Minneapolis Pension Levies
From:
Carol Becker
Date:
Mar 24 12:59 UTC
Short link
I had a question raised about Minneapolis pensions and pension levies.
Prior to 1978, the City of Minneapolis had three pension: the Minneapolis
Employees Pension Fund (MERF), the Fire Relief Fund and the Police Relief
Fund. Like many public employers, the City promised pensions but hadn't set
aside enough money to actually pay for these pensions.
In 1978, those pension funds were closed. Anyone hired after that date has
had their pension in the state-wide pension fund, PERA. All of the people that
go into PERA kick in a portion of their salaries and the City kicks in money
too. PERA invests these funds so they grow to the point of having enough
money to fund pensions when folks retire. This meant that there is a finite
number of people in each old pension fund.
For the three old pensions however, the City and the state have been playing
catch-up for the last 30 years. The City has been making extra payments out of
its property taxes beyond just what normally gets kicked in to make up for all
those years it did nothing. The State also has culpability in this mess so it
has also been kicking money in to help solve the problem. Eventually it will
get all caught up when investments have grown large enough to pay promised
pensions.
Now these pensions have a couple of features which make them different from
most of today's pensions. First MERF has a 30 and out option, meaning you
work 30 years and can retire with a full pension (I think but am not 100% sure
about the other two pensions if they have this option...) So my friend Nancy,
her dad got her a job at the City when she was 18 and she was able to retire
with a full pension at age 48. Second, they are not integrated with social
security. This means these folks don't pay into social security, which means
that their pensions were commensurately larger to take this into account.
Bottom line, these are very expensive pensions, which is why they were closed
back in 1978.
There have been three major things that have happened in recent memory with
the pensions. One, there have been scandals with investment decisions. MERF
had a director that made shady investments in a whole range of things and both
Police and Fire had shady investments in a faux-granite company. Remember
that ultimately the responsibility for the pensions ultimately fall on the
City so when investment decision makers make poor decisions, it is the
taxpayers that suffer.
Second, there has been the need to issue pension bonds. State law requires
that individual pension accounts be fully funded at the time of a person's
retirement. There were so many people retiring at such early ages, there
wasn't enough money to fill up everyone's account. So the City issued bonds
to be able to meet the state requirements. These then will get aid off over
the coming decades.
Third, Police and Fire pensions have a requirement that if investment returns
are really good, that additional money goes to retirees. If investment
returns are bad, however, that falls to the City to use tax money to make up
the difference. The result is that these funds are always "swinging for the
fences" in terms of their investments knowing that the City will make it up if
they miss. The result is that the pension funds are projected to draw about
$16 M more a year in property taxes in the next five years primarily because
of investment approaches. The City is trying to change this so incentives are
for solid risk-balanced returns over many years rather than a year to year big
win.
Hope that provides folks a base for understanding the world of pensions.
Carol Becker
Longfellow
President, Board of Estimate and Taxation
.