TO: Members of the Prior Service Credit Purchase Subcommittee

FROM: Lawrence A. Martin, Executive Director

RE: Proposed Legislation With Generalized Service Credit Purchases

S.F. 313 (Larson); H.F. 303 (Cassell): PERA-P&F; Service Credit Purchase For Prior Police Or Paid Firefighter Service

S.F. 370 (Wiger); H.F. 465 (Marko): PERA; PERA-P&F; PERA-P&F Prior Military Service Credit Purchase Authorization Modifications & PERA Prior Military Service Credit Purchase Authority Elimination

S.F. 409 (Solon); H.F. 619 (Swapinski): Various; Public Pension Plans Prior Military Service Credit Purchase

S.F. 517 (Betzold); H.F. 122 (Skoglund): Various; Service Credit Purchase For Parental Or Family Leaves Of Absence Or Breaks In Service

S.F. 611 (Betzold); H.F. 1240 (Bernardy): Various; MSRS, PERA, TRA, & State Troopers Prior Military Service Purchase Restrictions Elimination

S.F. 1321 (Pogemiller); H.F. 1462 (Mares): TRA; Prior Service Credit Purchase Payment Amount Determination Procedure Expiration Date Extension

DATE: March 12, 2001

General Summaries of the Proposed Legislation

S.F. 313 (Larson); H.F. 303 (Cassell) amends Minnesota Statutes, Chapter 353, the Public Employees Police and Fire Retirement Plan (PERA-P&F) governing law, and Minnesota Statutes, Section 353A.10, Subdivision 1, the local police and paid fire consolidation account prohibition on purchase of prior public or paid fire service credit, by authorizing PERA-P&F members with at least three years of PERA-P&F service credit to purchase PERA-P&F service credit for up to ten years of prior public or paid firefighter employment covered by a local police or paid fire relief association, with the purchase at the full actuarial value payment amount. The authority expires on May 16, 2002.

S.F. 370 (Wiger); H.F. 465 (Marko) amends Minnesota Statutes, Section 353.01, Subdivision 16a, which is the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General) and the Public Employees Police and Fire Retirement Plan (PERA-P&F) prior military service credit purchase provision, by limiting the purchase provision to PERA-P&F only, by limiting the service credit purchase period to four years, and reducing the purchase payment amount from the full actuarial value payment amount to the equivalent member contribution amount for the first year of public employment per year of service credit to be purchased, without interest.

S.F. 409 (Solon); H.F. 619 (Swapinski) adds a section to Minnesota Statutes, Chapter 356, governing public retirement plans generally, which permits participants covered by most Minnesota defined benefit public employee pension plans to purchase up to five years of allowable service credit in the public pension plan for military service rendered before becoming a public employee, if not previously purchased in another defined benefit public pension plan, by paying the annual member, employer, and any additional employer pension plan contributions attributable to the post-military public employment, multiplied by the length of military service to be purchased, plus 8.5 percent simple annual compound interest from the start of public employment to the final date of installment purchase payments or purchase payment deductions.

S.F. 517 (Betzold); H.F. 122 (Skoglund) amends Minnesota Statutes, Chapters 352, 352B, 353, 356, 422A, and 423B, the statute chapters governing the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General), the MSRS Correctional Employees Retirement Plan (MSRS-Correctional), the State Patrol Retirement Plan, the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General), the Public Employees Police and Fire Retirement Plan (PERA-P&F), the Minneapolis Employees Retirement Fund (MERF), and the Minneapolis Police Relief Association, and amends the special law governing the Minneapolis Fire Department Relief Association, by adding authority to purchase defined benefit pension plan allowable service credit for periods of previously uncredited parental or family maternity leave or periods of employment gaps related to pregnancy, maternity, parenting, or other family care responsibilities. The purchase payment requirement is the full actuarial value of the benefit obtained by the purchase and is the obligation of the member unless a current or prior employer agrees to pay a portion of the payment amount. The purchase authority expires in 2003.

S.F. 611 (Betzold); H.F. 1240 (Bernardy) amends Minnesota Statutes, Sections 352.275, Subdivision 1; 352B.01, Subdivision 3a; 353.01, Subdivision 165a, Subdivision 1; and 354A.097, Subdivision 1, the 1999 and 2000 prior military service credit purchase provisions, by eliminating the restrictions on the purchase authorization that the purchaser not be permitted to purchase military service beyond the initial period of enlistment, induction, or call to active service and that the purchaser not be entitled to a current or deferred U.S. military pension plan retirement annuity.

