MINNEAPOLIS, MN- A problem with Minnesota’s retirement plan is growing that could leave the next generation of Minnesotans with a financial crisis.
State figures show 11% of Minnesotans are working for local or state government or have already retired, most with guaranteed pensions. According to the Center of the American Experiment – an educational institution in Minnesota that researches and addresses various public policy issues – Minnesota’s pensions are drastically underfunded. Kim Crockett is the Executive Vice President of The Center of the American Experiment and has been researching pensions for over two years in Minnesota, and what she’s found is troubling, telling Alpha News, “The problem is that we’re falling short – there’s a spread between the promise that we’ve made them, in terms of the benefit they’re going to receive – and the amount of money we’ve put aside.”
Crockett says the state admits it’s 17.6 billion dollars short on its pension funding. She says another problem is with how the state is obtaining their figures. Crockett explains how pensions are funded through a number of different sources, including tax dollars, and employee contributions and the return on those investments. Crockett says the state is assuming it will get an 8 percent return on investment, and that figure is “wildly unrealistic.”
The Minnesota Public Employees Retirement Association says it regularly bested an annual return of 8% in 2014. Crockett says private businesses use a much more conservative assumption at 2-6%.
Crockett says the state is increasingly skimping on pension payments over the last decade and that taxpayers will be left to pay the bill when the hundreds of thousands of public employees working today, retire. Crockett says estimates show it will take “between thirty and fifty years” to pay off the debt, going on to state, “If the private sector behaved the way the public sector does, the company would be in big trouble with the IRS and somebody might even be doing the ‘perp’ walk.”
We’ve reached out to the Minnesota State Retirement System who handles state pensions requesting an interview on this issue. A spokesperson was not available.
The Center of the American Experiment released a list of suggestions for lawmakers: including fully funding the defined benefit plan for those who have already been promised the pension, while creating a new defined contribution plan for all new pubic employees – as well as using realistic assumptions to get more accurate figures – and paying down unfunded liabilities.
Click here to see the Center’s full report