More headway on funding goals
An average investment year and the continuing positive impact of 2018 sustainability legislation combined to make fiscal year 2019 a solid one for TRA’s finances. The TRA investment portfolio earned a return of 7.3 percent for the 12-month period ending June 30, 2019. The TRA assets at fair value that are used to pay benefits increased during the period from $22.4 billion to $22.9 billion, as of June 30, 2019. More information is available in TRA’s 2019 Comprehensive Annual Financial Report.
Investments: All TRA assets are invested by the Minnesota State Board of Investment (SBI). During fiscal year 2019, domestic stocks returned 8.5 percent and international stocks provided a return of 1.1 percent. The fixed income (bond) portfolio rose 8.2 percent. The private markets class, including real estate and private equity, posted a return of 10.4 percent for the fiscal year.
Revenue: The TRA investment portfolio produced net income for the fiscal year of $1.6 billion. Total employee and employer contributions were $827.5 million. Total net operating revenue was $2.4 billion.
Expenses: Benefit payments for the year were $1.9 billion. During the fiscal year, TRA paid refunds of member contributions of $14.1 million to members who left teaching and chose to withdraw their contributions plus interest. Total administrative expenses for the year were $15.2 million.
Funding Status: The 2018 legislature enacted significant changes to TRA actuarial assumptions and plan provisions. TRA’s long-term investment return assumption was lowered from 8.5 percent to 7.5 percent. Other economic assumptions were modified. Several plan provisions, such as a reduction in the retiree cost of living adjustment and increased reductions for retiring prior to normal retirement age also were enacted. Employer contribution increases, phased in over six years, began July 1, 2018, and an employee increase will begin in 2023.
On June 30, 2019, the market value of TRA assets was $22.9 billion. Actuarial liabilities were $29.2 billion, producing a funded ratio of 78.2 percent. This was a slight improvement from the prior year funding ratio of 78.1 percent.
The contribution deficiency was calculated at 0.45 percent of active member payroll. However, future contribution rate increases passed by the 2018 legislative are not considered in this calculation until they are implemented. If those contribution rate increases are considered, the contribution deficiency would have reversed and produced a contribution rate sufficiency of 0.63 percent.
At current projections and if all actuarial assumptions are met, TRA will achieve a 100 percent funded ratio in 2042.