S.F. 1321 (Pogemiller); H.F. 1462 (Mares) amends portions of Minnesota Statutes, Chapter 354, the Teachers Retirement Association law; Chapter 354B, the law governing the Minnesota State Colleges and University (MnSCU) Individual Retirement Association Plan (IRAP); and Chapter 356, the law governing retirement plan generally, by making the following changes:

1. Tribal School and Foreign Public School Purchase. Minnesota Statutes, Section 354.534, Subdivision 1, the TRA prior out-of-state public school teaching service purchase, is amended to also include educational institutions established and operated by an American Indian tribe or by a foreign country public educational institution.
   
2. College Supplemental Available For Refund Repayments And New Service Credit Purchases. Minnesota Statutes, Section 354.539, the authorization to use the MnSCU College Supplemental Fund account to pay various service credit purchases, is amended to permit its use in repaying TRA refunds and making two new purchases.
   
3. Prior University of Minnesota Teaching Service Purchase. Minnesota Statutes, Section 354.541, is added to permit a full actuarial value payment service credit purchase for prior uncredited University of Minnesota teaching service.
   
4. Deferred TRA Retiree/Active IRAP Member Purchase Authorization. Minnesota Statutes, Section 354.542, is added to permit current IRAP members who are deferred TRA members to purchase from TRA any of the various TRA service credit purchases.
   
5. Authority to Transfer TRA Accounts to IRAP. Minnesota Statutes, Section 354B.32, is added to permit current IRAP participants with less than ten years of prior TRA service credit to transfer the TRA member contributions and six percent interest to IRAP, forfeiting an eventual TRA benefit. The provision expires on July 1, 2004.
   
6. Extension of Current Prior Service Credit Payment Determination Procedure. Minnesota Statutes, Section 356.55, Subdivision 7, repealer is extended from 2001 to 2003.

Attachment A provides a side-by-side comparison of the various service credit purchase proposals of general application.

The six pieces of proposed legislation authorizes new service credit purchases for prior local police or paid fire relief association police or firefighter service that did not result in an eventual local plan benefit (S.F. 313 (Larson); H.F. 303 (Cassell)), for American Indian tribal school, foreign country public educational institution, or University of Minnesota teaching service (S.F. 1321 (Pogemiller); H.F. 1462 (Mares)) and for prior family leave or family or parental break in employment periods (S.F. 611 (Betzold); H.F. 1240 (Bernardy)) and modify aspects of prior military service or uncredited interim military service (payment amount and the elimination of the current General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General) prior military service purchase (S.F. 370 (Wiger); H.F. 465 (Marko)); payment amount (S.F. 409 (Solon); H.F. 619 (Swapinski)); and limit of initial induction or enlistment period (S.F. 611 (Betzold); H.F. 1240 (Bernardy)). S.F. 132 (Pogemiller); H.F. 1462 (Mares) additionally allow the repayment of Teachers Retirement Association (TRA) member refunds from the Minnesota State Colleges and Universities System (MnSCU) College Supplemental Retirement Fund, authorizes deferred TRA retirees in the MnSCU Individual Retirement Account Plan (IRAP) to make various current law service credit purchases from TRA, authorizes current MnSCU IRAP participants with less than ten years of prior TRA service credit to elect to have their TRA member contributions, plus six percent interest, transferred to IRAP, and extends the 2001 expiration date for the current full actuarial value purchase payment determination procedure to 2003.

The six pieces of proposed legislation raise numerous pension and related public policy issues that merit discussion and consideration by the Subcommittee and the Commission, including the following:

