Public pensions in Minnesota

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Minnesota public pensions
Flag of Minnesota.png
Pension System
Number of pension systems 3
State pension systems: Minnesota State Retirement System
Public Employees Retirement Associations
Teachers Retirement Association
System type: Defined benefit plan
Pension Health (2012)[1]
Fund Value: $47,954,571,000
Estimated liabilities: $63,940,119,000
Unfunded liabilities : $15,985,548,000
Percent funded: 75.00%
Percent funded change: Decrease.svg3.44%[2]
Percent funded rank: 20[3]
Pension Fund Members (2012)
Total Members: 666,184
Active Members: 284,032
Other Members: 382,152
Other State Pension Information
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Pension Policy
Public pensions
State public pension plans
Public pension health by state
Minnesota public pensions are the state mechanism by which state and many local government employees in Minnesota receive retirement benefits. Three primary systems administer benefits to the state's eligible retirees: the Minnesota State Retirement System (MSRS), the Public Employees Retirement Association (PERA) and the Teachers Retirement Association (TRA).[4]

MSRS provides retirement, survivor and disability benefit coverage for most state employees and oversees the following funds:[5]

  • State Employees Retirement Fund (SERF)
  • Correctional Employees Retirement Fund (CERF)
  • Elective State Officers Fund (ESOF)
  • Judicial Retirement Fund (JRF)
  • Legislators Retirement Fund (LRF)
  • State Patrol Retirement Fund (SPRF)

PERA serves current and former employees from more than 2,000 local units of government throughout the state and oversees the following funds:[6]

  • General Employees Retirement Fund (GERF)
  • Public Employees Police and Fire Fund (PEPFF)
  • Public Employees Correctional Fund (PECF)
  • Minneapolis Employees Retirement Fund (MERF)

According to the United States Census Bureau, the state has 137 locally-administered pension systems.[7]

A 2012 report from the Pew Center on the States noted that Minnesota's pension system was funded at 80 percent at the close of fiscal year 2010, just on par with the 80 precent funding level experts recommend. Consequently, Pew designated the state's pension system as needing "improvement."[8]

The funding ratio for the state's pension system decreased from 84.24 percent in fiscal year 2007 to 75 percent in fiscal year 2012, a decrease of 9.24 percentage points, or 11 percent. Likewise, unfunded liabilities increased from approximately $9.1 billion in fiscal year 2007 to nearly $16 billion in fiscal year 2012.[9][10][11]


Pension plans

In fiscal year 2012, according to the systems' Comprehensive Annual Financial Reports, Minnesota had a total of 284,032 active members in its retirement plans. Our membership figures divide plan participants into two broad categories: active and other. Active members are current employees contributing to the pension system. Other members include retirees, beneficiaries and other inactive plan participants (usually terminated employees entitled to benefits but not yet receiving them).[12]

The following data was collected from the systems' Comprehensive Annual Financial Report. The "percentage funded" is calculated by taking the current value of the fund and dividing by the estimated amount of total liabilities. The assumed rate of return used to calculate fund value varies by system (see "Rate of return" below for more information). The Government Accountability Office (GAO) and Pew Research Centers cite a percent funded ratio of 80 percent as the minimum threshold for a healthy fund, though the American Academy of Actuaries suggests that all pension systems "have a strategy in place to attain or maintain a funded status of 100 percent or greater."[13][14] The column labeled "SBS figure" refers to a market liability calculation of the fund by the nonprofit organization State Budget Solutions. This analysis uses a rate of return of 3.225 percent, which is based upon the 15-year Treasury bond yield. The organization calls this a "risk-free" rate of return that would make it easier for states to achieve their pension funding requirements in the future. Since 2006, all private sector corporate pension plans have incorporated market costs into their funding schemes.[15]

