Overview of Major City Pension Funds City Council Worksession June - - PowerPoint PPT Presentation

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
• f MN pension legislation?

2

Major Pension Plans (with subsets)

• PERA General
• Closed Fund (MERF pre-1978)
• General employees/retirees
• PERA Police & Fire – no Soc. Sec.
• Closed Funds (old local relief)
• Other public safety employees
• Small plans vary from PERA
• i.e. MCDA, trades, etc.

3 6.5% 7.50% Employee City % of Pay 11.8% 17.70% Employee City % of Pay

“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)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 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

200 400 600 800 1,000 1,200 1,400 1,600 2015 2016 2017 2018 P&F General TRA 8

Millions of $

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

10 5 10 15 20 25 30 35 40 2018 Payroll Closed Funds P&F General

Totals include enterprise and special revenue. Park board included for closed funds only Millions of $

How Much State Aid for Pensions?

11 2 4 6 8 10 12 14 16 18 2018 Payroll Closed Funds P&F General

Millions of $

Pension Cash Balances in relationship to Pension Aids and Annual Pension Costs

2019 2020 2021 2022 5 10 15 20 25 30 35 40 45 50 Cash City Payroll Budget for Pensions Pension State Aids 12

Millions of $

2019 Legislation

• Eliminated PERA aid
• Maintained MERF aid
• Approved City police and fire closed pension fund

contributions to PERA

13

Future Risks for Pension Cashflows

14

Economic slow-down Investment rate decrease State aids decrease