Public pensions, your big bailout

That?s a lot of money, but it?s still about $5 billion shy of what it needs to be for us to make good on those payments over time.

What?s more, there?s a Minneapolis teachers fund that?s another billion dollars in the hole.

And Duluth and St Paul teachers ? combined ? need $600 million more.

For taxpayers it all adds up to well over $6 billion in the red.

HOW we came to be here ? missing $6 billion ? turns into something of a ride.

John Brandl ? a public policy expert and former state legislator says the public should recognize their vested interest in getting to the bottom of it: "A lot of politics comes down to giving benefits to people who are going to be grateful? at the expense of people who are oblivious to what?s going on. This is the classic example of that."

So, how did it happen?

Why is the money missing?

Start with the simple math.

The benefits we?re paying out have to equal the contributions that went into this fund and whatever investment returns were made on that money.

Now, know this: our investment returns have been great for a long time.

Howard Bicker has been working at the State Board of Investment - helping to manage all those billions ? since he got out of college.

He?s been director for 26 years, beating the market ? on average ? with your tax dollars.

Howard is your friend.

"Since January of 1980," he says, "the board has compounded annually a little over 11 percent."

Investment returns are not the problem.

So the answer is either "we didn?t put enough in," or "we paid way too much out."

Bicker says it?s entirely possible that both scenarios are true.

Mary Vanek, who directs PERA (covering most county and city workers), and Karen Kilberg at the Minneapolis Teachers Fund, will point to charts and long lists of counties, cities, school districts and the state that have under-funded these pensions for years.

Howard will tell you they?re right, "You can?t make money on money you don?t have."

But the Minnesota Taxpayers Association (MTA) says the contribution-problem is not big enough to account for the missing six billion dollars. (Link: Pensions Report from MTA)

MTA is a non-partisan/non-profit, public interest research group that?s spent most of the last six months de-constructing and re-constructing the problem.

Their sights are set squarely on the state capital.

They say it?s not what government did or didn?t put into the funds, it?s what they took out.

They?ve discovered some five billion dollars was paid out in bonus money ? to retirees ? in the last ten years.

MTA says? if that money had been left in the funds, the funds would be flush, and there?d be more than enough money to pay the bills.

"The first thing that struck me," says Lynn Reed, Executive Director of the MTA, "was the fact that when they have really good investment returns ? they don?t save those dollars. They gave them away to retirees. That was a pretty shocking discovery for me."

The Taxpayers Association says you don?t need an economics degree or any experience in the market to understand that the markets tend to go up and down, and over time trend ?up?.

But you need the good years to pay for the bad.

The way the legislature re-configured the formula for paying benefits to retirees ? the good years aren?t there to pay for the bad.

What?s worse, according to the MTA study they didn?t set it up to pay retirees a one-time bonus. The bonus became the new ?bar?.

Like a permanent raise.

And when another good set of years came along they got another raise.

In the end that math doubled the pension for most government workers who retired before 1995.

We?re actually paying many of them more in retirement than we were paying them when they were working.

Howard Bicker and some of the fund operators we?ve talked to say the critical flaw in the legislature?s funding mechanism was their decision to tie bonus payments to market performances.

Each year they would look at the prior five years? return.

If they averaged over eight-point-five percent, they?d cash out the difference and pay it to existing retirees in the form of a permanent raise.

The people who run the funds say they never liked the five year average because it was too short.

They wanted it to be a lot longer.

"Seventeen years was our original proposal," Bicker said.

"If we?d done that? there would have been benefit increases of 4-5-6 to the (retirees) fund? they would have no unfunded liability today. In fact it would have a surplus. Everything would be fine."

But retirees didn?t want 17 years, Bicker said, "they wanted 17 seconds."

Bicker and the fund operators compromised ? agreeing to the five year timeline ? but with the intention of returning to the legislature to extend the number of years.

But, Bicker says, it just so happened that?s when the markets took off in the nineties and nobody wanted to listen to them when the cash was rolling in.

"All I can tell you is people from here, mainly me, and people from the retirement funds have been arguing since the mid nineties to change the formula," Bicker said. "With no success."

Fund operators tell us they were watching these enormous benefit increases as they happened and they went to the legislature for help

Mary Vanek, director of the PERA Fund, said, "We started saying to the commission and other members of the legislature ?we are very concerned about this? because this is a permanent increase in these benefits.'"

Rick: Where is the resistance coming from?

Vanek: Retirees.

Rick: So the retirees are going to the pension fund saying "hey hey hey!..."

Vanek: Yes. ?It?s our deal.. it?s our money? it?s working? don?t change it.?

Rick: And they didn?t.

Vanek: It didn?t get changed.

Senator Larry Pogemiller-DFL Minneapolis, the powerful chair of the senate tax committee is also chair of the pensions committee.

It?s his first term as chairman but nobody has been sitting on that commission longer than him.

We asked him why the fund operators could never even get a hearing for their concerns.

Pogemiller: First of all, I?m a chairman that hears every bill, so that?s not an issue under my chairmanship.

Rick: You?re on the committee, and I think you know what they?re talking about.

Pogemiller: I think there?s revisionist history everywhere in the world of pensions and there always has been. Some of them apparently did feel ? in the mid-nineties ? there needed to be immediate adjustments. The legislature just doesn?t work in a way where there?s immediate adjustments because it?s a body of 201 people.

Rick: Is this a function of the proponents ? retirees ? talking to their legislators talking to the pension commission saying "don?t touch anything?"

Pogemiller: Of course it is.

Rick: Who?s arguing against that?

Pogemiller: Well there?s really no vested interest to argue against that position.

Rick: Isn?t this a place though, where the legislature needs to have the kind of leadership that says: ?I know you want to do it? I know you?d like more benefits? but we have the numbers? and it doesn?t work.? Why can?t you just do that?

Pogemiller: Why doesn?t the governor recommend it?! Legislators are trying?

Rick: (interrupting) Wait a minute? you?re on the pension commission?

Pogemiller: The frustration I?m expressing is that the legislature does the best it can by putting together the votes it can to pass reforms.

Pogemiller: I think you first need to measure what the adequacy of the basic pension is and I don't think our pensions are out of line with average. I really don't.

Rick: Well, tell me this, are you saying they weren't out of line when they started in 1995? Or you don't think they're out of line in 2005? Because they doubled in that time.

Pogemiller: Well it depends on which group you're talking about... and what was their circumstance.

Mary Vanek, with PERA, says it?s hard to find a pension fund as generous as the system that?s been created here. "I don't personally know of anybody... no. And the studies we've done, I can tell you we know of Wisconsin, they actually share the gains also but they actually will reduce the benefits if value shows a negative number."

Brandl adds, "It's just not fair. It's not right. Not proper for those getting defined benefit pensions to expect they can have the up-side, but not have to take the down-side risk."

By Rick Kupchella, KARE 11 News

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