify.

Duluth News Tribune | Duluth, St. Louis County retirees see six-figure pensions

Findings from TUA’s pension project on Duluth, Minnesota are featured in this article from the Duluth News Tribune.
A Chicago-based watchdog group that trains its critical eye on public employee pensions has turned its scrutiny to Duluth and St. Louis County.
The group’s figures, confirmed by the Public Employees Retirement Association of Minnesota, show that 17 retired city or county workers receive pensions of more than $100,000 a year.
At the top of the county list was Robert Zeleznikar, a retired director of social services, who receives $160,051 a year in pension payments after 40 years of employment.
While the Taxpayers United of America uses the numbers as an argument to replace defined-benefit pensions with defined-contribution accounts like 401(k)s, PERA and union officials said the amounts cited by the watchdog group are far higher than most public workers’ pensions.
“Many government retirees make more in pension payments than private-sector taxpayers make in salaries,” said Christina Tobin, vice president of Taxpayers United of America, questioning whether those levels of retirement pay are sustainable.
“We’re shedding light on pension spending and the need for real reform,” Tobin said.
But state PERA executive director Mary Vanek said that, by focusing only on the highest-paid public pension recipients, Taxpayers United doesn’t present a complete, representative picture.
“They’ve picked a demographic that clearly skews the facts,” Vanek said. “The important thing to realize is that less than one-quarter of 1 percent of PERA participants get more than $100,000 per year.”
In the fiscal year that ended June 30, 2011, PERA paid a little more than $100.4 million to 5,004 retirees, said Susan Barbieri, communications officer for Retirement Systems of Minnesota. That translates to an average annual pension of $20,700.
Taxpayers United of America compiled a list showing the top 25 government pensions received by Duluth and St. Louis County retirees. Topping the city list was Janet Schroeder, who retired from her job as the director of Duluth’s libraries 20 years ago.
“It sounds a little high,” Schroeder said of numbers showing her monthly pension at $9,491 — or $113,896 a year.
Tobin vouched for the accuracy of the report, saying: “These are the numbers we received from the state. It’s funny that even the people in the system are sometimes surprised by them.”
Vanek of PERA confirmed that the information about monthly payments came from her organization, as it is a matter of public record.
Schroeder said she made much less at the library than directors in similar posts across the country and less than other men who worked for the city.
“I have no idea why they would have me higher on the list,” she said.
Schroeder noted that individual workers aren’t in the driver’s seat when it comes to determining pension pay. “We have no say, really, on what the pensions are,” she said.
As for being labeled a “pension millionaire” by Taxpayers United, Schroeder was dubious.
“Who knows?” she said. “So what?”
Ben Boo, former Duluth mayor, St. Louis County purchasing agent and state legislator, said he hasn’t paid attention to his pension since retiring 20 years ago, saying PERA does all the figuring for him.
The numbers attributed to him — $8,449 a month or $101,393 a year — seem high, he said. As for pension reform, he said, “Those were the rules that were in place.”
Boo said his salary as mayor was $48,000, and his top salary as a legislator was $20,000.
Zeleznikar, who retired in 1992 from St. Louis County at the age of 64, declined comment about his position at the top of the list when contacted by the News Tribune last week.
Though the Duluth and St. Louis County pension payments may sound generous, Tobin said local pension figures are very much in keeping with what her organization has found in other communities, as well.
“It’s an eye-opening experience when you see the names and amounts being paid in your community,” said Rae Ann McNeilly, director of outreach for Taxpayers United. “You begin to understand this system was created by power players who use the rank and file to secure their positions of power.”
Pension gap expected to narrow
For a variety of reasons, public pensions as far above the average as the local Top 50 are expected to be increasingly rare.
During the stock market’s go-go years, when investments were performing well, PERA provided far more generous annual increases in its payments to retirees. Vanek said many of the people on the Taxpayer United list have been drawing benefits for 20-plus years and received nice bumps in payments between 1992 and 2003 to reflect the fund’s handsome investment gains at that time.
Those kinds of benefit increases are not expected to return in the foreseeable future. PERA now makes only a 1 percent upward adjustment each year.
In addition, unions have willingly made recent concessions in pension compensation to keep the system solvent, according to Alan Netland, president of the Northeast Area Labor Council.
Solvency — or the assurance that 100 percent of potential pension payouts have money behind them — is mandated by state law by 2031. PERA is on track to reach that goal, Vanek said.
At present, PERA is only 76 percent adequately funded to meet its future commitments. The system would need another $4.4 billion to become fully funded.
“Minnesota is not the worst out there, by far. But there is an issue,” said David Montgomery, chief administrative officer for the city of Duluth, reflecting on PERA. “It’s not an imminent, crisis-tomorrow issue, but if you let it go, the less time you have to make up any shortfall. And time is your best friend to make the impact of any change more moderate.”
Vanek noted that all 48 local individuals who made Taxpayers United’s lists — two people were on both lists, having worked for both the county and city — did not pay into Social Security but instead made larger contributions to their pension funds. They don’t receive Social Security benefits in retirement but reap higher pension payments.
Firefighters and police continue to be exempt from Social Security, but most city and county employees hired after 1968 now participate in Social Security.
Defined-benefit vs. defined-contribution
Taxpayer United’s McNeilly called on government leaders to move away from defined-benefit programs or run the risk of mounting liabilities and an eventual crisis.
“We need to change to a defined contribution or 401(k) system that pays people a fair wage and equips them to save for their own retirement and build their own security,” she said.
Public employees do make substantial contributions to their pension funds, said Barbieri of Retirement Systems of Minnesota. PERA participants funnel 6.25 percent of their total earnings into these funds, she said.
Law enforcement officers and firefighters contribute 9.6 percent of their gross pay to PERA, and local government chips in 14.4 percent of gross pay, according to Jim Gottschald, St. Louis County’s employee relations director.
In all, 13 percent of revenue used to fund PERA’s pension system during the last 20 years has come from employee contributions. Meanwhile, the taxpayer has picked up 14 percent of the tab. Investment earnings have accounted for 73 percent of the pie.
“There are a lot of pros and cons to a defined-benefit versus a defined-contribution system,” Montgomery said. “It comes down to: Who’s ultimately responsible, and where does the risk lie? With a defined benefit, the risk lies mostly with the employer. And with a defined contribution system, the risk lies mostly with the employees.”
Projections challenged
To make its case for reform, Taxpayers United of America made some startling projections about what the Top 25 pensions would cost over a retiree’s lifetime — projections criticized as based on flawed assumptions.
For example, it projected that Zeleznikar would probably collect more than $6.2 million in pension payments before he dies. But those projections were based on the assumption that workers would retire by age 56 and would have an average life expectancy of 85.
Zeleznikar’s case illustrates the problematic nature of the exercise. Now age 84, Zeleznikar retired about 20 years ago, working well past the age assumed by the group. Just one year shy of his presumed age of death, Zeleznikar has collected nowhere near the sum Taxpayers United projects he will receive.
“In Minnesota, the normal retirement age for public employees is now 66, and if you go earlier, there’s a substantial reduction in pay,” Barbieri said.
More than three-quarters of PERA members are now subject to the higher retirement age requirement, according to Vanek.
Looking at the records of the individuals who made Taxpayers United’s list, PERA calculated that the actual average lifetime payout would be 50 to 64 percent of what the organization projected. This forecast was based on payments already made, actuarial estimates of each individual’s lifespan and an annual increase in benefits of 1 percent, instead of the 2 percent cost of living adjustment Taxpayers United used.
Even if every individual projection does not hold, Tobin said, the size of the pension payments is still substantial and worrisome.