Minnesota Pension Plans: Major Decline in Funding Level

 

An article this morning in BloombergMarkets discusses the dramatic decline in funding levels reported by Minnesota statewide pension plans.  The article reports that the funding level declining to 53% from 80% the prior year.  This article appears to calculate some form of average funding level and the decline was driven primarily by the Teachers’ Pension Plan reduced its GASB 67 & 68 compliant discount rate to 4.7% from 8%.

North by Northwest informed our clients of the dramatic decline in the Minnesota Teachers’ Pension Plan in February of 2017.

Two of Minnesota’s other primary pension plans (general employees and police & fire employees) reduced the discount rate to 7.50% and funding levels declined to 68.91% from 78.19% for the general employees’ plan and 63.88% from 86.61% for the police and fire plan.  The teachers’ pension plan is even worse with a funding level of 44.88%, down from 76.77%.

Bloomberg also has an article that provides a high level summary of funding levels of statewide pension plans across the nation.

The elephant in the room of pension funding is the underlying investment return and discount rate assumptions utilized to calculate the funding levels.  Many statewide plans continue to assume 7.5% to 8.0% discount rates.  While many state pension plans are reporting excellent investment returns in the last 12 months (>12%) one year does not fill the hole that has been created by years of politically driven under-funding.

Bloomberg MN Pension article

Bloomberg State Pension Funding article