1. Appropriateness of Authorizing Local Police or Paid Fire Relief Association Service Credit Purchases (S.F. 313 (Larson); H.F. 303 (Cassell)). The policy issue is the appropriateness of authorizing current members of the Public Employees Police and Fire Plan (PERA-P&F) with prior local governmental full-time police or full-time firefighting employment covered by one of the 48 former or current local police and paid fire relief associations to purchase up to ten years of PERA-P&F service credit with a full actuarial value payment. Former members of former consolidation local police and fire accounts which are now merged with PERA-P&F are currently prohibited from purchasing this service credit from the consolidation account or PERA-P&F under Minnesota Statutes, Section 353A.10, Subdivision 1. The prior local relief associations generally emphasized long service (20 years) to vest for a variety of reasons, including attempting to restrict promotional candidates for the police chief, fire chief, and other advanced rank positions to members of the then existing police or fire force. Local relief association members knew about the long service vesting requirements upon being hired and, if a member departed early, the member knew the cost of that employment change. In the past, police officers and firefighters who did change employment before becoming vested did so for a variety of personal and economic reasons. This proposed legislation allows these individuals to reverse the pension impact of those prior employment choices if they are willing to pay the full actuarial cost of the change. If recommended, the change may spark recent PERA-P&F retirees with prior local relief association service to request similar authority. If the authority is recommended, inclusion of the four local relief associations that have not consolidated with PERA-P&F (Fairmont Police, Minneapolis Fire, Minneapolis Police, and Virginia Fire) in the authority may be questioned because of that decision not to consolidate. Amendment LCPR01-37 would exclude those four relief associations from the provision.
   
2. Appropriateness of Authorizing The Purchase of Service Credit For Family Leaves or Parental Breaks-in-Service (S.F. 517 (Betzold); H.F. 122 (Skoglund)). The policy issue is the appropriateness of authorizing various Minnesota public pension plan active members to purchase allowable service credit for previously uncredited family or parental leaves or for parental breaks-in-employment. There has not been any significant demand for the enactment of a maternity leave/break-in-service credit purchase provision for MSRS-General, MSRS-Correctional, State Patrol, PERA-General, PERA-P&F, MERF, the Minneapolis Police Relief Association, or the Minneapolis Fire Department Relief Association. In 1998-1999, the Legislative Commission on Pensions and Retirement was provided with considerable evidence of a desire among various teachers to have an opportunity to purchase gaps in their pension coverage caused by maternity periods. Since the 1999 teacher maternity service credit purchase was enacted, there has not been any comparable demand or expression of desire by general public employees or by public safety personnel to be provided an opportunity to purchase this service credit. If there is no significant demand or desire for this service credit purchase authority extension by the various applicable employee groups, the Legislature may be well advised not to spend any significant effort on this topic. The situation of the eight pension plans covered by the proposed legislation may not be comparable to the four teacher pension plans covered by the 1999 purchase. When the Legislative Commission on Pensions and Retirement recommended the teacher maternity leave/break-in-service purchase in 1999, following extended hearings conducted during the 1998 Interim, there was considerable testimony and anecdotal information about the problematic treatment of pregnant school teachers by school districts in the past. It is not clear that the State of Minnesota, the University of Minnesota, and Minnesota counties, cities, and townships generally engaged in similar problematic employment practices. Some testimony on the prior employment practices of those employing units will probably be necessary. A number of the public pension plans involved in the proposed legislation also, historically, have had more expansive authorized leave of absence service crediting provisions than did teacher pension plans. These differences may be sufficient to distinguish the public employees affected by the proposed legislation from teachers when addressing maternity-related or family-related service credit interruptions and to argue for less generous service credit purchase authority.
   
3. Appropriateness of the American Indian Tribal School Teaching Service Credit Purchase (S.F. 1321 (Pogemiller); H.F. 1462 (Mares), Section 1). The policy issue is the appropriateness of authorizing TRA members to purchase TRA service credit for prior teaching service with an American Indian tribal school at full actuarial value. The 1999 TRA service credit purchases were broad, but did not include tribal school teaching. The Subcommittee should consider taking some testimony about the comparability of tribal schools to the out-of-state or federal schools covered by the 1999 legislation. Some clarification may be needed about which tribal schools are intended to be covered. Not every Indian tribe is recognized as such by the federal government. Amendment LCPR01-38 limits the provision to that subset of all potential tribes. It is also not clear that the reference to American Indian tribes includes various Alaska natives or indigenous groups in American territories. Additionally, not all educational institutions serving American Indians were established and operated by a tribe and hence would not be covered by the purchase and would become the basis for subsequent proposed legislation.
   
