Minnesota is discovering the downside of having the second-highest life expectancy rate in the nation.
Pension fund managers are trying to offset more than $1 billion in additional future liabilities after learning that the state's employees, teachers and retirees who receive the benefit are living an average two years longer.
"It's good news for retirees that they're living longer," said David Bergstrom, executive director of the Minnesota State Retirement System. "From a pension standpoint, it's bad news."
The move comes as Minnesota and other states have scrutinized the sometimes rosy assumptions underlying how much money they will need to fund billions in retiree benefits. The Minnesota Legislature already lowered the expected rate of return for some state pension funds' investments from 8.5 to 8 percent last year, a move that the Teachers Retirement Association hopes to follow.
Minnesotans live an average of 81.1 years, which is longer than anywhere in the continental U.S. (Hawaii has the highest life expectancy rate of any state). Those rates are even higher for the teachers' pension system, where a 65-year-old female member is expected to live to 90.
The state's pension funds — on which more than a half-million people depend to fund their retirements — are still using mortality projections from 2000. Actuaries recommended making changes in studies for the pension funds last year.
State Rep. Tim O'Driscoll, R-Sartell, said that Minnesota's pension funds are still healthy compared with other states. He chairs the Legislative Commission on Pensions and Retirement, which heard testimony on proposals from pension fund leaders last week. The 14-member bipartisan panel has yet to decide whether to include the recommendations in a bill for approval by the full Legislature during session, which convenes in March.
Pension system managers are looking at an array of ideas to deal with the projected shortfall, mostly some combination of cutting cost-of-living adjustments and raising contributions from employers or employees.