Northfield public employee pensions: What are the facts? What needs to be done?


The StarTribune’s Erik Wieffering had a column on Sunday titled Cheap talk won’t solve crisis over pensions

Local and state governments across the country face potentially ruinous pension and benefit costs. Too bad so many political leaders have decided that the best way to solve the problem is by making public-sector employees Public Enemy No. 1.

In Monday’s NY Times: Strained States Turning to Laws to Curb Labor Unions

Faced with growing budget deficits and restive taxpayers, elected officials from Maine to Alabama, Ohio to Arizona, are pushing new legislation to limit the power of labor unions, particularly those representing government workers, in collective bargaining and politics.

Nov. 11 Time magazine:  Teachers’ $500 Billion (and Growing) Pension Problem

Teacher pensions may not sound like a sexy or even high-profile issue, but keep reading: they’re threatening the fiscal health of many states and could cost you — yes, you — thousands of dollars. And, like the savings-and-loan crisis at the end of the 1980s or the current housing-market mess, insiders see big trouble ahead in the next few years and are starting to sound warnings.

I don’t have any details on the pensions for employees of the City of Northfield, nor for the employees of the Northfield School District.  So let’s crowdsource the facts while we discuss what needs to be done, if anything.


  1. Andy Kornkven said:

    I assure you, Griff, something needs to be done. The first thing that absolutely should happen is that every detail of pensions for school district employees should be revealed to the public, in language that can be easily understood. We should know exactly at what age teachers (and other employees) can retire, what their benefits will be, and who is and will be paying for those benefits. In addition, we should know how these pension benefits agreements came to be, when they were negotiated and agreed upon, by whom, and when will they be up for renegotiation. Also, we should know what happens when, inevitably, these pension funds are found to be “underfunded.”

    This type of information is rarely discussed. When it is, it is made to seem so complicated as to be impossible to grasp. I don’t think this is an accident! Burying something in details is a wonderful way to hide something in plain sight that you’d rather the public not know.

    Public pensions are in my opinion an insidious thing. I think all pensions, public and private, should be abolished. A pension represents nothing more than a promise to pay someone at some point in the future. For public employees, that means one generation “awards” pension benefits to its own members, to be paid for by future taxpayers as yet unborn! How unjust is that?

    January 6, 2011
  2. Andy is right, that is why 401K, 403B, ROTHs etc are so popular with industry now. The core of the problem is the difference between defined benefit plans that promise a cash flow to the pensioner and defined contribution plans that promise to contribute a fixed amount.

    The defined benefit plans put the payor on the hook to provide money from future growth and income. The defined contribution plans require the payor to put money away from current income.

    Defined benefits plans are, by their nature, kicking the obligation into the future, they create a serf-mentality amongst the workers because it allows them to think that planning for the future is someone else’s responsibility.

    Defined contribution plans are painful because the worker is required to defer gratification. Just remember how hard it was for the MN government to sit on a few Billions in “smoke and mirrors” surplus under Venture because the true cost of pension plans was already being kicked down the road. But workers who live with those plans are freer in a fundamental way that workers under defined benefit plans are not. But with that freedom comes responsibility.

    As societies, the first world countries (like the USA and many European countries) are going to have to unwind the pension Gordian knot without causing revolt. As a pensioner (retired USAF) I know that the defined benefit plan I live with has given me the ability to take lower pay and fewer benefits from the start up companies I have worked for since retirement because I counted on that benefit stream. 35 years of planning with that stream in mind means I do not have my own reserves high enough to sustain me. I am SURE many people from industries with strong unions are now in the same boat, because unions have often traded current pay concessions for future promises.

    As a mathematician, I see now, more clearly than when I was young, that this deferred promise is a form of a Ponzi scheme that relies on an assumption that is no longer true. That key assumption is that growth will continue more or less monotonically (as measured by inflation adjusted GDP, this is no longer a good assumption). This assumption was a reasonable conclusion given two other assumptions. First, that the population would continue to grow. Second, that cheap energy would fuel more growth.

    The shift in population demographics is old news, but the ability to project what it means is still in its infancy. The population pyramid is now more of a silo, more so in Japan than here, in fact, and economists seem unable to discuss the implications of this openly with our politicians, all of whom seem to act as if ignoring this elephant in the room will make it go away. In my behind the scenes discussions (limited though they may be) with politicians and their advisors (and I have asked politicians from both major parties), I find few that are willing to even discuss this sort of issue.