4. Appropriateness of the Foreign Country Public Educational Institution Teaching Service Credit Purchase (S.F. 1321 (Pogemiller); H.F. 1462 (Mares), Section 1). The policy issue is the appropriateness of authorizing TRA members to purchase TRA service credit for prior teaching service in a public educational institution in a foreign country. The legal principle of comity requires one state to recognize and to defer to the regulatory judgement of other states, but that level of comity frequently is not extended to foreign jurisdictions. Additionally, the language of the proposed purchase is not clear, since it refers to "an educational institution established and operated by…a public educational institution in a foreign country." If what is intended is to cover teaching service in a public or private high school established by a public college or university in Canada or some similar situation, the provision accomplishes that. But, if the intent is to cover Canadian public high school teaching service, it is not clear that the language accomplishes that.
   
5. Appropriateness of the University of Minnesota Teaching Service Credit Purchase (S.F. 1321 (Pogemiller); H.F. 1462 (Mares) Section 3). The policy issue is the appropriateness of authorizing TRA members to purchase TRA service credit for prior teaching service rendered for the University of Minnesota with a full actuarial cost payment. The University of Minnesota is a governmental entity largely separate from the State of Minnesota, due to its creation by the Minnesota Territorial Legislation and its special status under the Minnesota Constitution (Article 8, Section 4) and the Minnesota Supreme Court decision in State v Chase (175 Minnesota 259, 220 NW 951). The University of Minnesota faculty (and upper-end administrators) are covered by a fully portable defined contribution pension plan with immediate (no minimum period of service credit) vesting. While University of Minnesota clerical and administrative personnel are covered by a defined benefit plan, the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General), the only defined benefit coverage for faculty members (i.e. personnel rendering teaching services) relates solely to some long term faculty member covered by a supplemental plan. As a consequence, any University of Minnesota faculty member has pension coverage for that teaching service that totally survives the person’s departure from the University. The 1999 prior service credit purchase legislation, the precedent for this proposed legislation, was intended to fill pension coverage gaps and was not intended to create double pension coverage. While the Subcommittee should take testimony about the University of Minnesota faculty pension coverage currently and over time, the proposed service credit purchase appears to create duplicative pension coverage for affected potential TRA purchasers.
   
6. Appropriateness of Eliminating The Current PERA-General and PERA Local Government Correctional Prior Military Service Credit Purchases (S.F. 370 (Wiger); H.F. 465 (Marko). The policy issue is the appropriateness of eliminating the 2000 prior military service credit purchase for the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General) and for the newly established PERA Local Government Correctional Retirement Plan (PERA-Correctional) in converting the existing provision to a subsidized Public Employees Police and Fire Plan (PERA-P&F) service credit purchase. The elimination of the PERA-General and PERA-Correctional prior military service credit purchases may have been a drafting error, but if not, some testimony should be taken by the Subcommittee about the rationale for the premature termination of the purchases. If the PERA-P&F subsidized purchase was intended to be in addition to the 2000 prior military service credit purchases, rather than supplanting, Amendment LCPR01-41 creates the subsidized purchase as a separate provision.
   
7. Appropriateness of Subsidizing Service Credit Purchases (S.F. 370 (Wiger); H.F. 465 (Marko) and S.F. 409 (Solon); H.F. 619 (Swapinski). The policy issue is the appropriateness of a prior service credit being subsidized, the appropriateness of providing that subsidy from the pension plan, and the resulting actuarial cost from the subsidy. As developed by the Commission, Commission Pension Policy Principle II.C.10. provides that

…[t]he purchase payment from the member or from a combination of the member and the employer must equal the actuarial liability to be incurred by the pension plan for the benefit associated with the purchase, appropriately calculated, without the provision of a subsidy from the pension plan, and that the purchase must not violate notions of equity.

 

