Retirees challenging changes to state pension lawsby Tom Weber, Minnesota Public Radio
St. Paul, Minn. — Some of the state's former public employees hope to block changes made this year to the state's three largest pension systems.
A pending lawsuit claims the state is going back on a promise it made to tens of thousands of workers.
Richard Maus is part of the lawsuit challenging changes that were made this year to his teacher's pension. Maus spent most of his 26 years in the Robbinsdale School District and has been retired for 10 years. He said the state's pension system amounts to a contract that can't be changed.
"All the while I was teaching, I wasn't getting bonuses, I wasn't getting stock options - things like that," Maus said. "Instead I thought 'Okay, having a secure teaching job with a defined benefit program ... I'll take that.'"
This year's changes affect the state's three largest retirement funds. One is for teachers, that's what Maus is part of. The others are MSRS - which covers state employees - and PERA, which covers local municipal workers.
Roughly 144,000 retirees receive an average payment of between $1,300 and $2,300 a month, depending on which fund they're in, everyone from prison guards to police officers to assistant attorneys general.
Supporters say the changes were needed because the funds all took a hit when the stock market fell two years ago. Most money that is raised to pay out pensions comes from income made on investments.
Each pension fund is different, so the exact changes made this year vary. In general, current employees and employers will have to pay more into the fund, while retirees will get smaller increases in the yearly increases in their payouts. For retired teachers, payouts will be frozen for two years, starting next year.
Asking everyone to sacrifice was the fairest way to do it, said Laurie Hacking, the Executive Director of the Teachers Retirement Association of Minnesota. She calls this year's changes a preemptive move that will shore up the funds now in a way that prevents the need for a taxpayer-funded bailout much later.
"It simply would have been too risky to wait and expect that really positive investment returns would bail us out from this, or worse than that -- to expect the state to bail us out," Hacking said.
The lawsuit filed this summer only challenges the changes affecting retirees, not changes made for current employees. The suit asks whether a state can change the terms of a pension after a worker has started collecting it.
Stephen Pincus, one of the lawyers suing the state, said the state arguably had the ability at certain times during those peoples' working lives to make any adjustments.
"But once they took their retirement, the deal was set," he said. "And now it's not fair for them to go back on their commitments to their retirees."
Supporters of the changes say this isn't the first time they've changed the rules to ensure funds' solvency. State Sen. Don Betzold, DFL-Fridley, sponsored this year's changes in the state senate and said he thinks they'll stand.
"To say we can never change anything would create, I think, problems for the system," Betzold said. "I don't know how many employees would take much comfort in the fact that they're in an unfunded retirement plan."
Betzold also notes that the changes do not cut the amount retirees receive; they only change the yearly rate of increase.
This could also be a test case to gauge what courts will allow states to do to shore up their retirement funds, which has become a more pressing issue in states like Illinois and New Jersey.
The next hearing in the Minnesota case is set for September 15th.
- All Things Considered, 08/03/2010, 4:50 p.m.