Learn more about pensions

What are pensions and why do they matter?

Pensions are a “defined benefit” plan, rather than a “defined contribution” plan like 401ks or 403Bs. Defined benefit plans manage a sector of workers’ contributions as a whole, taking on investment and risk, rather than the individual. The structure of the benefit public pensioners will receive is defined in state statute, so regardless of the risk, the health of the fund or other factors, legislative action is required to make any change to the benefit structure that defines the benefit workers received. 

Pensions often outperform the market and act as one of the largest growers of generational wealth across race and gender. Pensions allow continued payments throughout a worker’s lifetime, with survivorship options if a worker passes away.  

In contrast, defined contribution plans are liable to run out towards the end of a worker’s life, and can create complications for a worker’s family, leading to poor conditions in retirement. For example, the average 401k for a 60-year-old in Minnesota is less than $200K, which amounts to less than any long-career educator would receive in the current Tier 2.  

Corporations, billionaires and their lobbyists have consistently fought in other states to move employees to defined contribution plans (DCs), eliminating the stable pension structure for sectors of public and private workers. 401ks bring in more investment fees and benefit Wall Street by having more individuals participate in the public stock market. This change also typically benefits the state and employers by requiring less money to go into worker retirement plans, as workers are not guaranteed a defined benefit in statute.  

Minnesota currently has four public pension systems: the Teachers Retirement Association, the Public Employee Retirement Association, the Minnesota State Retirement System and the St. Paul Teachers Retirement Fund Association. Education Minnesota represents members in each pension fund. 

Note: Much of the following information is contextual for members of the Teachers Retirement Association (TRA) or the St. Paul Teachers Retirement Fund Association (SPTRFA). For PERA and MSRS information, use the links below.

Jump to:
– History of Minnesota pensions
– Context: Pension funding
– The change to NRA 65
– Public Employees Retirement Association (PERA)
– Minnesota State Retirement Association (MSRS)
– Pension definition list
– Additional information
– Pension Advisory Group

Our pension story

Throughout the 1900s, workers fought for and won pensions that allowed them to retire with dignity, giving them a guaranteed, lifelong income after a long and valuable career. Over time, as 401ks became more prevalent in the private sector, many states changed pension plans for the worse. For some time in Minnesota, public workers – including teachers – had what’s called an “unreduced career rule” that gave teachers flexibility to retire at earlier ages.  

You may have heard of “Rule of 90” – this unreduced career rule exists for some public workers in Minnesota, allowing them the ability to retire when their age + their years of service = 85 or 90. (ex. if Simone started teaching in 1988 at 22 years old and she teaches every year, when she reaches age 56 she has the flexibility to retire with no penalty: age 56 + 34 years teaching = 90.)  

In 1989, Minnesota legislators created a “tier system” for public worker pensions, promising workers who started before that date Rule of 90, while workers who started after that date had no career rule.  

The Rule of 90 Benefit, a part of the step formula and only available to “Tier 1” members, allows a substantial benefit as early as age 55 or whenever they achieve 30 years of service. If a teacher didn’t meet the Rule of 90, the normal retirement age was 65, with a 3% per year reduction for early retirement, or if they achieved 30 years of service the NRA was 62. Those in Tier 1 also automatically get moved to the level formula, or the benefit “Tier 2” members receive, if the benefit they receive would be greater. 

The Level Formula – available to TRA Tier 2 members and Tier 1 members, if better – has a retirement age of 65 and higher reductions for early retirement – a reduction of 7% each year from age 64-59, and 4% from ages 58-55. The level formula does not have an unreduced career rule, but does have a reduced penalty threshold, allowing long-career educators who reach age 62 with 30 years of service a reduced penalty of 3-4% per year – erasing almost half of the penalty. 