Basic Pension Plan Information -- Minnesota
Plans Current value Percentage funded Unfunded liabilities Membership
State figure SBS figure[16] State figure SBS figure[16]
State Employees Retirement Fund[9] $9,162,301,000 82.67% N/A[17] $1,920,926,000 N/A[17] 48,207 active members
Correctional Employees Retirement Fund[9] $663,713,000 68.55% $304,453,000 4,276 active members
Elective State Officers Fund**[9] $0 0.00% $8,907,000 0 active members
Judicial Retirement Fund[9] $144,898,000 51.46% $136,678,000 308 active members
Legislators Retirement Fund[9] $15,523,000 6.27% $232,134,000 34 active members
State Patrol Retirement Fund[9] $554,244,000 72.84% $206,711,000 823 active members
General Employees Retirement Fund[10] $13,661,682,000 73.5% $4,937,215,000 139,330 active members
Public Employees Police and Fire Fund[10] $5,797,868,000 78.3% $1,605,427,000 10,865 active members
Public Employees Correctional Fund[10] $306,454,000 89.3% $36,745,000 3,460 active members
Minneapolis Employees Retirement Fund[10] $842,811,000 69.1% $376,924,000 80 active members
Teachers Retirement Association[11] $16,805,077,000 72.99% $6,219,428,000 76,649 active members
TOTALS $47,954,571,000 75.00% 38% $15,985,548,000 $79,395,084,000 284,032 active members
**This is a closed plan. There are no active contributing members.

Annual Required Contribution

Annual Required Contributions (ARC) are calculated annually and are a sum of two different costs. The first component is the "normal cost," or what the employer owes to the system in order to support the liabilities gained in the previous year of service. The second component is an additional payment in order to make up for previous liabilities that have not yet been paid for. According to a report by the Pew Center on the States, in 2010 Minnesota paid 65 percent of its annual required contribution.[8][18]

On June 25, 2012, the Government Accounting Standards Board (GASB) approved a plan to reform the accounting rules for state and local pension funds. These revised standards were set to take effect in fiscal years 2013 and 2014.[19] As a result, ARCs were removed as a reporting requirement. Instead, plan administrators and accountants will use an actuarially determined contribution or a statutory contribution for reporting purposes.[20]

ARC historical data[9]
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2012 $142,740,000 80.68% $14,912,000 77.92% $34,806,000 69.49% $9,879,000 80.19%
2011 $146,191,000 81.10% $14,826,000 66.59% $33,274,000 71.80% $9,804,000 84.63%
2010 $230,439,000 49.35% $17,410,000 58.04% $32,557,000 67.54% $9,400,000 88.11%
2009 $179,759,000 59.64% $14,999,000 61.19% $31,738,000 63.41% $8,985,000 91.47%
2008 $166,088,000 58.25% $12,355,000 67.01% $34,734,000 53.62% $10,045,000 79.00%
ARC historical data[9][10]
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2012 $18,079,000 21.77% $1,269,000 N/A $371,295,000 99.12% $152,369,000 80.00%
2011 $7,520,000 37.30% $644,000 71.54% $321,782,000 111.13% $124,284,000 88.19%
2010 $7,582,000 26.05% $601,000 75.37% $443,548,000 77.26% $150,220,000 71.27%
2009 $4,526,000 28.04% $558,000 79.28% $381,151,000 86.21% $140,591,000 72.23%
2008 $3,230,000 68.64% $506,000 85.92% $374,522,000 80.98% $144,548,000 60.20%
ARC historical data[10][11]
Fiscal year PECF MERF TRA
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2012 $12,473,000 114.80% $29,836,000 182.24% $401,725,000 66.38%
2011 $12,183,000 117.29% $41,628,000 66.91% $384,943,000 63.45%
2010 $12,273,000 115.46% $91,360,000 15.10% $421,813,000 57.39%
2009 $11,469,000 123.15% $40,026,000 39.09% $355,189,000 67.72%
2008 $10,153,000 131.87% $24,714,000 61.80% $280,327,000 82.60%

Historical funding levels

Historical pension plan data - all systems
Year Value of assets Accrued liability Unfunded liability Funded ratio
2007 $48,802,838,000 $57,932,094,000 $9,129,257,000 84.24%
2008 $48,284,432,000 $59,430,624,000 $11,146,192,000 81.25%
2009 $47,759,760,000 $62,410,362,000 $14,650,602,000 76.53%
2010 $47,027,758,000 $58,890,394,000 $11,862,636,000 79.86%
2011 $47,543,649,000 $60,614,374,000 $13,070,725,000 78.44%
Change from 2007-2011 -$1,259,189,000 $2,682,280,000 $3,941,468,000 -5.81%

