MESPA Institute 2017
Jay Stoffel, Deputy Executive Director
Jeff Altringer, Member Education Director
February 2 , 2017
TRA’s mission:
• assist Minnesota education professionals in
achieving future income security
• support state’s education system by attracting
and retaining teachers
Pension Fund Assets: $20 Billion
Annual Benefits Paid: $1.7 billion
• Retirement
• Beneficiary / Survivor
• Disability
TRA Membership:
Active members
80,500
Benefit recipients
63,500
Inactive members
45,500
Total
189,500
Comparison of
Defined Benefit and Defined Contribution
TRA
403b, 401k, 457, IRA
Lifetime pension
Account value
TRA & State Board
of Investment
Individual
Survivor & disability coverage
Monthly benefit
Lump sum
Portability
Minnesota
public employers
Rollovers
Predictable
Yes
No
Benefit payout
Investment responsibility
(market & longevity risk)
7.5% of your paycheck
=
Lifetime Pension!
During your career…
•
•
•
•
•
•
Marriage
Children
Divorce
Disability
Retirement
Death
TRA:
Education professionals in Minnesota
• Public & charter school teacher
• MnSCU college faculty
• Public school administrator
• Social worker, nurse, therapist, etc.
PERA, MSRS:
Minnesota government employment
(city, county, state)
• Combined Service Annuity
Options if you leave Minnesota TRA
• Leave money in TRA (defer benefit)
• Take a refund/rollover (caution!)
Private schools and other states have their
own teacher retirement plans – check with
your new employer
If you are going on a leave of absence,
check with TRA!
TRA pension may increase with purchase
of qualified leaves of absence
(Medical, parental, family, military, union,
sabbatical, extended, part-time)
TRA pension benefit
TRA Membership Date
‘pre-89’ hires
Rule of 90
30 years of service
‘full’ retirement: 65
July 1, 1989
‘post-89’ hires
Age 62 & 30 years service
‘full’ retirement: 66
Retirement benefit formula
Formula
multiplier
Currently, 1.9% / year
Years of
service
High-5
average
salary
Benefits reduced if you retire before
age 65/66
Benefit
paid
If Ashley starts her
pension at …
Years of service credit
Hi-5 salary
Percentage of Hi-5 salary
(result of age, service credit,
& formula multiplier)
Annual benefit amount
Age 55
Age 62
Age 66
23
30
34
$50,000
$55,000
$60,000
20.1%
47.8%
64.6%
~$10,100
~$26,300
~$38,800
*Based on a teacher who started after 2006 and retires after 2020.
If Ashley starts her
pension at …
Years of service credit
Hi-5 salary
Percentage of Hi-5 salary
(result of age, service credit,
& formula multiplier)
Annual benefit amount
Age 55
Age 62
Age 66
23
30
34
$50,000
$55,000
$60,000
20.1%
47.8%
64.6%
~$10,100
~$26,300
~$38,800
*Based on a teacher who started after 2006 and retires after 2020.
If Ashley starts her
pension at …
Years of service credit
Hi-5 salary
Percentage of Hi-5 salary
(result of age, service credit,
& formula multiplier)
Annual benefit amount
Age 55
Age 62
Age 66
23
30
34
$50,000
$55,000
$60,000
20.1%
47.8%
64.6%
~$10,100
~$26,300
~$38,800
*Based on a teacher who started after 2006 and retires after 2020.
Highest five consecutive
years of salary
TRA-eligible salary
Includes:
Does not include:
Gross compensation
Fringe benefits, severance
payments, mileage/phone
reimbursement, etc.
•
•
•
•
•
•
•
Salary
Coaching / Extracurricular
Mentoring
Department Chair / Lead
Teacher
Summer School
Q Comp
Longevity
•
•
No TRA deductions taken
Not included in High-5 average
annual salary
In general, full-time employment earns 1.0
service credit per school year
• K-12: based on school district’s lowest annual
base salary
• MnSCU: based on percent of contract
When you start your TRA benefit:
Always a lifetime payment to the TRA member!
• You choose your level of beneficiary coverage:
Limited beneficiary or lifetime survivor options
• Acceleration option
SSA is also a lifetime benefit!