    The end of cheap energy is less well understood and often ignored in political discussions. While “peak oil” is still just a sidebar for many, it is less so for our own military, where we see one document that even suggests that peak oil may occur as soon as this decade.

    “By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in
    output could reach nearly 10 MBD.”. Reference: Joint Operating Environment 2010

    With these levels of uncertainty, we should be able to ask exactly what Andy asks for. City staff should be able to routinely provide a set of simple figures with respect to any obligations we put off to the future, whether it is a bonding (borrowing against future taxes) to pay for a new safety center or getting payroll concessions by promising future pension benefits. It should not be too much to ask that they tell us what planning factors they have that let them make those promises in our name. And if they are planning on some outrageous levels of growth (as were used in planning talks about the Northwest Territories of Northfield), it should not be unthinkable for taxpayers to then say “No, I won’t count on a ponzi-scheme of growth to cover this bet.

    Good luck with all that.

    January 6, 2011
  3. We (Andy and I) do agree that defined benefit plans have to go away, the fairness question cuts both ways, though. It may be that the “Greatest Generation” is also be the last generation to see their golden years last more than a few years at best.

    January 6, 2011
  4. By the way, this article is NOT about the coming crisis, that’s old news (CA, Texas, Ireland, Greece, Japan, Cleveland). What it is about is forcing politicians and staffs to be transparent about the mess we are in, which starts by showing the taxpayers the real numbers. But it is also about educating taxpayers on how to ask the right questions.

    January 6, 2011
  5. John McCarthy said:

    It’s not too hard to get information regarding the pension plan for most government employees in Minnesota. For most city employees you can start at Police/Fire and teachers have seperate funds and some larger cities may may have their own funds. Some cities in Minnesota have promised additional retirement benefits, usually a continuation of health insurance made when rates and life expectancy were lower. This is where much of the pension problem in this state apperars to be (see Duluth).

    January 6, 2011
  6. Ray Cox said:

    Bruce is correct….there is inherently a huge problem with defined benefit pensions. They do indeed create a culture where the individual does not take any responsibility for themselves. This has now transcended to health care for older Americans….it is expected to be paid for by the government. No one, other than the self employed it seems, is taking responsibility for their own care. This cannot go on. We have created a huge ponzi scheme that always requires more and more workers to fund the obligations. I think both Bruce Morlan and Paul Zorn, our resident statistics /math experts, would agree that the model for many of our ‘ticking timebombs’ (pensions, nursing homes, etc) is not working, is not sustainable, and must be fixed rather soon.

    January 6, 2011
  7. Andy Kornkven said:

    “It’s not too hard to get information regarding the pension plan…”

    It seems to be standard in these debates for one side to announce how easy it is to get this information — without actually providing any of the information.

    I think Griff’s intention was that we “crowdsource” the issue by providing the details of local government/school district employees’ pension plans. So far that isn’t happening.

    January 7, 2011
  8. Griff Wigley said:

    Andy, good point.

    John, I bounced around the MN PERA site and couldn’t figure out how to access any info about Northfield pensions.

    Can you provide a step-by-step… or copy/paste an example?

    January 7, 2011
  9. Griff Wigley said:

    This blog post by Ventura California City Manager Rick Cole shows a level of understanding that can help avoid demonizing either side in this debate: Public pay disconnect and the magic of dialogue

    But the folks who’ve sat down with me to discuss their deep concerns are thoughtful individuals whose views are widely shared amongst the public and public employees. The problem is those views aren’t shared between the public and public employees.

    It’s almost as if they were watching two different movie versions of our times.

    In the movie the public is watching, families and businesses are hurting deeply, with crippling unemployment, foreclosures and bankruptcies. In the private sector, employers and employees are living on a knife’s edge, uncertain whether there will be money in the bank for payroll or a job to collect a paycheck from. While over on the public payroll, while there is belt tightening, hardly anyone misses a paycheck and everyone can look forward to a guaranteed retirement beyond the dreams of most taxpayers who’ve seen their 401Ks ravaged. The rising costs of subsidizing those pensions seems like a leading cause of services being decimated: a library and fire station closed, medians full of weeds and frustrating waits for all kinds of services, including even cashing checks sent to pay annual business license fees.

