As an interim study topic, the Commission chair, Senator Dean Elton Johnson, has designated a review of a number of proposed expansions in the membership of the Local Government Correctional Employees Retirement Plan of the Public Employees Retirement Association (PERA-Correctional). The topic is the outgrowth of the Commission hearing of March 26, 2001, when the Commission took limited testimony on S.F. 1038 (Pogemiller); H.F. 999 (Mares) and laid the bill over for interim work.

This meeting is the initial Commission interim consideration of the topic. Commission consideration of the topic is expected to require two meetings.

This Commission staff issue memorandum is the initial memorandum on the Commission interim study topic. This memorandum will summarize the development of the membership, benefits, and funding of the PERA-Correctional Retirement Plan and will summarize the various current and likely legislative proposals for expanding the PERA-Correctional Plan coverage group. The memorandum is intended to provide a context for the testimony on the various current legislative proposals attempting to add groups to the PERA-Correctional Plan. A subsequent Commission staff issue memorandum will identify and discuss the various pension and related public policy issues that arise from the current and potential proposed legislation.

1. General Background Information on PERA-Correctional

The Local Government Correctional Employees Retirement Plan of the Public Employees Retirement Association (PERA-Correctional) was initially established in 1987 (Laws 1987, Chapter 372, Article 1, Sections 9 to 18). The 1987 plan was available to essential correctional facility employees employed by Dakota County, Hennepin County, Ramsey County, Washington County, or by a joint-powers correctional agency in which Saint Louis County or its municipalities participate, if the employer elected to participate in the plan. The plan was enacted into law due to preliminary interest from those counties in establishing a local correctional plan providing benefits similar to the MSRS Correctional Plan. Due to the cost of the plan compared to general employee plans and other factors, no employing unit ever elected to participate in the plan. Although the plan had no members, it remained in statute for many years, coded as Minnesota Statutes, Chapter 353C, the Local Government Correctional Service Retirement Plan. Because the plan was in statute and might at some date have members, it was necessary to give the plan due consideration and inclusion in Commission actuarial standards, in actuarial contracts with the actuary retained by the Commission, and in procedures for allocating the cost of actuarial valuations among the retirement systems and plans. The Legislature and PERA administrators also felt obligated to revise laws governing the PERA Local Government Correctional Service Retirement Plan to keep it current with administrative changes in law that were deemed appropriate for other public plans. Eventually, as part of the 1997 benefit increase legislation, the Commission recommended a repeal of the plan, given the inconvenience and cost of maintaining and revising a plan which had no membership, and because its benefit and contribution rate provisions had features which were no longer consistent with current pension policy. The Commission felt that if, at some future time, local and county governments were willing to support a plan and there was clear need for a plan offering specific features geared to the needs of various local correctional groups, new provisions could be enacted. In 1997, the plan was repealed (Laws 1997, Chapter 233, Article 1, Section 78, Paragraph (b)).

In 1998 (Laws 1998, Chapter 390, Article 9), in part as a reaction to the 1997 repeal, special duty disability coverage was extended to local government correctional employees, augmenting the coverage of the General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General), with an additional member and employer contribution requirement by or on behalf of the local government correctional employees. Correctional employees, for purpose of the 1998 enhanced PERA disability coverage, were defined as persons who are essential employees under the Public Employees Labor Relations Act (PELRA) working at a county administered or regional jail or correctional facility and who have at least 75 percent direct inmate contact.

In 1999, after a Commission interim study and following considerable deliberation and controversy, the Commission recommended and the Legislature enacted a second PERA Local Government Correctional Employees Retirement Plan. The plan was developed in response to public employee demands for improved retirement coverage beyond the PERA General Retirement Plan and beyond the 1998 special local government correctional employees duty disability coverage. The plan initially applied to local government employees who are employed in a county-administered jail or correctional facility or in regional facilities, who are certified by the employer to have 95 percent inmate contact, and who would otherwise be a PERA-General member.

