Overview of Major City Pension Funds City Council Worksession June 20, 2019
Overview • How much does City contribute for current and retired City employees? • How much in State aids does the City receive for pensions? • How did pensions cause a 2017 bond rating downgrade? • How much cash is advisable to carry in pension reserves? • What were the general impacts of the 2018 and 2019 State of MN pension legislation? 2
Major Pension Plans (with subsets) % of Pay • PERA General • Closed Fund (MERF pre-1978) 7.50% 6.5% • General employees/retirees Employee City % of Pay • PERA Police & Fire – no Soc. Sec. • Closed Funds (old local relief) 17.70% 11.8% • Other public safety employees Employee City • Small plans vary from PERA • i.e. MCDA, trades, etc. 3
“Defined Benefit” Plans - PERA • Legislature sets rules for how much local governments contribute and how benefit is paid • Example: Retirement payments = 1% inflation • PERA • Takes City payments and invests funds through State Board of Investments • Calculates and delivers payments to retirees • City has share of “unfunded” PERA liability • + a share of the Teachers Retirement Association (TRA) liability 4
2018 Pension Legislation • Increased employer and employee contributions to PERA police and fire. • Increased State contribution to PERA police and fire (payment not tied to any particular entity) • Reduced inflation on benefits if funding levels increased • Reduced assumed investment rate to 7.5% 5
PERA Police & Fire, PERA General and TRA “Funded” Levels (State Fiscal Year) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2015 2016 2017 2018 P&F General TRA 6
“Closed” Minneapolis Pension • MERF now fully merged into PERA General • Legislation in 2010 • Met certain funding goals in 2015 which lowered payment • Last City supplemental payment in 2031 • Minneapolis Police Relief and Fire Relief fully merged into PERA Police and Fire • Legislation in 2011 • Last City supplemental payment in 2031 • Teachers Retirement Association • $2.25 million separate levy until TRA fully funded 7
City Share of “Unfunded” Liability 1,600 1,400 1,200 Millions of $ 1,000 800 600 400 200 0 2015 2016 2017 2018 P&F General TRA 8
Rating downgrade end of 2017 • Pension payment viewed by rating agencies like debt payments = fixed costs • “Credit negative” that changes to system require State legislative action. • 7.5% assumed rate of return is higher than other states 9
Overall City Budget for Pensions in 2018 40 35 30 25 Millions of $ 20 15 10 5 0 2018 Payroll Closed Funds P&F General Totals include enterprise and special revenue. Park board included for closed funds only 10
How Much State Aid for Pensions? 18 16 14 12 10 Millions of $ 8 6 4 2 0 2018 Payroll Closed Funds P&F General 11
Pension Cash Balances in relationship to Pension Aids and Annual Pension Costs 50 45 40 35 Millions of $ 30 25 20 15 10 5 0 2019 2020 2021 2022 Cash City Payroll Budget for Pensions Pension State Aids 12
2019 Legislation • Eliminated PERA aid • Maintained MERF aid • Approved City police and fire closed pension fund contributions to PERA 13
Economic slow-down Future Risks for Pension Investment rate decrease Cashflows State aids decrease 14
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