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H.F. No. 10 - Minnesota State Retirement System (Minnesota Laws 2019, Chapter 8) (First Special Session - 2019)
 
Author: Senator Julie A. Rosen
 
Prepared By: Stephanie James, Senate Counsel (651/296-0103)
 
Date: May 30, 2019



 

This summary was prepared by the Legislative Commission on Pensions and Retirement (www.lcpr.leg.mn).

S.F. 6 (Rosen) is the 2019 Special Session pension and retirement bill. The bill contains bills and amendments approved by the Legislative Commission on Pensions and Retirement during the 2019 legislative session, and was passed in its entirety by the Commission as a draft bill on May 23, 2019.

Article 1. Minnesota State Retirement System (MSRS) Administrative Provisions

This article makes a number of administrative changes to the plans administered by MSRS. Primarily those changes do the following:

  • Clarify voting right for members of the Unclassified Plan and inactive vested members to vote in Board of Director elections;
  • Establish a process that clearly defines when a benefit application has been filed with MSRS and what documents are required to apply for a benefit;
  • Correct an error in the 2018 omnibus retirement bill related to the calculation of augmentation for former University of Minnesota Hospital (Fairview) employees; and
  • Make other minor administrative, technical changes or conforming changes.

Article 2. Public Employees Retirement Association (PERA)

Military Service Credit Purchases.

This article expands the right of members covered by the PERA general, police and fire, and correctional retirement plans to purchase service credit for periods of military leave. It adds two new sections:

  • 353.014 is a restatement of current law regarding service credit purchases for military leave that is also subject to federal law (USERRA), with the addition of new requirements to ensure the returning military service member receives notice of his or her right to purchase service credit.
  • 353.0141 gives members the right to purchase up to five years of service credit for military service leave that is not federally protected because either the service occurred prior to public employment or the member did not meet the payment deadlines applicable to federally protected leave purchases. A member requesting to purchase the leave must pay an administrative fee of $250 for the cost of calculating the purchase price, which will be credited toward the purchase if the member decides to do the purchase. The service credit purchased cannot be used in calculating a disability pension.

Phased Retirement Option.

This article makes permanent a program administered by PERA called the “post-retirement option” (PRO). The program was established in 2009. The program is available to members of the PERA General Employees Retirement Plan who are age 62 or older. The program allows eligible members to enter into an agreement with their employer to continue working half time or less while collecting a retirement annuity. Under the program, a member is not allowed to contribute to a pension benefit or accrue additional service credit.

This article also makes several changes to the program including adding additional reporting requirements for employers, changing the maximum initial agreement period from one year to five years and renaming the program as the “Phased Retirement Option.”

Increase in the Minneapolis Payments to PERA P&F for Relief Associations.

The last two sections of Article 2 (before the repealer) establish the annual amounts to be paid by the City of Minneapolis to the Public Employees Police and Fire Retirement Plan (PERA P&F) on behalf of the Minneapolis Police Relief Association (MPRA) and the Minneapolis Firefighters Relief Association (MFRA). The payments are intended to cover the unfunded liabilities taken on by PERA P&F when the MPRA and MFRA were merged into the PERA P&F plan in 2011. Under current law, the payment amount has fluctuated significantly since 2011 because the payment amounts are required to be recalculated when actuarial assumptions change.

To end the volatility in the amounts due whenever a recalculation is required, PERA and the City of Minneapolis have agreed to fixed amounts that will no longer be subject to recalculation. For MPRA and MFRA, the City will annually pay $4,489,837 and $3,188,735, respectively, starting in 2019, through 2031.

Article 3. PERA Statewide Volunteer Firefighter Plan (PERA SVF)

This article establishes a process through which a municipality, independent nonprofit firefighting corporation, or a joint powers entity may terminate participation in the PERA SVF plan. The process includes fully vesting firefighters in their pension benefits, allocating any assets in excess of benefit liabilities, and making immediate distributions. A session law grandfathers any termination already underway and establishes a termination date, which will permit the Brevator Township to terminate participation and its former firefighters to receive distributions of their pension benefits.

Article 4. Volunteer Firefighter Relief Associations

State Auditor Fire Relief Association Working Group Recommendations.

This article includes a number of provisions modifying the requirements for volunteer firefighter relief associations, as recommended for legislation by the State Auditor’s Fire Relief Association Working Group. Many of the changes are administrative or technical in nature (e.g., clarifying break-in-service requirements, correcting terminology, and updating filing requirements for bylaw amendments). The substantive changes include:

  • Reducing the permitted graded vesting schedule from 20 years to 10 years for defined benefit relief associations;
  • Adding provisions regarding the applicable benefit level when a firefighter does not return from a leave or when an inactive firefighter dies or becomes disabled; and
  • Allowing supplemental benefits to be paid to designated beneficiaries and estates, where there is no surviving spouse or children.

