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Report paints inaccurate picture of TRA

DECEMBER 23, 2011

A blog post on the Minnesota Free Market Institute website on Dec. 16 posed the question, “Minnesota Teachers Should Ask: Will Our Retirement Fund Run Out of Money?”

The short answer: No.

Blogger John LaPlante referred to a report from the Center for Retirement Research at Boston College that is being disseminated nationally, most prominently by financial management adviser and Governing magazine columnist Girard Miller.

The CRR report calculated the “run-out dates” for more than 120 state, local and school pension systems nationwide — including Teachers Retirement Association of Minnesota — using new accounting standards under consideration by the Governmental Accounting Standards Board (GASB).

There are a number of problems with the CRR report. First, the CRR used 2009 data, which not only was an abysmal year for pension plans nationwide but also predated the 2010 pension reforms that dramatically improved TRA’s funding status. The sustainability legislation lowered liabilities by $1.75 billion. But CRR based its analysis on old asset levels — $13.8 billion for fiscal year 2009 vs. $17.3 billion for fiscal 2011.

Second, predicting “run-out dates” under GASB’s proposed guidelines assumes that GASB is setting funding standards. GASB is not. In fact, the new GASB standards divorce accounting for pensions from funding. GASB’s new standards will simply provide standards for school districts and state and local governments to report unfunded liabilities and pension expenses. To project run-out dates based on non-existent standards is to simply engage in a fairly meaningless academic exercise.

TRA has been actively communicating with CRR about the misleading information in its report, and researchers admit to making errors in calculations for two other major Minnesota pension funds.

“As our research has become more complex than simply reporting data from financial reports, the opportunity for misrepresentation has increased,” said Jean-Pierre Aubry, assistant director of state and local research at CRR. On that, we certainly agree.

“It would be unfortunate if the press and politicians characterized these new numbers as evidence of a worsening of the crisis when, in fact, states and localities have already taken numerous steps to put their plans on a more secure footing,” the report concluded.

So no, TRA is not going to run out of money in 16 years. To suggest otherwise is irresponsible and alarmist. Our teachers, lawmakers and taxpayers deserve facts, not fear-mongering.


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