    Meanwhile, on another screen at the cineplex, public employees are watching a very different movie. In this version, public employees are working harder than ever and getting attacked as lazy freeloaders. The demand for services hasn’t gone down (and in some areas, gone up) but there are 100 fewer people around to get it done. While Ventura employees were the first to step up in the crisis with 15 months of voluntary pay-cuts and unpaid furloughs, now an ungrateful City Council is demanding deep permanent wage reductions. Yet public employees are hurting like everyone else, spouses laid off, houses being foreclosed and credit being tightened. What’s worse, they find themselves well behind what people are getting in pay and benefits in other cities for doing the exact same job. With a big rise coming for medical insurance payments with no additional contribution from the City, they feel like their backs are to the wall.

    January 7, 2011
  10. Phil Poyner said:

    Wow Griff, I’m truly impressed with Mr Cole’s ability to summarize the situation in such a clear manner without berating either side of the discussion. He has a very rare skill in this day and age. Thanks for posting it.

    January 7, 2011
  11. Doug Oines said:

    The MN Public Pension funds are micromanaged by politicans that say and do inappropriate things solely to get reelected.In my opinion the collective financial wisdom of politicans is unremarkable.

    Fact: MN public employees are required by law to belong and contribute to the MN Public Employee Retirement Funds.

    Fact: MN public employees have funds deducted from their paychecks to fund their retirement.This deduction is approximately matched by the public employer.

    Fact: During good financial times the State has raided public employee retirement funds for “its own” purposes.

    Fact: Tax law generally prohibits a public employee from fundung his/her own individual IRA or 401.

    Opinion: During good financial times, giving the retirees huge, permanent raises was a serious mistake.

    Opinion: Allowing the nearly bankrupt independent Mpls. Teachers Fund to join the MN State fund was a serious mistake. Their problems were simply dumped onto the State.

    Opinion: Even though I attended and voiced my opinions at many MN retirement group meetings, it was not enough.

    Opinion: To suggest that public employees have not been responsible in their retirement planning and funding shows a very significant lack of understanding of the real issues.

    January 7, 2011
  12. John McCarthy said:


    I don’t believe Northfield has a “pension” plan which is dedicated to city employees. In Minnesota, whether you are in Northfield or Northome, Dundas or Duluth, PERA is the retirement plan. The plan is funded by employer/employee contributions much like Social Security. One of the major differences is that it is managed by a board of trustees established by state statute which includes people who are covered by PERA. The board has made some of the hard decisions that are often asked of “politicians” including increasing the amount of contributions and decreasing the benefits. All of that information is available on the website. Have their decisions always been perfect? Probably not, but I suggest a read of the history would show they haven’t done too bad, especially when compared to some pension decisions made by private industry and investors.
    Benefits are based on length of service and an average of the highest five years of wages. The longer you work (and contribute)and the higher your pay (and contribution), the higher your benefit when you retire.

    January 7, 2011
  13. Andy Kornkven said:

    “MN public employees have funds deducted from their paychecks to fund their retirement.This deduction is approximately matched by the public employer.”

    This is true; so it would seem that the employees are funding their own pensions, with equal help from their employer, right? Well, not exactly. I know that in the case of school employee pensions, taxpayers are on the hook to make up the difference between what exists in the fund, and what is the defined payout.

    So if, for example, a pension fund is managed with “rosy scenario” expectations — e.g., that the stock market will go up 7%/year indefinitely — that don’t pan out, the retired employees still get their “defined benefit,” with taxpayers footing the bill.

    This is the fundamental difference between public employee “defined benefit” pensions, and the typical 401K plan in the private sector. If you invest your 401K money (together with the matching funds from your employer) in the stock market, and the market tanks — too bad for you. Whatever is left in the fund is what you get.

    January 7, 2011
  14. Phil Poyner said:

    It would seem to me that the info you want is found in the beneficiary handbooks, the brochures the employees use to figure out their own benefits. The trick is to find out what plans local public employees fall under. I’d say that the school district has more public employees than any other entity, so start there. Licensed staff fall under the Teachers Retirement Association (TRA)… Non-licensed staff fall under the Public Employees Retirement Association (PERA)…their basic plan info is at I wouldn’t be surprised if most other local public employees also fell under PERA, althought some of our emergency responders may fall under a special PERA Police & Fire Plan ( or PERA Statewide Volunteer Firefighter Retirement Plan (

    State employees are generally covered by the MN retirement system…

    If I’m in error with anything I’ve mentioned so far, feel free to correct me. I’m not an HR specialist.