City of Austin.

The 2018 omnibus retirement bill provided a special exemption to the City of Austin from the general requirement that municipalities must pay all fire state aid to their affiliated volunteer fire-fighter relief association. The exemption allows the City to allocate fire state aid between its relief association and contributions to PERA P&F for its full-time firefighters. The exemption is currently set to expire on July 1, 2019. The last section of Article 4 is a session law that extends the expiration date indefinitely, until the effective date of general legislation that permits the allocation of fire state aid.

Article 5. Minnesota State Colleges and Universities Retirement Provisions

Employee Contributions to the Higher Education Individual Account Retirement Plan (IRAP).

Current law allows members of the IRAP to elect to transfer from the IRAP to the Teachers Retirement Association (TRA). This election does not comply with federal Internal Revenue Code requirements and IRS guidance. Article 5 includes provisions that increase the employee contribution rate to match the TRA employee contribution rate, which is one of two alternatives for bringing the IRAP into compliance. (The other alternative—not included in this legislation—would have been to eliminate the election to transfer to TRA.) The current employee contribution rate of 4.5% is increased to 7.5%, effective July 1, 2019, and is tied to the TRA rate thereafter. The employee contribution rate for employees who are not eligible for an election is increased over a five-year phase in, which brings their contribution rate equal to the TRA rate by July 1, 2024.
Extension of Early Separation Incentive Program.
Minnesota State’s early separation incentive program allows Minnesota State to offer incentives to induce eligible employees to retire as early as age 55. The incentives may be in the form of a cash payment not to exceed one year’s salary, and/or a contribution to the employee’s health care savings plan account. Article 5 includes provisions that remove the sunset clause for the program, making the program permanent. Under current law, the program expires on June 30, 2019.

Administrative and Technical Provisions.

This article includes a number of technical and conforming changes. The most significant of these is the recodification of current Minnesota Statutes, Section 354B.21, into new Section 354B.211. Section 354B.21 governs the eligibility criteria and election options for members of the IRAP. The recodification and reorganization of Section 354B.21 improves the readability of the provisions, reduces ambiguity, and does not make any substantive changes.

Article 6. Generally Applicable Retirement Plan Changes

This article consists of changes to Chapter 356, which is the chapter that applies to all public pension and retirement plans:

  • The first section was included in the recommendations of the State Auditor’s Fire Relief Association Working Group bill and amends current law to increase the threshold for plan assets required before an entity is subject to a more stringent investment reporting requirement from $25,000,000 to $50,000,000.
  • The second section of Article 6 makes changes to the method for calculating actuarial present value, for use in determining the cost of purchasing credit under the PERA plans for periods of military service.
  • The third section is a new section that applies to the statewide retirement systems and the State Board of Investment, which are currently exempt from using MN.IT services. This provision inserts that exemption into Chapter 356.
  • The fourth and fifth sections are new session laws that creates a one-year exemption for the City of St. Paul and the St. Paul School District, allowing them to continue to make contributions to supplemental pension and retirement plans on behalf of trade union employees for one year, until June 30, 2020. Current law prohibits contributions to supplemental plans unless specifically allowed as an exception; however, the exceptions in current law do not cover most of the contributions being made by these employers to a number of multiemployer plans. The LCPR staff is required to work with the affected groups to propose legislation for consideration during the 2020 legislative session that would resolve the noncompliance.

Article 7. Special Legislation for One Individual

This article allows an individual employee of Minnesota State, who is currently in the IRAP, to elect prospective and retroactive coverage under TRA. The individual has one year to elect to make the transfer. If the individual elects to make the transfer, the individual is required to pay (1) the difference in the amount of the employee contributions that would have been contributed to TRA for the period compared to the amount that was contributed for the period to the IRAP, plus interest, and (2) an amount equal to the individual’s IRAP account. Minnesota State is required to pay the difference between the individual’s payments and the actuarial value of the employee’s new pension benefit under TRA.
The individual is authorized to use funds from other pre-tax sources to pay the amount that would have been transferred from the individual’s IRAP account, if TRA decides that it cannot accept the transfer from the IRAP. Such funds could come from the individual’s account in the Minnesota State supplemental retirement plan, the Minnesota Deferred Compensation Plan, a 403(b) plan or an individual retirement account (IRA).

Article 8. Technical Corrections

This article makes a number of technical changes. The changes correct errors in the 2018 omnibus retirement bill, update terminology, and make other minor language revisions and clarifications.

 
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