- First eligible age: 62
- Full retirement age: between 66 – 67
- Medicare insurance eligibility: 65
Go to ssa.gov for more info
Dependability of lifetime payments from TRA and
Social Security- plus any supplemental savings
from 403b/457/IRA
Monthly Income
Avg TRA
$2300
Avg SSA
$1340
403b/457/IRA
$?
Encore career / part-time work
$?
Communicating with
TRA
www.MinnesotaTRA.org
live chat with a TRA counselor
[email protected]
Facebook & Twitter
800-657-3669
TRIB newsletter
• Update contact info
•
View reported salary &
contributions
• Calculate benefit estimates
• View annual statements
• Print beneficiary form
• Schedule an appointment
• Apply for pension benefit
•
•
•
•
Group presentations
School visits!
Webinars
Individual sessions
NOW!
 Register for MyTRA account
 Update beneficiaries
 Review annual statement
 Before age 50: attend a ‘Paycheck
of the Future’ presentation
Someday…
 After age 50: attend a ‘Planning for
Retirement’ presentation
 Schedule an individual session within a few
years of retirement
• On average, a TRA benefit recipient will receive a
payout of between $680,000 and $750,000 over
their lifetime
• To fund a benefit similar to the average TRA retiree’s
(about $2,300 a month), you would need approx.:
$450,000 in a 401(k) account (assuming 4% investment return)
$550,000 to purchase an annuity from insurance co.
• Be informed, engage other teachers about TRA:
o Value of pension generating reliable lifetime retirement income
o Cost-efficient retirement vehicle that pools market and longevity risk
o Minnesota has been disciplined in funding its pensions, proactive in
addressing problems, and requires employee/employer cost sharing
• For the latest news, follow TRA on Facebook (MinnesotaTRA) & Twitter
(@MinnesotaTRA)
Pensions help recruit and retain teachers
Teacher shortages have increased – studies show pensions help
attract and retain experienced teachers
 Recruitment: Among younger workers, 63% say offer of defined
benefit (DB) pension important in accepting the job. (Towers Watson, 2012)
 Retention: Three-fourths of new hires say DB pension provides
compelling reason to stay on the job. (Towers Watson 2012)
 Teacher pay gap partly filled by pensions. 2016 study shows teacher
salaries lag those of comparably educated by 17%. (Allegretto and Mishel, 2016)
 Teacher effectiveness and productivity improve
with experience. (National Bureau of Economic Research, 2006;
Milanowski and Odden, 2007)
 Teacher turnover costs high – recruitment, hiring,
orientation, productivity loss. (Alliance for Excellent Education,
2005 and National Institute on Retirement Security, 2011)
29
Push to convert public DB to DC
Considering
DC
DC
enacted
DC
enacted,
blocked
Source: National Association of State Retirement Administrators
30
TRA revenue sources: Investment returns
provide most pension funding
TRA Comprehensive Annual
Financial Report,
1990-2016
National public pension average:
(Source: National Association of State
Retirement Administrators, Oct. 2016)
31
State Board of Investment returns
Periods ending 6/30/16
10%
8.6% 8.7%
State
Board of
Investment
MEDIAN
PUBLIC
FUND
1 year
-0.1%
0.5%
6%
3 years
7.3%
6.4%
5%
5 years
7.7%
6.4%
10 years
6.5%
5.7%
2%
20 years
7.5%
7.1%
1%
25 years
8.6%
8.1%
9%
8%
7.3%
7.7%
7.5%
6.5%
7%
4%
3%
0%
-1%
PERIODS
ENDING
6/30/16
-0.1%
1 Yr
3 Yrs
5 Yrs 10 Yrs 20 Yrs 25 Yrs 30 Yrs
Source: NASRA and Callan Associates
32
Recent actuarial analysis about the future
2015 Experience study findings:
 Expect lower investment returns – reduce long-term assumption from 8.5% to 8%.
