Senate E-12 Finance March 19, 2018 Jay Stoffel, Executive Director 651/205-4252 • jstoffel@minnesotatra.org

TRA’s membership and mission Serving teachers for over 100 years – five generations of teachers TRA membership – 194,000 people 82,000 active teachers 65,000 retired public school educators, state college faculty 14,000 deferred, vested members 33,000 deferred, non-vested members TRA assets and benefits $21 billion in assets $1.8 billion in annual payments benefit state economy, support 41,839 jobs, generate $6.3 billion in economic activity and $1.4 billion in tax revenue TRA’s mission: Retirement security for Minnesota teachers Support state’s education system by attracting and retaining teachers

TRA Board Goals in 2018 Urgent need for a sustainability bill – must follow the guiding principles of the TRA Board Obtain funding for any employer contribution rate increase Approve 7.5% investment return assumption along with other economic assumption changes adopted by TRA Board Pass provisions in the 2016 and 2017 administrative bills

Economic Assumption Changes Approved by TRA Board December 2017, LCPR February 2017   Current Assumption New Assumption Long-Term Investment Return 8.5% 7.5% Price Inflation 3.0% 2.5% Wage Inflation 0.75% 0.35% next ten years 0.75% thereafter Payroll Growth 3.5% Total Salary Increase Varies with service Adjusted by the changes in wage inflation The assumptions recommended above were developed by the actuaries to work together as a cohesive set. Because the return assumption is set in law, approval by the TRA Board and by the LCPR of assumptions 2-5 above are effective only if legislation is enacted to lower the investment return assumption to 7.5%.

TRA Financial Status July 1, 2017 Using 7.5% investment return assumption and other economic assumptions adopted by LCPR, February 2018 Actuarial accrued liability $30.3 billion Assets at market value $21.3 billion Unfunded liability $9.1 billion Funded ratio in 2017 70.1% Projected funded ratio in 30 years 52% Total required contribution, as % of pay 23.07% Statutory employee + employer contributions 15.93% Contribution deficiency, as % of pay (7.14%) Source: TRA actuary, Cavanaugh MacDonald, FY2017 Valuation Report

Investment return assumption = 7.5% 2018 session – SF2620 / HF3053 Investment return assumption = 7.5% Proposal affecting TRA Savings/ revenue as % of pay Liability Reduction Impacts a. COLA: 1.0% for 5 years (2019-2023), then increase by 0.1% per year in each of next five years (2024-2028) to 1.5% 2.80% $1.682 B Actives & Retirees b. COLA delay to age 66 (eff. 7/1/2024) (exempt: Rule of 90, disability, survivors, age 62/30 years) 0.29% $0.120 B Actives c. Early retirement – increase penalties, 5-year phase in (fiscal years 2020-2024), age 62/30 years exempt 0.25% $0.118 B d. Deferred augmentation – reduce to 0% (eff. 7/1/2019) 0.22% $0.127 B e. EE contribution increase: +0.25% beginning in FY2024 (7.5% to 7.75%) f. ER contribution increases: +1.25% phased in over 6 years, FY19-24 (7.5% to 8.75%) 1.25% Employers g. Re-amortization over 30 years, (2039 to 2048) 1.10% TOTAL 6.16% $2.047 B

Fiscal impact on public/charter schools of pension bill – SF2620 / HF3053 ER rate change FY19 FY20 FY21 FY22 FY23 FY24 0.21% $9.8 m $10.1 m $10.35 m $10.6 m $10.88 m $11.15 m 0.20% 1.25% $20.2 m $31.1 m $42.4 m $54.4 m $66.9 m * Covered payroll in FY2018 is $4.9 billion; assumes 2.5% annual payroll growth

June 30, 2017 & 30-year projection* TRA Financial Status June 30, 2017 & 30-year projection* Current Status June 30, 2017 June 30, 2017 - SF2620 / HF3053 Actuarial accrued liability $30.3 billion $28.3 billion Assets at market value $21.3 billion Unfunded liability $9.1 billion $7.0 billion Funded ratio in 2017 70.1% 75.2% Projected funded ratio in 30 years 52% 92% Total required contribution, as % of pay 23.07% 18.44% Statutory employee + employer contributions 15.93% 17.43% Contribution deficiency, as % of pay (7.14%) (1.01%) * Using 7.5% investment return assumption and other economic assumptions adopted by LCPR, February 2018 Source: TRA actuary, Cavanaugh MacDonald

How MN contribution rates compare Employee rates higher, employer rates much lower Source: NASRA Public Fund Survey 2017 for Social Security covered plans Relatively low cost. In Minnesota, government pension contributions are only 2.3% of total state and local government spending, compared to an average 4.6% in all other states. (NASRA/Census Bureau)

TRA contribution rate history For most of TRA history employer rate higher than employee rate. Employer rate Employee rate