While federal law and state law require that interim (leave of absence) military service be afforded an opportunity to be purchased as public pension plan service credit on a subsidized (contributions plus interest rather than actuarial value) basis, federal law and state law do not require that prior (before public employment) military service be afforded the same opportunity. The argument most frequently furthered for providing a subsidized prior military service credit purchase opportunity is that veterans have made an uncompensated contribution to society in the past and should be rewarded for that contribution. Also forwarded is the argument that a military veteran has been penalized in terms of their retirement income because of their military service, when compared to the situation of nonveteran public pension plan participants of a similar age. While it is true that veterans could have been delayed in their public employment careers when compared to other participants, the argument does not cover participants with other delays (such as Peace Corps service or graduate school) and does not factor in the various veteran benefits (i.e., subsidized schooling, employment preferences on hiring and promotion, and housing loans) that are available to veterans. Also, the proposed legislation does not vary its subsidy depending on the degree of societal contribution made by the veteran, if that contribution is measured by the degree of risk borne by the veteran. Thus, veterans who serve during peacetime are given the same subsidy under the proposed legislation as veterans who served during wartime or hostilities, or as veterans who actually served in a war theatre, or as veterans who were combat wounded. The proposed legislation would treat public sector employees with prior military service better than private sector employees with prior military service, since General Mills, Northwest Airlines, 3M, or Cargill do not provide this service credit purchase opportunity at all, much less provide a subsidy for it. . The current law (Minnesota Statutes, Section 356.55) does not allow the public pension plan to provide a subsidy, but does allow the current public employer or a former public employer to pay a significant portion of the full actuarial cost of the prior service credit purchase. Apparently, most public employees under the current law are unwilling to provide this level of subsidy. If the Legislature believes that the societal contributions made by veterans have not been adequately recognized by the various federal and state veterans programs currently in place, it could request the federal government to provide more veteran programs nationwide, it could provide a separate State appropriation to provide additional pension benefits for all Minnesota veterans, or it could mandate Minnesota public employers to participate in (i.e., subsidize) the current law military service credit purchase. The provision of a subsidy from the pension plans, as suggested in the proposed legislation, has been deemed inappropriate by the Commission in the past because the pension plans are not the direct beneficiaries of public employee services (public employers and the public are) and public pension plans should not be held responsible for making societal slights or wrongs right.

The proposed pension legislation will impose an actuarial cost on the affected pension plans. For S.F. 409 (Solon); H.F. 619 (Swapinski), the Commission staff has estimated a cost in the absence of any available estimate from a consulting actuary, with a total pension liability increase of $711.8 million for all affected plans. The details of that estimate are contained in Appendix B. S.F. 370 (Wiger); H.F. 465 (Marko) provides a greater subsidy to PERA-P&F than S.F. 409 (Solon); H.F. 619 (Swapinski) does, so the actuarial cost estimated by the Commission staff for PERA-P&F in Attachment B will exceed the $9.6 million liability increase for S.F. 409; H.F. 619.


8. Appropriateness of The Elimination of Limits On The Amount of Prior Military Service Credit Purchases (S.F. 611 (Betzold); H.F. 1240 (Bernardy). The policy issue is the appropriateness of eliminating the current initial period of induction or enlistment limit on the purchase of prior military service credit under the 1999 teacher military service credit purchases and the 2000 other public employee military service credit purchases. The proposed legislation apparently was prompted by complaints from National Guard members. A member of the Staff Judge Advocate’s Office of the 88^th Army Reserve Command at Fort Snelling, complains that a federal law, 10 U.S.C. § 12736, requires that teachers with military service be permitted to purchase the entirety of that military service, contrary to Minnesota Statutes, Sections 354.533 and 354A.097, and suggests that the Court of Appeals for the Ninth Circuit, in California, held a California law similar to these Minnesota laws to have violated 10 U.S.C. § 12736.

Title 10 U.S.C. § 12736 provides that

[n]o period of service included wholly or partly in determining a person’s right to, or the amount of, retired pay under this chapter [Title 10 – Armed Forces, Subtitle E – Reserve Components, Chapter 1223 – Retired Pay for Non-regular Service] may be excluded in determining his eligibility for any annuity, pension, or old-age benefit, under any other law, on account of civilian employment by the United States or otherwise, or in determining the amount payable under that law, if that service is otherwise properly credited under it.

The Ninth Circuit California case appears to be Cantwell v. San Mateo County, C.A. 9 (Cal) 1980, 631 F.2d 631, certiorari denied 101 S.Ct. 1703, 450 U.S. 998, 68 L. Ed. 2d 199. The U.S. Code decision note annotation is not sufficient to determine whether the California statute was a prior service credit purchase provision or how comparable its language was to the Minnesota teacher provisions (and the 2000 General State Employees Retirement Plan (MSRS-General) and Public Employees Retirement Association (PERA) provisions). Also, three subsequent decisions referenced in the annotation, one a U.S. Merit Systems Protection Board decision from 1984, one a California Appellate Court decision from 1982, and one a Ninth District Court of Appeals decision from 1983, apparently did not find for the employee attempting to gain additional service credit under the federal law.