    I’m sure some folks would love to have the particulars of these plans described in “simpler terms”…I don’t think that’s possible without leaving relevant information out. But you asked for some facts…and here you’ll find them.

    January 7, 2011
  15. John McCarthy said:

    I suggest reading the Director’s Corner under the About PERA tab on the website. Whether you agree or not, it should at least form a basis on which to ask questions about the Minnesota Public Employee Retirement Association.

    January 7, 2011
  16. John McCarthy said:

    My comment 6.1 was meant to be a suggestion to all, not a reply to Mr. Oines.

    January 7, 2011
  17. Ross Currier said:

    Perhaps I’ve been reading different sources, but I haven’t seen any pieces that say, essentially, “the reason we’ve got unfunded pension plans is because public sector workers are lazy”. Instead, the consensus of the opinions I’ve read is that the negotiators on both sides of the table, elected officials and union officials, have been “kicking the can down the road”, agreeing to pension promises that are unfunded.

    Admittedly, there definitely seems to be some tension between private sector workers and public sector workers. Some of it may come from the difference between the the private sector’s standard “defined contribution” and the public sector’s standard “defined benefit”.

    I know several people in Northfield, elected officials and appointed officials, who have asked about the funded and/or unfunded portions of the City’s pension promises. They’re received the same “go dig through the state pension fund website” answer.

    Perhaps there will soon be more light shed on this subject. According to today’s WSJ “Rep. Devin Nunes (R., Calif.) plans to introduce a bill to require states to disclose the size of their public-pension obligations in order to keep their federal tax-exempt bonding authority.” It might make sense to extend this requirement to municipalities.

    See full article “Bernake Rejects Bailouts”:

    January 8, 2011
  18. Andy Kornkven said:

    “….elected officials and union officials, have been “kicking the can down the road”, agreeing to pension promises that are unfunded.”

    Exactly. And why not? Neither of these parties has any incentive to make sure the funds are adequate, because if they’re not, taxpayer are obligated by law to make up the difference. Union officials actually have an incentive to keep contributions to the fund by members to a minimum, knowing the benefits will be paid in full no matter what.

    The elected officials who make these agreements can expect to be well into retirement themselves when the bills come due — ironically, many of them enjoying accolades in print for having “kept the peace with labor” while in office.

    January 8, 2011
  19. Andy Kornkven said:

    Well, it’s been about 18 comments so far, and still no details about anyone’s pension in our local government or school district. I imagine a handful of teachers have come across this thread and decided to pass on the opportunity to share with us the information we’re trying to gather. I understand that most teachers are probably quite busy correcting papers and such, so I will instead step up and discuss the pension I myself expect to receive as an employee of the federal government.

    We air traffic controllers are eligible for a full retirement and pension at the age of 50, or after 25 years of service, whichever comes first. So an employee hired at age 23 can retire at 48, while no one has to wait till past his fiftieth birthday to be eligible. Retirement for this profession is mandatory at age 56.

    For one who retires at 50, the pension benefits formula begins with at 37% of his “high three,” meaning an average of his base pay for his three highest earning years. (I should stop here and admit that even after nearly 20 years in this profession, I still don’t fully understand the retirement benefit formula, and I don’t think anyone else does either.)

    Most of those I’ve talked to who’ve retired recently are expecting to receive between $50 – $70K per year throughout their retirement, which of course lasts until death. Therefore it is possible for one who lives to 90 to have worked only twenty years but receive pension payouts for twice that length of time!

    The retiree also gets to “take his health care with him,” with some portion of the premiums paid by the government.

    Retirees can, of course, find other employment and still receive their pension on top of their new wages.

    This is obviously a very generous plan, and I believe it is similar to what other federal employees — FBI agents, US Marshalls, Foreign Service, etc. — receive. It is probably more generous than what school district employees receive, but not by much.

    I consider it an outrage that some can look forward to a well-paid retirement at such an early age, while many in the private sector are scrambling with unemployment, job insecurity, global competition — and yet must still pay taxes to fund the pension benefits of their public employee neighbors!