Rate of return

MSRS uses the "select and ultimate" method to predict investment returns (from July 1, 2012 to June 30, 2017, MSRS presumes 8.00 percent per year pre-retirement and 6.00 percent per year post-retirement).[9] PERA and TRA presume an 8.00 percent return rate on their pension investments.[10][11]


Percent Funded Status of Pension Plans
in the 50 States as of November 2013
Public pensions in NevadaPublic pensions in MassachusettsPublic pensions in ColoradoPublic pensions in New MexicoPublic pensions in WyomingPublic pensions in ArizonaPublic pensions in MontanaPublic pensions in CaliforniaPublic pensions in OregonPublic pensions in WashingtonPublic pensions in IdahoPublic pensions in TexasPublic pensions in OklahomaPublic pensions in KansasPublic pensions in NebraskaPublic pensions in South DakotaPublic pensions in North DakotaPublic pensions in MinnesotaPublic pensions in IowaPublic pensions in MissouriPublic pensions in ArkansasPublic pensions in LouisianaPublic pensions in MississippiPublic pensions in AlabamaPublic pensions in GeorgiaPublic pensions in FloridaPublic pensions in South CarolinaPublic pensions in IllinoisPublic pensions in WisconsinPublic pensions in TennesseePublic pensions in North CarolinaPublic pensions in IndianaPublic pensions in OhioPublic pensions in KentuckyPublic pensions in PennsylvaniaPublic pensions in New JerseyPublic pensions in New YorkPublic pensions in VermontPublic pensions in VermontPublic pensions in New HampshirePublic pensions in MainePublic pensions in West VirginiaPublic pensions in VirginiaPublic pensions in MarylandPublic pensions in MarylandPublic pensions in ConnecticutPublic pensions in ConnecticutPublic pensions in DelawarePublic pensions in DelawarePublic pensions in Rhode IslandPublic pensions in Rhode IslandPublic pensions in MassachusettsPublic pensions in New HampshirePublic pensions in MichiganPublic pensions in MichiganPublic pensions in AlaskaPolicypediaPension Health 2013.png
Note: The data in this map was compiled from state CAFR reports and Actuarial Valuation documents. Figures reflect a combination of all of the state pension plans.
Funded Ratio of State Public Pension Plans as compiled by State Budget Solutions

According to a 2012 analysis by the Pew Center for the States, most state pension plans assume an 8 percent rate of return on investments.[21] Critics assert that this assumption is unrealistic, citing changing market conditions and significantly lower investment returns across the board over the past several years.[22] When states lower the rate of return in an effort to accurately predict investment earnings, it increases the current plan liabilities, thereby lowering the percent funded ratio and causing the ARC to increase. This is because future plan liabilities are discounted based on the rate of return, so smaller expected investment returns result in larger actuarially accrued liabilities.[23] For example, on September 21, 2012, the Illinois Teachers Retirement System voted to lower its rate of return from 8.5 percent to 8.0 percent. This change increased the state's fiscal year 2014 ARC from $3.07 billion to $3.36 billion.[24] Similarly, when California's CalPERS reduced its projected annual rate of return from 7.75 percent to 7.5 percent in March 2012, it cost the state an additional $303 million for fiscal year 2013.[25]

The 2008 financial crisis had a devastating effect on pension plans nationwide and has resulted in slower economic growth and increased market volatility. In light of this, some market strategists find the 8 percent assumption to be overly ambitious. Stanford University Finance Professor Joshua Rauh stated that using past investment performance in this economic climate was "dangerously optimistic."[26] Advocates for a lower assumed rate of return argue that the standard assumptions could cause pension fund managers to engage in more risky investments and imprudent stewardship of public funds. Further, if pension plans were using more conservative assumptions, such as the 3 or 4 percent assumed rate of return used in the private sector, and the plans grew more quickly than expected, the fund would have a surplus and smaller future ARCs, which would be preferable to using optimistic assumptions and potentially being caught with larger-than-expected deficits.[27][28][29][30][31]

