Bill to reform pension funds introduced at legislature
After months of work, legislation to reform two closed Minneapolis pension funds was introduced Wednesday, May 11 in the Minnesota Senate. The bill would merge two closed pension funds, the Minneapolis Police Relief Association (MPRA) and Minneapolis Fire Relief Association (MFRA) into the professionally-run Public Employees Retirement Association (PERA).
Pension reform is needed now to protect Minneapolis taxpayers from skyrocketing costs and recover taxpayer overpayments to the funds. The closed pension funds, which the City of Minneapolis does not control, have been the source of recent significant property-tax increases. In fact Minneapolis taxpayers are paying $15 million more in 2011 than they paid in 2010 to meet the City's skyrocketing obligations to the funds, which is more than this year’s total property-tax increase. Without reform this year, an increase of similar magnitude in taxpayers’ obligations to the closed funds is expected in 2012.
The author of the bill is Senator Scott Dibble (DFL) of Minneapolis. A hearing before the legislature’s joint pension commission is expected either Wednesday or Thursday of this week.
Minneapolis City officials support pension reform that achieves these five principles:
- Substantial reduction in total property tax burden. Minneapolis property tax payers have been covering the skyrocketing costs of these pension funds for years, and reform would provide substantial, long-term property tax relief.
- Protects pensioners’ lawful benefits. The City's goal is simply to hold constant the benefit rates for pensioners who received past overpayments for a period of time.
- Ends conflicts of interest. There must be an end to the pension funds’ structures, which exist nowhere else in Minnesota, that allow beneficiaries of the funds to run the funds and calculate their own benefits, while Minneapolis taxpayers are on the hook for the costs and any losses.
- Dramatically reduces out-of-control management costs. The closed funds’ administrative costs are 30 to 80 times higher than PERA’s administrative costs: per-member costs are $968 in MPRA and $1,970 in MFRA vs. $27 in PERA.
- Introduces transparent, accountable, professional management. Minneapolis taxpayers suffer from the funds’ lack of transparency, accountability and professional management. Merging the closed pension funds into PERA is consistent with State policy, under which local pensions are professionally administered by PERA and investments are professionally managed by the State Board of Investments.
In the 1970s, most municipal pension funds were merged into the State’s PERA system, but the MPRA and the MFRA were not. In 1980, both funds were "closed" to new members, and City employees who would have been eligible for enrollment in those plans were enrolled instead in PERA, to which nearly all other City employees contribute. The closed funds retained an unusual administrative structure that allows beneficiaries of the funds to run the funds and calculate their own benefits.
In 2004, the Minnesota State Auditor informed the City of Minneapolis that the closed funds were overcharging Minneapolis taxpayers. After years of attempts to negotiate with the closed funds to stop the overcharges, the City of Minneapolis took the closed funds to court to recover the overpayments.
In November 2009, Hennepin County District Court ruled that the funds had overcharged taxpayers $76 million from 200009. The court froze benefit levels, allowing the Mayor and City Council to immediately cut property taxes for 2010 by $10 million. In May 2010, the Court ordered the funds to develop a plan to recoup taxpayers’ overpayments and make taxpayers whole by July 1, 2010. The funds have ignored this order pending appeal.
Published May. 11, 2011