    The real outrage, though, is that so much of this is kept in secrecy, out of the public view — even in our own community of Northfield.

    January 8, 2011
  20. Doug Oines said:

    Forcing states to disclose unfunded public pension liability seems like good policy. Changing the existing structure of public pensions to resemble that of business and industry (401) also seems like good policy. The immediate problem is what to do with the present situation wherein there are thousands of very senior citizens from the public sector that are retired based on the promises made by the politicans.

    The present situation with most groups of the MN Public Pension Funds is that there will be zero raises in 2011 and 2012. After that, the raises will be capped at 2% annually until the MN Public Pension Fund has made drastic financial improvement.I predict the pending 2% annual raise will be cut to zero.

    It is my understanding that Wisconsin changed laws to allow public pension fund payouts to be significantly reduced.

    Opinion: The unions try hard to create equity. With administrators and managers of business and industry making more in one year than we working slobs will make in 5 lifetimes, it seems fitting and appropriate for unions to form and try to negotiate what is fair. Fortunately, the pay disparity between management and the workers in the public sector isn’t too bad……yet. (Obama’s recent comment that a six figure annual income isn’t “all that much” was totally uncalled for.)

    January 8, 2011
  21. Ray Cox said:

    Andy and others make very good points. When I first was elected to the school board there were two things that I could not understand….1) why we didn’t have to book accrued vacation and sick days on our ledgers and 2) why we didn’t have to track and book pension liabilities. No one could ever explain to me why, other than to state “our accounting (UFARS) doesn’t require it.” Essentially, if a school district had some type of epidemic where the regular teachers couldn’t come teach and subs were hired, we would go broke very, very quickly.

    Businesses are required under a variety of regulations to report contingent liabilities on their books. Even things like pending lawsuits that have not been settled must be listed.

    Our government pensions, as Andy nicely points out, are unsustainable….end of story. We don’t have enough workers tokeep them running as they were essentially set up as long running ponzi schemes. We can no longer continue defined benefit plans. Frankly, I’ve never understood why unions are so set on defined benefit plans either. With a defined contrubiton the money is all yours to manage AND to leave to others after you die. With a defined benefit the money comes until you die, then there is nothing more to be had.

    But my main objecdtion to government or any type of corporate pensions is their very existence. Individuals should be in charge of their own financial planning. Why should any business or government take charge of retirment planning for people? Let the individuals to it. I have no problem with employers and employees matching funds…but let the funds be placed in accounts the employee owns, be it 401k’s, 403b’s, or whatever. The culture we have created where someone else is in charge of retirement planning is a poor idea.

    We also run into management problems with public pensioins that can have huge impacts. An earlier posting noted what can happen when a poorly managed plan gets merged into a plan that has public financing behind it. Mayor RT Rybak of Minneapolis is in a battle trying to fix their public pensions for police and fire. The courts have ruled he managers did not follow proper procedures—-but how do you get the public money back? You either have to reduce current pension payments substantially or try to take money back from those who improperly received it. Either option is difficult.

    January 9, 2011
  22. Doug Oines said:

    Opinion: The working poor live a hand to mouth existence.They have no reason to learn about retirement funding when the daily task of just providing subsistance is overwhelming.For these people forced retirement saving such as Social Security is necessary. Also, there are many gullible people that, even though highly educated,will fall victim to creeps like Bernie Madoff. Protecting the retirement savings for those gullible people is possibly a large problem. I don’t believe for one minute that our society would allow those people to be dumped on the street just because they became suddenly poor. It would be a tragic error to do so. For sure, our public education system could do much more in the education of youth (and adults?) on matters regarding personal finance.

    January 9, 2011
  23. Ross Currier said:

    Good news and bad news on Minnesota Pensions from the PEW Center on the States. The good news: Minnesota is in much better shape than Illinois; the bad news: it looks like there is almost $10.8 billion in unfunded liabilities for pensions:
    It should be noted that the state has 81 percent of its total pension liability funded — just above the 80 percent benchmark that the U.S. Government Accountability Office says is “preferred by experts”.

    January 10, 2011
  24. Griff Wigley said:

    Thanks for that, Kent. I see “Northfield” in several places in that report. So let’s discuss what this means.