The federal law provision does not necessarily stand for the proposition forwarded by the Staff Judge Advocate’s Office. The provision was enacted in 1956, but was without application until the 1980-1984 period and has been utilized wholly or primarily in California. On its face, it appears to be a prohibition for other defined benefit pension plans to offset from their pension coverage military reserve pension coverage for an employee who also serves in the reserves. The reference to "any other law" in the phrase "any annuity, pension, or old-age benefit, under any other law," and the reference to "that law" in the phrase "the amount payable under that law," would normally be construed to refer to federal law, since there is no indication that the provision means state law or local charter provision or ordinance. The reference to "or otherwise" in the phrase "on account of civilian employment by the United States, or otherwise" appears to be the basis for the Ninth Circuit applying the provision to state or local government, although the language varies from that usually used in federal law attempting to extend regulation to state or local government and the provision must be read in light of recent U.S. Supreme Court rulings related to federalism and the Tenth and Eleventh Amendments. The federal law provision also does not specifically reference service credit purchases, so its applicability to the 1999 or 2000 Minnesota laws are unclear.

If the 1999 and 2000 Minnesota laws have problems under Title 10 U.S.C. § 12736, so apparently do the laws of several other states. Most states where sufficient information is available on military service credit purchases appear to limit the duration of those purchases currently.

The principal reason for the 1999 or 2000 restriction on the military service credit purchase that disallows potential purchasers who have qualified for a military pension from their military service is the desire of the Legislature to restrict the special permission to potential purchasers who suffer from an interruption in their career pension plan coverage and to avoid providing two public pension benefits for the same period of service. When the teacher military service credit purchase was enacted in 1999, the Legislature was reacting to complaints from and the hardships of teachers who were either drafted into the military or enlisted for the military facing likely conscription right after college, before they were employed in teaching, and who were unable to gain retirement coverage for this gap in their career akin to those teachers who took a leave of absence to enter the military. On-leave military service credit purchases, required by both federal and state military laws, are limited in their service credit purchasers to their initial period of enlistment, induction, or call to active service and Minnesota Statutes, Section 354.533, and comparable provisions impose the same restriction on prior military service credit purchasers. Under the proposed legislation, however, a purchaser could purchase public pension plan service credit for up to 20 or 30 years of service credit, including periods which give the purchaser entitlement to a military service pension, thereby giving the person involved two pensions for the identical period of time.

1. Appropriateness of Permitting The Repayment of TRA Refunds From the MnSCU College Supplemental Fund (S.F. 1321 (Pogemiller); H.F. 1462 (Mares), Section 2). The policy issue is the appropriateness of expanding the use of the partially employer-financed Minnesota Colleges and Universities System (MnSCU) faculty College Supplemental Retirement Plan and Fund to repay a refund to the Teachers Retirement Association (TRA). In 2000, at the request of the MnSCU State Universities Interfaculty Organization (IFO), the Commission recommended and the Legislature authorized faculty members covered by the College Supplemental Retirement Plan to use the Supplemental Plan accumulations to make service credit purchases. The College Supplemental Retirement Plan was created in 1967, apparently to correct for various deficiencies for higher education faculty members in the TRA benefit plan at that time. Although the TRA benefit plan has been substantially and repeatedly upgraded since 1967, the Supplemental Retirement Plan remains and its purpose has not been clearly redefined by the Commission or the Legislature. Although the current legislative purpose of the College Supplemental Plan is unclear, thus making the analysis of proposed changes in it more difficult, the plan has always required the termination of teaching service before a participant could gain access to the plan asset accumulation. This change would extend the 2000 precedent for a pre-termination opportunity to benefit from a transfer out of the Supplemental Retirement Plan, although the transfer is to another pension plan and is not directly payable to the participant. The Subcommittee should consider whether it wishes to extend this very recent precedent from pre-termination distribution from a retirement plan, since many other potential retirement related pre-termination distributions could give rise to a similar request. Additionally, transfers to purchase TRA service credit from the Supplemental Retirement Plan include significant amounts of employer contributions. Refunds are authorized to permit former pension plan members to gain some financial benefit from pension plan coverage when the person does not intend to eventually receive a retirement annuity. Repayments of refunds permit these former members who resume plan membership to reverse that decision. Refund repayments are as potentially damaging to the funding condition of a pension plan as a subsidized service credit purchase. It is not clear that this level of encouragement of refund repayment, with a distribution from the College Supplemental Plan prior to retirement and partially employer funded, is appropriate. If the Commission has concerns about the propensity of the proposed change, Amendment LCPR01-45 would delete it.
   
