Progress toward funding goals
A favorable investment year and the passage of sustainability legislation during the legislative session combined to make fiscal year 2018 a very good one for TRA’s finances. The TRA investment portfolio earned a strong return of 10.3 percent for the 12-month period ending June 30, 2018. The TRA assets at fair value that are used to pay benefits increased during the period from $21.25 billion to $22.35 billion, as of June 30, 2018. More information is available in TRA’s Comprehensive Annual Financial Report. View it at MinnesotaTRA.org/financial/annual-reports.
INVESTMENTS: All TRA assets are invested by the Minnesota State Board of Investment (SBI). During fiscal year 2018, domestic stocks returned 15.4 percent and international stocks provided a return of 7.5 percent. The fixed income (bond) portfolio rose just 0.1 percent. The private markets class, including real estate and private equity, posted a return of 14.8 percent for the fiscal year.
REVENUE: The TRA investment portfolio produced net income for the fiscal year of $2.16 billion. Total employee and employer contributions were $791 million. Total net operating revenue was $2.95 billion.
EXPENSES: Benefit payments for the year were $1.82 billion or about $152 million/month. During the fiscal year, TRA paid refunds of member contributions of $13.1 million to members who left teaching and chose to withdraw their contributions plus interest. Total administrative expenses for the year were $15.7 million. Total operating expenses were $1.85 billion.
FUNDING STATUS: The 2018 legislature enacted significant changes to TRA actuarial assumptions and plan provisions. TRA’s long-term investment assumption was lowered from 8.5 percent to 7.5 percent. Other economic assumptions were modified. Several plan provisions, such as a permanent reduction in the retiree cost of living adjustment and stronger 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, 2018, the actuarial value of TRA assets was $22 billion. Actuarial liabilities were $28.6 billion, producing a funded ratio of 76.9 percent. This was a slight improvement from the prior year funding ratio of 76.8 percent.
The contribution deficiency was calculated at 1.08 percent of active member payroll. However, future contribution rate increases passed by the 2018 legislature are not considered in this calculation until they are implemented. If those contribution rate increases had been included, the contribution deficiency would have reversed and produced a slight contribution rate sufficiency.
At current projections and if all actuarial assumptions are met, TRA will achieve a 100 percent funded ratio in 30 years.