 Retirees are living longer – on average an additional 2 years
o TRA’s active-member population is 75 percent female
o life expectancy is greater in the Midwest
o Life expectancy is greater among those more highly educated
 Projected TRA life expectancy increased dramatically:
 Age 65 female: up from age 88.6 to 90.3
 Age 65 male: up from age 86 to 87.7
 TRA has 482 benefit recipients age 95+ and 87 are 100+
 TRA’s oldest benefit recipient is 111
o Average retirement age for TRA members is 62.4.
o
Benefits will be paid for an average of 27.5 years
33
TRA financial status –
negative impact of experience study
Assets at
Actuarial Value
7/1/15 valuation
(without experience
study recommendations)
7/1/16 valuation
(with experience study
recommendations)*
Actuarial Accrued Liability
$25.6 billion
$28.2 billion
Actuarial Value of Assets
$19.7 billion
$20.2 billion
Funded Ratio
77.1%
71.7%
Total Required
Contributions as % of Pay
17.87%
21.37%
Employee plus Employer
Contributions
15.97%
15.94%
Sufficiency / (Deficiency)
as % of pay
(1.90%)
(5.43%)
* Incorporates all assumption changes recommended in experience study including longevity
improvements, lower salary/payroll growth, and lower 8% investment assumption.
34
TRA Board’s financial goals + principles
TRA Board guiding principles
1. Shared commitment – all stakeholders - members, retirees, employers
and state share in solution
2. Intergenerational equity – avoid creating or exacerbating imbalances
among generations of members and retirees
3. Long-term financial stability – achieve full funding in 30 years in order
to preserve DB pension for future generations
4. Maintain recruitment/retention value of TRA pension – experienced
teachers benefit students and create high quality education system;
need to avoid large cuts in basic pension that would reduce
recruitment/retention value of pension
35
TRA 2017 legislative proposal
Actives
o
Reduce future COLA from 2% to 1.5%
o
Eliminate trigger for potential 2.5% COLA
TRA projected funded ratio
100%
90%
Retirees
80%
o
70%
o
Reduce COLA from 2% to 1% for 5 years,
1.5% thereafter
Eliminate trigger for potential 2.5% COLA
COLA changes would reduce liabilities by
$1.3 billion
Employers
o
Increase contribution rate from 7.5% to 9.5%,
phased in (½% per year) over 4 years and
offset by increased school aid
New Revenue: $22.5 million in FY18, $45 million
in FY19 ($67.5 million in FY18-19 biennium);
$90 million per year once fully phased in (FY21).
95%
55%
60%
50%
40%
37%
30%
20%
10%
0%
2015
2020
2025
With 2017 proposal
2030
2035
2040
2045
Without 2017 proposal
Without 2017 proposal, at 7.5%
• Chart above assumes 8% investment return and implementation of
all experience study recommendations.
• If investment assumption is lowered to 7.5%, then funded ratio is
projected to be 37% without enactment of the 2017 proposal and
70% with enactment of the 2017 proposal.
36
Other elements of TRA’s 2017 proposal
 Extend amortization period to 30 years, to June 30, 2047
 Require employer contributions on salaries of re-employed retirees
Investment assumption – thorough study needed
 TRA board believes a thorough, data-driving study of all economic
assumptions should be conducted before the investment assumption is
changed. The next experience study, due in 2 years, will look at all interdependent economic assumptions (investment return, inflation, wage and
payroll growth) in a comprehensive, holistic manner.
 As an interim step, TRA board supports lowering the investment return
assumption to 7.5% for temporary 3 to 5-year period with the long-term rate
remaining at 8% until the study is completed.
 Investment assumption is very long-term and used to project liabilities for
50 to 60 years into the future. It should not be overly influenced by shortterm volatility nor frequently changed without careful study.
37
TRA contribution rate history
10%
8%
Employer rate
6%
4%
2%
Employee rate
0%
 For most of TRA history the employer rate has been higher than the employee rate.
38
Employee contribution rates in MN higher,
employer rates in MN lower
Employee
Employer
14
12.9%
12
10
8
7.5%
7.5%
6.0%
6
Source:
NASRA
FY2016 for
Social
Securitycovered plans
4
2
0
TRA
US public plan median
39
Tradition of careful stewardship
to ensure plan stability
 Disciplined and proactive management. TRA continuously
monitors and proposes adjustments to the fund as conditions warrant.
 Proactive pension reforms. Board-proposed 2010 legislation was
critical, cost savings: $1.75 billion (TRA).
 Modest benefits. The average monthly pension for Minnesota
teachers is $2,300.
 Relatively low cost. In Minnesota, government pension contributions
are only 2.1% of total state and local government spending,
compared to an average 4.1% in all other states. (Census Bureau)
 Contributions. TRA employees contribute a high percentage, 7.5%,
compared to the national average of 6%. The average employer
contribution in other states is 12.9% versus TRA’s employer
contribution of 7.5%. (NASRA)
40