2. Appropriateness of Allowing Deferred TRA Retirees Who Are IRAP Members To Purchase TRA Service Credit (S.F. 1321 (Pogemiller); H.F. 1462 (Mares), Section 4). The policy issue is the appropriateness of permitting current Minnesota State Colleges and Universities System (MnSCU) Individual Retirement Account Plan (IRAP) participants with at least three years of Teachers Retirement Association (TRA) service credit to make the 1999/2000 Session service credit purchases from TRA. IRAP participants are covered by a defined contribution plan, where the amassed account assets are the benefit, while TRA is a defined benefit plan, where the benefit is dependent on a formula. The 1999/2000 Session service credit purchases were intended to allow TRA members to cover gaps in their defined benefit pension coverage from prior military service, family leaves and employment breaks, and various types of teaching experiences. It is unclear why the requested authority for defined contribution pension plan members to purchase defined benefit prior service credit is of benefit to most IRAP members, but it is even less clear what benefit MnSCU, TRA, or the public would gain from the proposed purchase authority. If the Commission is troubled by this requested authority, Amendment LCPR01-43 eliminates this proposed change.
   
3. Appropriateness of Authorizing Some Former TRA Members To Cash Out Their TRA Coverage Into IRAP (S.F. 1321 (Pogemiller); H.F. 1462 (Mares), Section 5). The policy issue is the appropriateness of the proposal authorizing former TRA members who have less than ten years of TRA allowable service and who are now MnSCU IRAP members to transfer the person’s TRA member contributions, plus six percent compound interest, to the person’s IRAP account. IRAP was created in 1988 (Laws 1988, Chapter 709, Article 11), but was not implemented until 1989. In 1989, TRA members with less than three years of TRA allowable service were authorized to transfer their accumulated member contributions, plus five percent compound interest (Laws 1989, Chapter 319, Article 18, Sections 5 and 6). In 1990, the interest rate on the transfers was increased to six percent, retroactive for the 1989 transfers (Laws 1990, Chapter 570, Article 3, Sections 8 and 10). Additional transfer issues have been brought to the Commission in subsequent sessions. With the number of times that the Commission has dealt with this issue for various IRAP groups and individual members, it is unclear why the issue arises again. Additionally, it is unclear why the group of IRAP members eligible for the transfer has been broadened by increasing the maximum amount of service credit in the eligibility requirement to ten years. The Subcommittee should consider taking additional testimony from MnSCU, IRAP member representatives, and TRA about the consequences of this proposal. If the Subcommittee is troubled by the provision, Amendment LCPR01-49 would delete the provision from the proposed legislation.
   
4. Appropriateness of a Two-Year Extension In The Prior Service Credit Purchase Payment Determination Procedure (S.F. 1321 (Pogemiller); H.F. 1462 (Mares), Section 6. The policy issue is the appropriateness of extending the sunset date on the Minnesota Statutes, Section 356.55, prior service credit purchase payment determination procedure from 2001 to 2003. The Minnesota Statutes, Section 356.55, prior service credit purchase payment determination procedure was enacted in 1998, and was recommended by the Commission after an extended interim study. The procedure was proposed by TRA and was developed in large measure by the consulting actuary retained by the Commission. The procedure was intended to represent a less severe or expensive calculation of the actuarial accrued liability associated with a service credit purchase. Minnesota Statutes, Section 356.551, the eventual successor for the Minnesota Statutes, Section 356.55, procedure, is the traditional service credit purchase payment amount determination procedure used by the Commission in previously enacted special law service credit purchases. The Minnesota Statutes, Section 356.55, procedure was sunsetted because of considerable doubts about the accuracy of the procedure when compared to the actuarial accrued liability increase for a public pension plan associated with a purchase. Those doubts appear to have been well founded. The 2000 actuarial valuation summary report prepared by Milliman & Robertson, Inc. indicates that 224 prior service credit purchases during fiscal year 2000 produces a total net loss of $45,467. The Minnesota Statutes, Section 356.55, procedure never replicated the calculated actuarial accrued liability increase in any of the 224 Fiscal Year 2000 purchases, but produced either gains (164 instances) or losses (60 instances). The following compares the experience of the five pension plans.

