The Institute for Truth in Accounting (IFTA) recently released the Minnesota edition of their “Financial State of the State” report. The report reviewed the state’s 2010 audited financial report from the Minnesota Management and Budget (MMB) and found that the state does not have funds available to pay for future commitments as they come due.
Said Sheila Weinberg, founder and CEO of IFTA, “A state budget is not balanced if past costs, including those for employees’ retirement benefits, are pushed into the future.”
There are three large state retirement plans: Minnesota State Retirement System (MSRS); Public Employee Retirement Association (PERA); and, the Teachers Retirement Association (TRA)– as well as a number of smaller local plans across the state. Minnesota’s pension plans represent “hundreds of thousands” of public employees,according to the State Auditor.
While the size of the unfunded pension liability is a point of contention, with estimates as much as $15 billion according to various studies, there is no question that the current path is unsustainable.
Star Tribune business columnist Eric Wieffering sums it up nicely: “The issue plaguing pensions is the same one facing Social Security: Fewer people are paying into the fund even as the benefit, and number of people relying on it, grows. In 1985 there were four workers for every person drawing a pension from one of Minnesota’s three big plans and the average benefit was $5,053. By 2009 there were fewer than two workers for every beneficiary collecting an average of $18,472.”
The question is: How can state and local governments continue to afford defined benefit retirement plans that the private sector cannot? According to a Pew Center studyreleased in February 2010, Minnesota was ranked 10th as one of the states that paid the lowest percentage of annual required contributions for pension plans. With the budget deficit at the forefront of debate, public pension liabilities should receive significant focus in St. Paul.
A good first step for legislators will be to demand a full, accurate, and transparent accounting of the pension funds’ liabilities. The Minnesota Taxpayers Association (MTA) has compiled significant information on the public pension system in Minnesota. A state mandated examination by the three major funds of the merits and economics of alternative retirement plan design is expected this summer. With increased focus and pressure on solving this glaring problem, Minnesotans can move toward erasing the mounting future debt we’re now set to face for years to come.
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