Dear TRA Board Members,

Good evening!

In the interest of helping teachers and aspiring teachers understand what their total compensation is if they work in MN, it would help to know how much their employer is helping fund their retirement.

The MN TRA website and newsletters, and brochures for new teachers, provide a bunch of numerical information. However, as far as I can tell, there is no explanation for letting teachers know that all of their employer’s contribution made on their behalf to the pension plan does not in fact help fund their future expected benefits.

To have an accurate accounting of total compensation, a teacher cannot assume that all of their employer’s contribution is funding their retirement. Instead, the teacher needs to know what part of that employer contribution will actually fund their benefit.

In the interest of transparency, I ask that MN TRA post on their website an explanation showing how much of the employer contribution goes toward funding the expected/average future benefits of current teachers.

This can be computed by using the normal cost percentage found in the latest actuarial study, because the normal cost shows the percentage of an employee’s salary needed each year to fund their expected future benefit, given an assumed rate of return on investments. Therefore, the difference between the normal cost percentage and the employee contribution percentage will indicate just how much is needed from the employer to help fund the expected future benefit.

For example, if the normal cost percentage is 10%, and the employee contribution rate is 8%, then the employer will need to chip in 2% of the teacher’s salary to fund the expected future benefit of the teacher. Note that in this example, even though the employer may also be contributing something like 8% to the pension fund, only a quarter of that 8% (2/8 = .25) is used to fund the expected future retirement benefit of the current teacher.

In the interest of transparency to teachers and the public at large, I ask that a note be included that states that the headline employer contribution rate (currently over 8%) does not in fact indicate how much the employer is helping fund the current teacher’s retirement, because much of the employer contribution accrues to current retirees, rather than to pay for future benefits.

In the interest of transparency to teachers and the public at large, I ask that a note be included that states that the actual employer contribution rate to a current or new teacher’s retirement is in fact the difference between the normal cost percentage and the employee contribution rate.

I also ask that the above explanation be included in the next TRA newsletter and all brochures sent to new hires. Every teacher should have access to this information in order to be able to put an estimate on the total compensation they receive, or will receive, at their job, in order that they can make more informed career choices.

Thank you in advance for showing accountability and transparency to the Tier II educators of Minnesota!

Brent Bovitz

Eden Prairie