Long-career public workers are just now hitting the year that they would have been able to retire with full benefits if the Rule of 90 did not have a cut-off date. This adds notable stress for many educators – as teaching has only gotten harder in the past few decades, retirement flexibility has gotten worse. Education Minnesota works with members to advocate at the Legislature for state-funded improvements to Tier 2 pensions, that would allow educators to retire with dignity earlier than age 65, without forfeiting a substantial amount of their lifelong retirement benefit to penalties.  

Education Minnesota believes pensions are an essential recruitment and retention tool for public work, and with 9 out of 10 schools in Minnesota significantly affected by the teacher shortage, more needs to be done to improve retirement benefits for educators.  

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History of Minnesota public pensions

First, a career rule of age 62 with 30 years of service was created for all workers in statewide general employee retirement plans in 1973. In 1982, the Rule of 90 was put in place for the Public Employees Retirement Association (PERA – General). In 1989, the Rule of 90 provision was extended to include MSRS – General, TRA and the coordinated programs of the first-class city teachers retirement fund associations. Though the state Legislature extended the Rule of 90 to all public employees, they also made it applicable only to employees hired before July 1, 1989, including those in the PERA – General plan. The Rule of 90 benefit increase to all plans, including the cut-off date, was passed as a House of Representatives floor amendment without a favorable recommendation by the Legislative Commission on Pensions and Retirement. (Laws 1989, Ch. 319, Art. 13) As part of the 1989 legislation, employee contributions were also increased.  

The Rule of 90 Benefit – or the benefit “Tier 1” members receive – was initially created to be eliminated if over 45% of eligible workers used it, though the reporting requirement and elimination provision was repealed by lawmakers in 1993 when the TRA utilization reached that threshold.  

A legislative research document to the LCPR states that this Rule of 90 extension reflects a compromise based on policy and cost considerations. The Rule of 90 is considered a subsidized benefit, so those “who have sufficient age and years of service to qualify for and use the Rule of 90 adds to the plan cost, to be paid by many who will never have sufficient service to qualify for this benefit.” Restricting the Rule of 90 to those hired before July 1, 1989, made the cost manageable under the 1989 bill. 

When “the tiers” were created, the Level Benefit Formula was given a slightly higher benefit accrual formula rate, or “multiplier,” and their normal retirement age was set up to be automatically changed to correspond to the Social Security retirement age.  

In the opposite direction, based on considerations of lengthening expected life spans and the cost of longer retirement periods, the U.S. Congress of 1986 instituted a later full benefit retirement age of 67 for Social Security.  

The benefit accrual rates were increased again in 1997, increasing TRA Tier 2’s rate from 1.5% to 1.7% each year. TRA Tier 1 was also increased from 1% to 1.2% for the first ten years, and from 1.5% to 1.7% each year thereafter. As part of the 2006 merger of the Minneapolis Teachers Retirement Fund Association into TRA, the Legislature again increased accrual rates, but only for TRA Tier 2 members.  

What about health insurance?

Noted as a barrier to early retirement flexibility improvements, most workers who wish to retire early cannot afford to do so because of the high cost of health care. Medicare is available to retirees at age 65. Those who wish to retire early with health benefits either pay out of pocket or have a spouse that can cover them.  

Option: Deferment

An option that educators should know about is the ability to leave teaching without drawing their pension benefit, putting their fund into deferment. A member who defers is able to dodge early retirement penalties. For long-career teachers, it is common to defer until age 62, reaching a reduced penalty threshold of age 62 with 30 years of service, or a 10.4% reduction with the current penalty structure. Otherwise, members can defer as long as they’d like to, with age 65 established as the year with 0% penalty and Medicare eligibility.  

However, those who defer are no longer active employees, and would not qualify for future improvements to the pension plan unless they return to a TRA-eligible position for at least six months.  

TRA Tier 2 also lost deferred augmentation in 2018, meaning that before 2018, your investments would still grow with interest, but currently, they do not receive investment growth while a worker is in deferment. 