    January 10, 2011
  25. Doug Oines said:

    Kent: Thanks for the link to MN State Auditors Report. It was very helpful. It would be interesting to read your comments as to what you think should be done to correct the problem.

    January 10, 2011
  26. Ray Cox said:

    There is more problem to unfunded health care obligations than a budget shortfall. The bigger issue in my mind is that if you are going to honor these unfunded liabilities, the people that will be funding them are not the ones that had any “benefit” from the initial obligation. In other words, if the school board agrees to fund health care costs for teachers that retire early at age 50 or 55 until they turn 65, they are doing so to eliminate high salary costs. That provides an immediate “benefit” to a school budget—-but it creates a huge budget problem for a future budget.

    We just saw the results of this type of thinking in the auto industry. GM agreed to contract settlements with their unions that were essentially unsustainable. Once the obligations started to come due, coupled with a slump in sales, it mushroomed into an enormous problem. One way out of it was for the government to step forward with funding, which was done. But the people that benefited from this deferred obligation….everyone from past shareholders, bond holders, administrators and of course the workers themselves….were oftentimes long gone.

    January 10, 2011
  27. john george said:

    Ray- I think you raise a very important consideration when it comes to any unfunded plans mandated by the Legislature. I think we are going to see it with both SS & healthcare for the aging general public. One of the things that made this work in the past was a large middleclass skilled labor force. I believe there are two things that are affecting this system. 1) Manufacturing moving off shore. How many jobs were created in this last year off-shore? Something like a million or so? 2) The birth rate is leveling off, so with we baby boomers leaving the workforce and needing health care/living expenses, the burden of carryiong this falls on a smaller percentage of the population. Over the last couple decades, the percentage of SS contributors has leveled off and begun to decline. This is just not good news for us, especially with the disparency in age of the workforce. I think you refered to this as a ponzi scheme, and I think you are correct.

    January 10, 2011
  28. Kent Laugen said:

    Northfield, like many districts, began offering retiree health care some 15 years ago, when premiums were maybe $100/mo. Fast forward to present and the costs have soared. The problem is most districts did not set funds aside to pay for these benefits.

    Example the Red wing district last year sold $13,000,000 in bonds to cover their obligation. Of course, that’s money taken away from school operations.

    The Government Accounting Standards Boards GASB issues a ruling in about 2005 requiring governmental units to do an actuarial study to determine its liability and to include that in the school’s balance sheet.

    These benefits are referred to as OPEB, Other Post Employment Benefits.

    As for Northfield, I’d start with the school district’s finance director and ask for a copy of their OPEB actuarial study, ask if they’ve done any bonding, and how much they’ve set aside in reserves.

    I’ve posted on these OPEB issues here:

    January 10, 2011
  29. Andy Kornkven said:

    Except that we really couldn’t. When someone says a fund is “77% funded,” that’s just an actuarial estimation, based on such factors as projected life expectancy, stock market performance, and future contributions. If some of these estimations turn out to be incorrect, the fund that we thought was 77% funded might turn out to be 47% funded — or worse.

    This is what needs to come to an end as soon as possible. The idea of guaranteed benefits for an entire class of people, the costs of which are unknown, but which must be paid by a future generation of taxpayers, should never have been agreed to and should be terminated now. The public employees need to go to a standard 401K-type system such as what most private sector employees get.

    January 11, 2011
  30. Andy Kornkven said:

    I’m curious, did the Red Wing bond sale come as the result of a voter referendum? Did voters willingly approve a $13M levy knowing all the money was to cover future retirement benefits for teachers? Requiring such levies would be a great way to raise awareness among taxpayers about the lavish pensions awarded to school district employees. Of course, even if a levy would not pass, taxpayers are still ultimately responsible for the obligations.

    Another note: I believe OPEB refers to benefits “other” than actual pension payments. Voters will be much more willing to tax themselves for someone’s health benefits than they will for that same person’s $40K/year pension payout, especially if they are aware that this person is retiring in his early fifties!

    January 11, 2011
  31. Kent Laugen said:

    The Red Wing School Board opted to bypass a voter referendum. That option is no longer possible. I’m not so sure voters are willing to tax themselves for $100,000 severance packages for others, and that is why the board didn’t put it out to the voters.

    January 11, 2011

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