Frustrated Minnesota teachers seek probe of pension fund

Minnesota teachers who started working after 1989 have a far stingier pension than their older colleagues, and they are hoping an outsider can address their worries.

Frustration with the two-tier system has been growing and reached a boiling point when state lawmakers did not use last year’s budget surplus to fund the pension system. Teachers have been testifying in St. Paul and organizing online, but teacher Katie Dickerson said the younger teachers have felt so frustrated and ignored that they decided to seek help from a lawyer to scrutinize the fund.

“We’re not getting answers that we want,” Dickerson said.

Dickerson said the Teachers’ Retirement Association, which runs the pension fund, has felt opaque to members. Meetings are held Wednesday mornings, during school hours, and have not been recorded. Dickerson said members’ questions go unanswered.

In a statement Friday, the pension association said it valued feedback from members and stakeholders.

Members of a 19,000-member Facebook group found reports on other states’ pension funds criticizing their management. Dickerson and a few others decided to put out a call for donations to hire the lawyer who wrote those reports to scrutinize the Minnesota pension fund. Dickerson said it took less than three weeks to raise $78,000.

The lawyer, Edward Seidle, has spent years critiquing pension funds’ investments with private equity and managers who charge steep fees.

As public pensions have invested more in private equity funds, they have paid more in fees, which Seidle calls “excessive.” Even a percent or two could add up over the years of a teacher’s career, he said.

The president of a Rhode Island AFSCME council, J. Michael Downey, said he was thrilled with Seidle’s work. “It’s probably the best thing the union ever did,” Downey said.

State employees and retirees were frustrated after Rhode Island’s 2011 pension-reform bill cut cost-of-living adjustments, raised the retirement age and transitioned newer hires to a defined-contribution plan more like a 401(k) than a defined-benefit pension. At the same time, then-state treasurer Gina Raimondo — now U.S. secretary of commerce — pushed the pension fund to invest more in private equity, terming the strategy a hedge against the weak post-recession stock market.

Downey said he did not think the cuts helped the pension fund, though the unfunded liability is lower than it was a decade ago. “What they did with the pension changes in Rhode Island certainly did not save the pension. It helped Wall Street,” Downey said. The Providence Journal reported the union paid $20,000 for their report in 2013.

Seidle’s report accused Rhode Island officials of withholding information about how much fund managers were being paid. But state officials there have said they publish information about how the pension funds are invested and management costs online.

Seidle made similar accusations in a report about the State Teachers Retirement System of Ohio. A group of teachers there paid $75,000 for a report.

The Ohio retirement system issued a scathing response, noting that Seidle is not an accountant nor an auditor. The system called the accusations “baseless” and counted 60 times that Seidle’s report used the phrase “in our opinion.”

A state auditor’s report in Ohio reviewed dozens of claims in Seidle’s report but found no wrongdoing on the part of the retirement system. The report also found Ohio had lower management costs than similar retirement systems.

Instead, the report recommended “rethinking” bonuses for investment staff, and making public more information about investments rather than guarding them as “trade secrets.”

The Ohio auditor’s report states that the retirement system could negotiate with investment firms to allow for greater transparency.

The State Teachers Retirement System of Ohio also owns prominent vacant storefronts on St. Paul’s Grand Avenue.

The Minnesota Teachers Retirement Association was worth $26.8 billion and reported 8.9% returns in 2023. Per an annual comprehensive financial report, management fees in 2023 totaled just over $24 million — less than a tenth of a percent of the money being managed.

Seidle said he just started requesting documents.

“If nothing else, we’re going to be discussing a lot of things,” Seidle said. “It’ll get a lot of attention.”