ED MN Retired TRA Column December 25, 2020 Martha Lee (Marti) Zins, chair TRA
The word “pension” engenders in teachers retirement security after a lifetime commitment to educating students. Unfortunately to many non-educators, it engenders rage that “teachers feed off the public trough” and why do they, teachers, have pensions while almost no one but public employees have these. Pension envy is another way to describe this phenomenon.
At our national conference on pensions, held virtually in October, this very issue was discussed. There is a clear lack of understanding about why there are pensions. The word “pension” is being used as a trigger of negativity to teachers.
Retirement money, pension, is a part of the total economic package of employment for each teacher. In the absence of that guaranteed retirement package (defined benefit), more money would be need upfront to compensate teachers. By creating a pension fund and investing money on a regular basis the best of all worlds is achieved. The teacher has money they count on when they retire, the employer and state can invest smaller sums regularly, and the investment, managed carefully by the state through the State Board of Investments, can grow the money collected through investment. All parties need not pay as much upfront. This is what we talk about when we define who pays what for each pension dollar. The investment portion has represented about 70-74% over the years.
Further, in Minnesota, by statute, each teacher/educator mandatorily pays from each paycheck a required percentage of money, matched by their employer, money that is gathered at each teacher employment site and transmitted to the TRA who in turn transmits it to the State Board of Investment for investment on behalf of teachers for the purpose of future pensions. This is not a “feeding from the public trough”, but an earned benefit after a lifelong commitment by the teacher and employer to compensate the teacher for their teaching service.
When the SBI Executive Director, who directs the operation, with the advice of an eleven-member advisory board, and based upon policy guidelines formulated by the four constitutional officers of the state of Minnesota, invests the money, they do so with well formulated policy, knowledge of investment procedures, an investment strategy, and the aid of professional investment managers. They manage the billions of dollars to generate the best return while paying lower fees than you or I could do as an individual investor. The risk, reward, and investment fees are shared by all members of state pensions established by the Minnesota legislature. When you retire, based on salary, years of service, and plan option selected, you receive a specific sum of money (benefit) each month. This is known as a defined benefit plan. (Come January 1 the COLA is applied.)
There is a huge economy of scale savings in investing in this manner for professional expertise and management and for fee structures. The state can generate more money for the actual pension fund than the up and downs of each of use investing on our own, based upon the sum we hold out for pensions each pay period. Individual investment is costlier, fees are higher and you and you alone take the risk of your investment action leaving your total invested amount and your monthly income at the mercy of the public marketplace. . (Defined contribution)
As an aside, I have been asked by members if they could send TRA more money and have it invested by the state as they are better and generate a greater return than their efforts have produced. No, but it does suggest that there is recognition of the benefit of TRA investing!
Thus, rather than use the term pension and trigger that negative reaction and envy from some members of the public, take the time to try and explain how the money comes to be, your person contribution to the system, and the cost-effective benefit to the state, employers, teachers and students. This is an earned benefit.