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Myth vs. Fact-Public Employees Retirement Association of MN Page 2 of 5 Public pensions hurt the state's economy. Fact:PERA actually pumps more money into the state's economy every year than it draws from taxpayers through employer contributions.In fact,benefits paid to Minnesota residents were nearly three times the contributions made to PERA by employers last year. The same is true for the Minnesota State Retirement System and the Teachers Retirement Association.To view a map and county breakdown,• Even more teeing,state and local taxes paid by PERA,MSRS and TRA retirees,and the holders of jobs created by retiree spending,exceeded public employer pension contributions by$80 million in 2007 alone. (Measuring the Impact of Minnesota's Retirement Systems,2008) Retirement benefits leave Minnesota because retirees leave the state. Fact: 91 percent of PERA retirees remain Minnesota residents after they leave public service. Of the$1.44 billion in benefits PERA paid in 2011.$1.30 billion stayed in the state.(See Where Are Our Retirees?)That's money spent at Minnesota businesses,sustaining and creating jobs across the state. And let's not forget,those retirees are also paying state and local taxes.(2011 PERA Comprehensive Financial Report) Myth: Since private industry has adopted the 401(k-type retirement plan,it must be the most cost effective way to pay for retirements. Fact: If the only concern is the initial cost,perhaps. However,one aspect of retirement plan design is rarely addressed—the relative cost of providing a given level of benefits for participants. Here, traditional pension plans like PERA have a distinct advantage over individual account type plans like 401(k)s. According to the National Institute on Retirement Security in its study A Better Bane for the Buck, pension plans can deliver the same retirement benefit for an individual at a cost that is 48% lower than a 401(k)plan. It's based on investment allocations over time,superior investment returns and longevity risk pooling. But the taxpayers would still save money simply by moving public employees to a 401(k)- type plan. Fact: Any savings would be a long time coming. Assuming a 5 percent employer and 5 percent employee contribution rate,the costs to transition to a 401(k)-type plan would be nearly$3 billion over the next decade for all three systems,and$1.1 billion for our General Plan alone.Costs increase during a transition period because once a plan is closed to new members any unfunded liabilities remaining in the existing pension plan must be paid off over a shorter time frame.(2011 Minnesota Retirement Plan Design Study) Myth. PERA has an unfunded liability of$4.3 billion that taxpayers just can't afford. Fact: While PERA's General Plan does have a$4.3 billion unfunded liability,it is not due tomorrow. In fact,that liability Is spread out over decades—the next 20 years in the case of the General Plan,27 years for the Police&Fire Plan,and 12 years for the Correctional Plan. It's like the unpaid portion of a mortgage.Few homeowners have enough cash on hand to immediately pay it all off. That's why they make monthly payments. It's the same with PERA.Regular member and employer contributions,and most of all,investment growth over time, are expected to erase that liability as the plans approach their full-funding dates.(2011 PERA Comprehensive Financial Report) And ifs not like PERA is ignoring that liabikty.Our history shows that we address problems as they occur,with a positive effect on the state's bond rating. We have addressed funding shortfalls with periodic benefit and contribution adjustments rather than letting problems get out of hand. Myth: PERA is going broke. Fact: While PERA suffered substantial investment losses during the recent recession,even during the depths of the market meltdown the Association had reserves of$14 billion.Those reserves had rebounded to$20 billion at the end of Fiscal Year 2011. http://www.mnpera.org/index.asp?Type=B_BASIC&SEC={A4C377CF-1748-4FA4-906F... 8/23/2012