In 2000, the PERA Correctional Plan eligibility requirements were further refined at the request of the Association of Minnesota Counties. The revision provided that the county employer was required to certify correctional employees to PERA, replaced with the prior 95 percent inmate contact time requirement with the inclusion of specific employment positions, the requirement that the person be directly responsibility for inmate security, custody, and control, and the requirement that the person be trained and expected to respond to institutional incidents.

2. PERA-Correctional Plan Membership Requirements

The 1999 plan has been substantively modified once, in 2000. The following compares the membership eligibility requirements of the 1999 PERA-Correctional Plan and of the 2000 PERA-Correctional Plan, with plan coverage for:

1999 PERA-Correctional Plan

2000-2001 PERA-Correctional Plan

Persons: employed in a county administered jail or correctional facility or regional correctional facility administered by multiple counties; spends 95 percent of working time in direct contact with persons confined in the jail or facility, certified in advance by the employer; and is eligible for PERA-General plan membership, but not a member of the Public Employees Police and Fire Plan (PERA-P&F).

A person certified by the employer as: employed in county correctional institution (newly defined term); employed as correctional guard or officer, joint jailer/dispatcher, or supervisor of correctional guards or officers or of joint jailers/dispatchers; directly responsible for security, custody and control of correctional institution and inmates; expected to respond to institutional incidents as part of regular employment duties and is trained to make the response; and is eligible for PERA-General plan membership, but not a member of PERA-P&F.

Additionally, under the 2000-2001 PERA-Correctional Plan, persons who were members of the 1999 plan continued after 2000 as plan members for the duration of their employment in the particular county correctional institution position.

3. PERA-Correctional Plan Benefits

The current PERA-Correctional Plan is identical to the plan enacted by the 1999 Legislature.

The following sets forth the major provisions of the PERA-Correctional Plan:

1. Retirement Annuities. Retirement annuities for covered service under the plan will be computed with a 1.9 percent accrual rate per year, with a high-five average salary defined as the highest average for any five years of successive service. The normal retirement age is age 55. Retirement may occur as early as age 50 with an actuarial reduction. Augmentation, as found in current PERA law, applies to deferred annuities. The benefit is a single life annuity, with optional annuity forms of 25 percent, 50 percent, 75 percent or 100 percent joint and survivor options (with subsidized bounce-back feature) or Social Security leveling option to age 62.
2. Disability Benefits. Disability benefits under the plan are computed like a normal retirement annuity, except that the minimum duty-related disability benefit is based upon 25 years of service, and the minimum non-duty-related disability benefit is based upon ten years of service. Optional annuities may be elected.
3. Survivor Benefits. If a vested active or deferred plan member dies after attaining age 50 but before other benefits become payable, the surviving spouse is entitled to a 100 percent joint-and-survivor annuity for which the member would have qualified for on the date of death. In lieu of the joint-and-survivor annuity, the survivor of an active or deferred member who was at least age 50 at death may elect a 10, 15, or 20 year term-certain annuity. If the member was under age 50 at the time of death, the survivor is entitled to a reduced 100 percent joint-and-survivor annuity based on the age of the employee and spouse on the date of the employee’s death. The annuity reduction is a full actuarial reduction to age 50 and one-half of a full actuarial reduction from age 50 until the age payment begins. Deferred annuity augmentation would apply. A survivor benefit may be paid to a dependent child or children if there is no surviving spouse, with the benefit terminating at age 20 or five years after commencement of the benefit, whichever is later.
4. Combined Service Provisions. The plan is included under the combined service annuity, disability, and survivor provisions.
5. Post Retirement Adjustments. Benefits may be increased each January 1 depending in part on increases in the Consumer Price Index (CPI), to a maximum of 2.5 percent annually, and in part on the investment performance of the Minnesota Post Retirement Investment Fund (MPRIF) in excess of 8.5 percent. A benefit recipient who has been receiving a benefit for at least 12 full months as of June 30 will receive a full increase. Members receiving benefits for at least one full month but less than 12 full months will receive a partial increase.
6. Termination Refund. Upon termination of membership, with any length of service credit, a refund is payable of the members contributions with six percent interest compounded annually. A deferred annuity may be elected in lieu of a refund if the person has three or more years of allowable service.
7. Deferred Annuity. A deferred retirement annuity is payable at the normal retirement age to a person with three years of allowable service, with the benefit computed under law in effect at termination and increased by three percent, compounded annually, until January 1 of the year following the attainment of age 55, and five percent thereafter, until the annuity begins.