Supplementing your Pension: 403(b)s

The 403(b), also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for employees of public schools and some tax-exempt organizations. It is an excellent way to save money for retirement as a supplement to a traditional pension plan. Many local contracts have negotiated an employer match to your optional 403(b) plan as a part of your compensation package, but many educators will forget to take advantage of it. Talk to your building rep or district HR for more information! 

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Context: Pension funding

In a defined benefit plan, a balance of fund health and sustainable worker benefit payouts is needed. When we talk to lawmakers about improving our pension, they’ll often consider the cost of the improvement, where the money is coming from and the health of the pension in their response. When fund health drops significantly, lawmakers are forced into a situation where they need to cut worker benefits (decreasing payout to retirees), fill the fund with large amounts of state funding or close the pension entirely.  

As of July 1, 2024, TRA has a funded ratio of 81%, meaning that it currently has less than the benefits that it’s promised to pay out to workers. While an underfunded plan is not desirable the plan currently has a slight sufficiency and is on track to being fully funded by 2042. TRA’s current sufficiency of 0.75% means that the plan is growing slightly through contributions and investments. If a benefit improvement was made without a funding source – the employee, employer or the state – then the fund would go into deficiency and risk the health of the pension.  

Minnesota Public Pensions have largely been sustained through employee and employer contributions, so in TRA’s case, a percentage from the teacher and a percentage from the district. With the increase in employer contributions in 2018, the Minnesota Legislature created “Pension Adjustment Aid Revenue” to have the legislative general fund cover employer contributions above 7.5%. For any increase in benefits, Education Minnesota advocates for the cost to be paid by the state rather than the worker or district.  

Why are improvements so expensive?

Almost all substantial improvements to a pension plan require ongoing state funding. You may hear how big a certain year’s surplus is, but often a large portion of a state surplus is one-time funding, meaning that it can only be spent on short-term projects or investments. When a legislative proposal is noted as needing ongoing funding, lawmakers consider the cost in future budget cycles, where the cost grows. Any improvement that pays out thousands of dollars a year to all retirees, well into the future, will have a price tag to the state of at least millions of dollars. 

Why not increase employee contributions?

Historically, every pension benefit increase in Minnesota is supplemented by an increase in employee and employer contributions. However, teachers who are TRA members are currently contributing the highest rate in Minnesota history to their pension at 7.5% – and that contribution is scheduled to increase to 8% in 2025. Any increased employee contribution decreases their take-home pay, as well as the ability for early career educators to stay in the profession and earn back a benefit that makes it worthwhile. With low starting pay in many areas across Minnesota, we need to make sure employee contributions don’t climb any higher. 

We want our public pensions to be around for future generations of educators, so it’s important to be mindful about pension health. As we advocate for improvements, this information could be helpful to you in understanding the considerations lawmakers may note.  

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The change to NRA 65

On July 1, 2024, the retirement age for TRA and SPTRFA was lowered from age 66 to age 65, improving the benefit formula and shifting all penalties down a year. For example, if a TRA Tier 2 member draws their pension at age 62 with 30 years of service, the penalty is lowered from 14.46% to 10.4%. If a TRA Tier 2 member does not reach that threshold, they have a penalty reduction of 7% each year from age 64-59, and 4% from ages 58-55, cumulative for whatever year they draw their benefit. This was initially passed in a last-minute amendment in the 2023 session, setting the effective date of the benefit to July 1, 2025, with ongoing funding. In 2024, with an unusual one-time target set aside for educator pensions, the effective date was moved up a year to be immediately effective in 2024.  

Though we had set out for a much bigger win, this was the first positive improvement to a public pension plan in many years across the country and amounts to millions of dollars invested in public educators.  

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If you’re an education support professional, or hourly school worker, you’re likely a member of the Public Employees Retirement Association. The PERA – General plan serves 150,000 public workers in over 2,000 government agencies. PERA also has separate plans for correctional workers, police and fire and physicians.  

