The Minnesota Taxpayers Association recently completed a study of Minnesota's largest public pension funds and found that many are drastically under-funded to the tune of billions of dollars.
The worst case scenario is the Minneapolis Teacher's Fund - facing bankruptcy in a few years without a bailout from taxpayers.
Based on the projected shortfall, it's hard to know right now who is in bigger trouble - the taxpayer, who under current law, is responsible for paying teachers in retirement, or retired teachers, like Larry Luck, staring down a bad set of facts.
"Are you concerned today about your pension," Luck is asked by KARE 11 reporter Rick Kupchella.
"Yes," he replies.
Kupchella presses, "Why?"
"Because I read numbers about how many years we have before the fund is broke," Luck responds. "I'm not comforted that it's guaranteed by the state government who doesn't have the willingness to tax."
The Minneapolis Teacher's fund has been in trouble a very long time. The last good decade it had was the 1940's.
Right now, they need $1.7 billion to make good on promised payments. They have $700 million. They're a billion dollars shy.
Mike Stolte is a pension analyst and said, "To be this far under-funded you've really gone past the point of no return. You really cannot recover."
Stolte used to run the private pension fund at Minnesota's 3M corporation. He's a consultant now, hired by the Minnesota Taxpayers Association to assess just how desperate the situation is.
In classic Minnesota understatement he characterizes his findings as "a bit disturbing."
"Making promises that are beyond unsustainable and using investment practices that are fundamentally defying the odds of reality -- that's a bit disturbing," Stolte said.
Stolte's analysis for the taxpayer's association comes down to this - had the teacher's group not tried so hard to "beat the market" over the years, had they just followed their own policy, they'd have $667 million more than they currently have.
Even more damning, he says, had they not created a policy at all, just invested half their money in a bond index and half in a stock index, they'd have saved a $100 million more. "Super-passively, no brainer, no sophistication, fifty-fifty, how simple is that?" Stolte remarked.
At the teacher's fund, executive director Karen Kilberg takes issue with a lot of Stolte's findings.
More than anything she says, judging in hindsight is pointless. "Hindsight is wonderful," she said. "But it doesn't work to say if you had done this or that. I'm not making excuses, we probably could have done better, but who couldn't?"
Even more than "investment performance," the taxpayers group, headed by Lynn Reed, is taking issue with how the benefits have been managed.
Even when the fund was incredibly under-funded, retirees received huge raises.
"Wow, they're short and they're falling further behind," Reed said.
Between 1995 and 2005, the Minneapolis Teacher's Fund granted a 36 percent raise for many of its retired teachers - over an above cost of living raises.
Kupchella asked Kilberg to comment directly on that point.
"The idea of paying out bonuses at a time when the fund is seriously under-funded just seems kind of, whoa," said Kupchella to Kilberg.
"I don't disagree with that," she responded.
"Does that make any sense to you?" Kupchella continued.
"No," she replied.
"Does it make any sense," Kupchella again questioned.
"No, it doesn't make any sense. I think everyone has realized," Kilberg concludes.
As it turns out, Minneapolis isn't the only teacher's pension fund struggling with its obligations.
Saint Paul Schools may be next in line.
"I think the St. Paul teacher's fund will be in a similar position to Minneapolis in about ten years," says Senator Larry Pogemiller, who chairs the pension commission overseeing the funds.
"Do we have to wait till it gets there?" Kupchella asked Pogemiller. "It would be wiser not to," he responded.
Pogemiller says there's not enough support to take over city funds just yet.
"You just have to wait until it's a billion dollars down?" Kupchella continued. "That's a long drop."
"Well, it's a democracy and you can only do things people will vote for in the legislature," Pogemiller replied. "Every year we wait it becomes a more expensive solution, it's that simple."
Pogemiller lives in Minneapolis. He's pushing a bill to have the statewide teacher's fund (TRA) takeover the Minneapolis fund and its billion dollar debt.
Under the bill, if TRA absorbs the Minneapolis fund, the statewide teachers will get bigger benefits for themselves down the road.
"That's a quiet way to bury the obligation of that fund," says Stolte. "Induce them by offering higher benefits, they just look the other way and let it happen. There's something that borders on blackmail there and it's not the way to manage retirement assets in Minnesota."
Right now, retired teachers like Lucky Larry who benefited from some extraordinary raises through no effort of their own are waiting and watching.
Lucky knows his timing was indeed, lucky.
"Your timing was extraordinary," Kupchella said to Lucky. "Yup, I was lucky," he admits.
Now he and others are waiting to see how long that luck will hold out.
(Copyright 2006 by KARE. All Rights Reserved.)