4. Actuarial Condition and Funding of PERA-Correctional

The initial contribution requirements for the PERA-Correctional Plan were set based on the actuarial cost estimate of the 1999 proposed legislation, prepared by the consulting actuary retained by the Commission. That actuarial cost estimate of proposed legislation depended on the identification of potential members by PERA, which ultimately was an undercount, and depended on the benefit plan proposed for the new plan, which omitted a portion of the ultimate disability provisions. The initial contribution rates were 5.83 percent of covered pay by the member and 8.75 percent of covered pay by the employing county (inclusive of applicable 1997 PERA State aid).

In 2000, because the initial contribution rates were deficient when compared to the first (July 1, 1999) actuarial valuation of the plan, the member and employer contribution rates were increased to 6.01 percent and 9.02 percent, respectively, effective January 1, 2002. That contribution increase was further delayed by the 2001 Legislature to January 1, 2003, because the second (July 1, 2002) actuarial valuation of the plan indicated a contribution sufficiency for the plan.

The following compares the July 1, 1999, and the July 1, 2000, PERA-Correctional Plan actuarial valuation results:

1. S.F. 1038 (Pogemiller); H.F. 999 (Mares): PERA-Correctional; Inclusion of 911 Dispatchers and Probation Officers

S.F. 1038 (Pogemiller); H.F. 999 (Mares) amends Minnesota Statutes, Sections 353.01, Subdivision 2b, governing the membership exclusions from the General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General), and 353E.02, Subdivision 1, governing the membership inclusions of the PERA Local Government Correctional Service Employees Retirement Plan (PERA-Correctional), by excluding county employees who are 911 dispatchers or community corrections probation officers from PERA-General membership and including them in PERA-Correctional membership.

2. S.F. 1605 (Pogemiller); H.F. 2112 (Smith): PERA-Correctional; Inclusion of Hennepin County Medical Center Protection Officers

S.F. 1605 (Pogemiller); H.F. 2112 (Smith) amends Minnesota Statutes, Sections 353.01, Subdivision 2b, governing the membership exclusions from the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General) and 353E.02, Subdivision 1, governing the membership inclusions of the PERA Local Government Correctional Service Employee Retirement Plan (PERA-correctional), by excluding Hennepin County Medical Center protection officers from PERA-General membership and including them in PERA-Correctional membership.

3. Potential Amendment LCPR01-220 (Mares): PERA-Correctional; Inclusion of County Court Bailiffs Not Covered by PERA-P&F

Potential Amendment LCPR01-220, drafted for Representative Harry Mares, amends Minnesota Statutes, Sections 353.01, Subdivision 2b, governing the membership exclusions from the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General) and 353E.02, Subdivision 1, governing the membership inclusions of the PERA Local Government Correctional Service Employee Retirement Plan (PERA-Correctional), by excluding county court bailiffs who are not covered by the Public Employees Police and Fire Retirement Plan from PERA-General and including them in PERA-Correctional membership.

This Commission staff memorandum is intended to provide the Commission with the necessary background to begin consideration of these proposed expansions of Minnesota’s newest public retirement plan. A subsequent Commission staff memorandum will provide a full discussion of the pension and related policy issues raised by the proposals as well as the results of Commission staff information gathering about the affected employees.