	Gain Produced From Purchase			Loss Produced From Purchase
Plan	Number	High	Low	Number	High	Low
MSRS-General	1	$9,632	-	1	$906	-
PERA-General	1	4,401	-	4	16,044	1,385
TRA	139	56,177	87	46	63,223	86
DTRFA	2	5,138	1,003	5	23,913	475
StPTRFA	21	66,066	140	4	21,436	367
Total	164	$66,066	$87	60	$63,223	$86

A pattern also emerges from the Fiscal Year 2000 service credit purchases, with most gains coming from active member service credit purchases (i.e. purchases made by members not retiring in the year of purchase) and most losses coming from retired member service credit purchases (i.e. purchases made by members who retire during the year of purchase). The total loss experienced system-wide is problematic, meaning that Minnesota pension plans did subsidize service credit purchases in 2000. The fact that the 164 service credit purchases that produced gains did not offset the 60 service credit purchases that produced losses raises two problems, which are that some purchases are subsidizing other purchases and that, when a loss did occur, the losses are relatively very large. If the Subcommittee feels that the recent experience with the Minnesota Statutes, Section 356.55, prior service credit purchase payment determination procedure does not merit its continuation for two years as proposed, Amendment LCPR01-47 would delete the section.


9. Appropriateness Of The Underlying Impetus For The Service Credit Purchase And This Indirect Encouragement of Early Retirement (All Proposed Legislation). The policy issue is the appropriateness of the Legislature in rewarding the apparent underlying impetus for many recent service credit purchase demands, which is the acquisition of access to early retirement. Since the 1989 inclusion of MSRS-General and TRA in the "Rule of 90" early normal retirement age authority (unreduced retirement benefit payable when the sum of age and accrued service credit totals at least 90), the demands for service credit purchases have grown. A purchased year of service credit gains a public pension plan member a six month earlier potential retirement age under the Rule of 90 among a general public employee population that appears to seek to retire at its earliest possible opportunity. Given the manner in which Social Security is funded (i.e., an intergenerational fund transfer), given the growing actual or perceived shortage of workers in the economy, and given the cost of providing health insurance coverage to retirees, there are reasons for the Legislature to adopt a policy that encourages delayed retirement ages rather than one that promotes early retirement ages. If the growing early retirement trend among general public employees has public policy problems, proposed pension legislation that tends to favor early retirement should be scrutinized by the Subcommittee, the Commission and the Legislature very carefully.
   
10. Omissions of Other Pension Plans From Various Purchase Authorizations (S.F. 313 (Larson); H.F. 303 (Cassell), S.F. 370 (Wiger); H.F. 465 (Marko), and S.F. 1321 (Pogemiller); H.F. 1462 (Mares)). The policy issue is the appropriateness of the omissions of other pension plans from the various prior service credit purchase authorizations. If another pension plan has the same potential service credit purchase as the purchase proposed, the proposed legislation will become a precedent for a subsequent extension. With respect to S.F. 313 (Larson); H.F. 303 (Cassell), members of the State Patrol Retirement Plan may also have prior service in a municipal police force covered by a local police relief association, akin to PERA-P&F members. With respect to S.F. 370 (Wiger); H.F. 465 (Marko), members of the State Patrol Retirement Plan, the MSRS-Correctional Employees Retirement Plan (MSRS-Correctional) or the PERA-Local Correctional Retirement Plan (PERA-Correctional) also may have military service for which they may desire to purchase service credit. With respect to S.F. 1321 (Pogemiller); H.F. 1462 (Mares), members of the first class city teachers retirement fund associations may have the same service credit and related situations as do TRA members. Amendments LCPR01-50, LCPR01-X51 and LCPR01-52 extend the various purchases and related provisions to these other pension plans.

The Commission staff has prepared Amendments LCPR01-40, LCPR01-39, LCPR01-42, LCPR01-46, LCPR01-44, and LCPR01-48 to improve the language style, usage and clarity of the proposed legislation.