On the other hand, traditional public pension plan advocates argue that the dip observed in recent years is not sufficient proof of a long-term, downward trend in investment returns. According to Chris Hoene, executive director at the California Budget Project, "The problem with [the market rate] argument is there isn’t significant evidence other than the short term blip during the economic crisis that there’s been that shift. It’s a speculative argument coming out of a very deep recession."[26]

The National Association of State Retirement Administrators compiled data on the median annualized rate of return for public pensions for the 1-, 3-, 5-, 10-, 20-, and 25-year periods ending in 2013. While the median annualized rate of return failed to meet the 8 percent assumption that most public pensions assume over the 5- and 10-year periods, it was just shy (7.9 percent) over the 20-year period, and it exceeded 8 percent for the 1-, 3-, and 25-year periods. It is important to note that the NASRA data is reporting the median returns, indicating that even though median annualized returns exceeded 8 percent in the 25-year period, the investment portfolios for half of the examined public pension funds failed to meet an 8 percent assumed rate of return.[32]

In September 2013, the nonprofit organization State Budget Solutions published an analysis of state pension funding levels. In its calculations, State Budget Solutions used a 3.2 percent rate of return, the 15-year Treasury bond yield as of August 21, 2013, to discount plan liabilities.

The research found that in all states combined, state public employee pension plans have only 39 percent of the assets they need to cover their promised payments—a $4.1 trillion gap. According to the report, Minnesota's public pension plans were 38% funded, making it the 20th most funded state.[33]

Moody's report on adjusted pension liabilities

On June 27, 2013, Moody's Investor Service released its report on adjusted pension liabilities in the states. The Moody's report ranked states "based on ratios measuring the size of their adjusted net pension liabilities (ANPL) relative to several measures of economic capacity." In its calculations of net pension liabilities, Moody's employed market-determined discount rates (5.67 percent for Minnesota) instead of the state-reported assumed rates of return (8.50 percent for Minnesota's largest plan as of July 1, 2011).[34]

The report's authors found that adjusted net pension liabilities varied dramatically from state to state, from 6.8 percent (Nebraska) to 241 percent (Illinois) of governmental revenues in fiscal year 2011.[34]

The adjusted net pension liability for Minnesota in fiscal year 2011 was ranked the 26th highest in the nation.[34] The following table presents key state-specific findings from the Moody's report, as well as the state's national rank with respect to each indicator.

Adjusted net pension liabilities (ANPL) relative to key economic indicators - Minnesota
Governmental revenue* Personal income State GDP Per capita
State findings 27.3% 3.4% 2.9% $1,519
National ranking 37th 33rd 34th 31st
*Moody's uses governmental revenues as reported in each state's consolidated annual financial reports; this includes not only state-generated revenue, but federal funds, as well.[34]


Enacted reforms


S.F. 1808

Sponsored by Senator Julie Rosen, S.B. 1808 sought to lower temporarily the investment return assumptions (from 8.50 percent to 8.00 percent through June 30, 2017) for all statewide and major local public retirement plans. The governor signed the bill into law on May 10, 2012.[35][36]

Local public pensions

See also: Local government public pensions

According to the United States Census Bureau, the state has 137 locally-administered pension systems.[7]


See also: Public pension disclosure and Governmental Accounting Standards Board
  • Minnesota's retirement systems publish Comprehensive Annual Financial Reports and Actuarial Valuation Reports online.[9][10][11] State law requires that annual reports and audits on the pension funds be made public.[37]
  • MSRS archives fund performance data from 2004 onward.[38]

Recent news

This section displays the most recent stories in a Google news search for the term "Minnesota + public + pensions"

All stories may not be relevant to this page due to the nature of the search engine.

