Minnesota’s pension changes “far from a cure-all,” Moody’s warns
Moody's was one of several rating agencies that recently published articles saying the state's reform, which is expected to stabilize the benefits of 511,000 retirees and public employees, is a step in the right direction. But the agencies warned more work will be needed to handle high pension burdens.
"We weren't trying to fix it once and for all," Minnesota Management and Budget Commissioner
The pension compromise was one of the few major bills that Dayton and lawmakers agreed on this year, a bipartisan measure that came from years of work. Retired teachers and local government staff accepted a benefit cut, while current employees, employers and the state are chipping in more to tackle
Credit rating agencies Moody's,
Workers agreed to benefit reductions and legislators unanimously supported the changes because they were critical to ensure the state's budget remains sound and the pension plans are viable, said
"They've worked long and hard for that pension and they want to make sure that they have a dignified and secure retirement," she said. "This guarantees that that retirement check will be there for their lifetime and the lifetime of many of their co-workers to come."
A week after Dayton signed the legislation, S&P called it a positive step toward improving the state's pension plan funding. However, the agency criticized
"We think it likely that the legislature will need to make additional adjustments to the plans to keep from lagging behind actuarial requirements. The question is: How soon will those adjustments need to be made and will there be the political willingness to do so at that time?" S&P's report said.
Shifting away from setting contribution rates by law could be more efficient in responding to changes, Frans said, but that needs to be balanced with lawmakers' interest in being involved in the decisionmaking.
One of S&P's other major critiques was that the 7.5 percent assumed rate of return on investments -- which was lowered from 8 and 8.5 percent as part of the pension reform -- is still too optimistic.
"Their criticisms are fair," Rice said of the agencies' reviews, but he likened them to doctors -- they are always going to find something the state could improve.
The legislation directs the state to contribute
In June, Fitch released a report that said even with the legislated changes, pension funding improvements may not come any time soon. In an analysis that touched on several states' pension reforms, including
Longevity is one of the factors contributing to problems with the
"There's more work to be done and we'll see what the future holds, but it was a major accomplishment to get the bill passed," said
State pensions, like all retirement plans, require constant monitoring and periodic adjustments,
Frans noted then-Gov.
"What we've done this year is give the next governor some breathing room," Frans said.
Rice estimated the latest round of changes would hold for a minimum of five years.
"Then look at it carefully," he said. "And say 'Has it worked? Has it worked the way we intended?' "
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