Just like TRA, the PERA – General plan includes a tier of workers who began work after July 1, 1989, who have less early retirement flexibility. For those who began work after July 1, 1989, PERA-General currently has a normal retirement age of 66, with an actuarial reduction (penalty) of around 6% for each year an employee retires early and no career rule.  

If you’re an ESP and you want to get plugged into pension advocacy to better your retirement plan, please email pensions@edmn.org.

Learn more about PERA here. 

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Minnesota State Retirement System (MSRS)

If you’re an educator in a correctional setting, you may be a member of the Minnesota State Retirement System correctional plan. The MSRS correctional plan is set up very differently than TRA, SPTRFA or the PERA-General plans. Contribution rates for the employee are 9.6% and the employer/state supplemental contribution is 18.85%. The vesting period is a graded vesting schedule from 50% at year 5 to 100% at year 10.  The benefit multiplier is higher than the other plans described above, and the normal retirement age is lower, age 55. This plan is similar to other law enforcement plan designs.   

Learn more about MSRS here. 

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Pension Definition List

TRA: Teachers Retirement Association; the pension fund for most licensed staff and administrators in schools. 

LCPR: Legislative Commission on Pensions and Retirement; Reps. and Sens. that are appointed to work on pension legislation in MN. 

MSRS: Minnesota State Retirement System; includes legislators, police, corrections and other state workers. 

PERA: Public Employees Retirement Association; includes ESPs, public works and other public employees. 

SPTRFA: St. Paul Teachers Retirement Fund Association; the pension fund for all St. Paul licensed staff and administrators. 

SBI: The State Board of Investment; manages investments for TRA, PERA and MSRS state plans, award-winning low risk returns. 

Pension: Retirement fund that specifies exactly how much money you receive in retirement, manages investment and risk rather than putting it on the individual. 

Multiplier: Part of the pension formula, factor that improves your benefit based on service years. 

Penalty: Or discount/reduction factor. Part of the pension formula, reducing the percentage of a members’ benefit for early retirement before NRA. 

NRA: Normal Retirement Age; the age at which you have a 0% penalty. In MN TRA, this is 65. 

Employee contribution: The money coming out of your paycheck into the pension fund.  

Employer contribution: The money the state and districts put into the pension fund. 

Benefit: The money you actually receive when you retire. 

Tier 1: Employees hired before July 1, 1989, with Rule of 90 or the “step formula.” 

Tier 2: Employees hired after that date, with the “level formula.”

COLA: Cost-of-living-adjustment; increases retiree benefits. 

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Additional information

Pensions systems are complex and can have a learning curve. Unfortunately, there are many sources online that are funded by the anti-educator, anti-public pension movement. We’ve collected some reliable sources here that you can use to broaden your understanding of pensions. 

The National Public Pension Coalition (NPPC) 
As we fight for pro-pension improvements, there are a few resources that could help members with sample messaging, organizing and information. We were happy to have a representative of the NPPC at our pension rally last year. Their website clearly shows the need for excellent pensions for public workers. 

National Institute on Retirement Security (NIRS) 
Another reliable source, the National Institute on Retirement Security is a leading non-profit and educational organization that conducts research supporting retirement security and improvements for workers. 

Specifically, members may be interested in NIRS resources like: 
– Minnesota one-pager. 
– Public opinion on pensions. 
– Pensions decreasing racial and gender wealth inequality. 

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The Pension Advisory Group (PAG)

Education Minnesota’s Pension Advisory Group is comprised of 22 TRA and Education Minnesota members from across the state. These educators meet consistently throughout the year, learn the ins and outs of our pension systems and discuss improvement options. They also are instrumental in organizing members to action and elevating members’ voices for needed change. 

The PAG lobbies elected officials and the TRA board, communicates with and educates members, plans and organizes strategic action and advises the member-led Legislative Action Committee and Governing Board on legislative solutions.  

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