Minnesota Public Pensions News Feed

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See also

External links


  1. Figures below are compiled by adding up all state pension plans
  2. This figure is derived by calculating the percent difference between the current year's funding level and the system's percent funded from the prior year.
  3. Rank is relative to the 50 state pension programs. "1" refers to the healthiest pension plan while "50" would be the least well-funded plan.
  4. State of Minnesota, "2012 Comprehensive Annual Financial Report," accessed November 26, 2013
  5. Minnesota State Retirement System, "Home page," accessed November 26, 2013
  6. Public Employees Retirement Association of Minnesota, "About PERA," accessed November 26, 2013
  7. 7.0 7.1 "Public Employee Retirement Systems State- and Locally-Administered Pensions Summary Report: 2010," United States Census Bureau, April 30, 2012
  8. 8.0 8.1 Pew Center on the States, "Widening Gap Update: Minnesota," June 18, 2012
  9. 9.00 9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 9.09 9.10 9.11 9.12 9.13 9.14 9.15 9.16 Minnesota State Retirement System, "2012 Comprehensive Annual Financial Report," accessed November 26, 2013
  10. 10.00 10.01 10.02 10.03 10.04 10.05 10.06 10.07 10.08 10.09 10.10 10.11 10.12 Public Employees Retirement Association of Minnesota, "2012 Comprehensive Annual Financial Report," accessed November 26, 2013
  11. 11.0 11.1 11.2 11.3 11.4 11.5 Teachers Retirement Association of Minnesota, "2012 Comprehensive Annual Financial Report - Financial Section," accessed November 26, 2013
  12. Organisation for Economic Co-operation and Development, "Pensions Glossary," accessed November 27, 2013
  13. United States Government Accountability Office Report to the Committee on Finance, U.S. Senate, "State and Local Government Retiree Benefits: Current Status of Benefit Structures, Protections, and Fiscal Outlook for Funding Future Costs," September 2007. Accessed October 23, 2013
  14. American Academy of Actuaries, "Issue Brief: The 80% Pension Funding Standard Myth," July 2012. Accessed October 23, 2013
  15. Governing Magazine, " Is There a Plot Against Pensions?" October 14, 2013
  16. 16.0 16.1 State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  17. 17.0 17.1 Analysis only available for system totals and not individual funds.
  18. Government Accounting Standards Board, "Annual Required Contribution (ARC)," accessed October 17, 2013
  19. Reuters, "Little-known U.S. board stokes hot pension debate," July 10, 2012
  20. State Budget Solutions, "GASB's ineffective public pension reporting standards set to take effect," June 5, 2013
  21. "The Widening Gap Update,” Pew Center on the States, accessed October 17, 2013
  22. The New York Times "Public Pensions Faulted for Bets on Rosy Returns," May 27, 2012
  23. Benefits Magazine "Public Pension Funding 101: Key Terms and Concepts," April 2013. accessed October 23, 2013
  24. Crain's Chicago Business "State teachers pension board lowers expected rate of return," September 21, 2013. accessed October 23, 2013
  25. Huffington Post "California Pension Funds Expect Lower Investment Return," March 14, 2012. accessed October 23, 2013
  26. 26.0 26.1 Governing "Expert: Governments Are Masking Their Pension Liabilities ," October 25, 2013. accessed October 25, 2013
  27. The Washington Post "Kansas’s pension funding gap just grew by $1 billion," September 6, 2013. accessed October 25, 2013
  28. Topeka Capital-Journal "KPERS' unfunded liability rises to $10.2B," September 4, 2013. accessed October 25, 2013
  29. Wall Street Journal "Pensions Wrestle With Return Rates," October 10, 2011. accessed October 23, 2013
  30. The Courant "Promising Too Much On Public Pensions," August 10, 2012. accessed October 23, 2013
  31. Business Wire "NCPERS 2013 Survey: Public Pension Plans Report Increasing Confidence, Lower Costs, Growing Returns," October 22, 2013. accessed October 25, 2013
  32. National Association of State Retirement Administrators "Issue Brief: Public Pension Plan Investment Return Assumptions," October 2013. accessed October 23, 2013
  33. State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  34. 34.0 34.1 34.2 34.3 Moody's Investor Service, "Adjusted Pension Liability Medians for US States," June 27, 2013
  35. Minnesota State Legislature, "SF 1808," accessed November 26, 2013
  36. National Conference of State Legislatures, "Pensions and Retirement Plan Enactments in 2012 State Legislatures," accessed November 26, 2013
  37. 2011 Minnesota Statutes, "Chapter 11A. Investment of State and Pension Assets," accessed November 26, 2013
  38. Minnesota State Retirement System, "Financial Information," accessed November 26, 2013