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A policy debate over the financial assumptions for the state’s public pension funds is brewing at the state Capitol.

Lawmakers to scrutinize pension assumptions

Pat Anderson (Staff file photo: Peter Bartz-Gallagher)

A policy debate over the financial assumptions for the state’s public pension funds is brewing at the state Capitol.

The Legislative Commission on Pensions and Retirement on Wednesday held the first of a two-day meeting at the State Office Building by hearing concerns that the 8.5 percent rate of return that’s expected for the state’s pension investments is too optimistic.

Pat Anderson, a former State Auditor who is now president of the Minnesota Free Market Institute, testified about her concerns about the assumed rate of return. After the hearing, she said Minnesota’s rate is one of the highest in the nation.

“It’s an unrealistic number that makes the numbers look better than they are,” Anderson said.

The stock market has endured historic declines in recent years with the collapses of the tech bubble at the beginning of the last decade and real estate bubble at the end of it. The volatility has opened up large unfunded liabilities and has prompted state lawmakers to increase contribution amounts and decrease the annual benefit increases for retirees.

Reducing the assumed rate might be a more realistic expectation in light of the slow economic growth that State Economist Tom Stinson told the commission he is expecting. But such a change would also increase the sum of the pension plans’ unfunded liabilities.

Sen. Julie Rosen, R-Fairmont, who is a member of the pension commission, said the pension investment returns have become a widespread concern among legislators.

“It’s been discussed for years whether to go from 8.5 to 8 percent. There are a lot of pros and cons on both sides to do that,” Rosen said.


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