TO: Members of the Legislative Commission on Pensions and Retirement

FROM: Lawrence A. Martin, Executive Director

RE: Designated Commission Interim Project; Draft Proposed Legislation Recodifying Minnesota Statutes, Chapter 355: Social Security Referenda and Coverage
(First Consideration)

DATE: September 6, 2001

As an interim study topic, the Commission chair, Senator Dean E. Johnson, has designated a recodification of Minnesota Statutes, Chapter 355, relating to Social Security coverage for Minnesota public employees.

The topic is not an outgrowth of any specific 2001 proposed legislation, but is part of a longterm responsibility of the Commission and the Commission staff to update and revise obsolete or disorganized pension laws.

This meeting is expected to be the only Commission interim consideration of the draft proposed legislation resulting from the Commission staff work on the topic.

This Commission staff issue memorandum is the only issue memorandum expected on the topic. The memorandum will summarize the extension of Social Security coverage to Minnesota public employees, will summarize the current contents of Minnesota Statutes, Chapter 355, will summarize the draft proposed legislation recodifying Minnesota Statutes 2000, Chapter 355, and will raise several pension and related public policy issues associated with the draft proposed legislation that may merit additional Commission consideration.

1. In General. Social Security is a collection of federal programs. Social Security is the Old Age, Survivors, Disability and Health Insurance Programs.

Social Security is a product of the Great Depression of the 1930’s, when being old generally meant being poor, and represents the response of the federal government to this phenomenon of poverty among the elderly. Since President Franklin D. Roosevelt announced his initiation to provide a Social Security program on June 8, 1934, Social Security has become a key element in the retirement planning of most U.S. citizens. The first Social Security Act was signed into law on August 14, 1935. The original act provided only lump sum retirement benefits.

In 1939, dependent (spouse and minor children) benefits were added to the old age assistance benefits in the event of the premature death of a worker were also added. In 1940, monthly Social Security benefits replaced lump sum benefits. Social Security coverage was extended to public sector workers, under agreement between the federal government and the applicable government, in the early 1950’s. Ad hoc cost-of-living adjustments to Social Security benefits began in 1950, with automatic Social Security cost-of-living adjustments. In 1956, a disability benefit program was added to Social Security and was expanded in 1958. In 1956, the minimum retirement age for Social Security benefit eligibility was reduced to age 62 for women, and in 1961, for men. In 1965, Medicare (the Health Insurance Program) was added to Social Security.

Currently, 17 percent (45 million) of all Americans receive a social Security benefit, of which about 30 million are retirees. Approximately 98 percent of all American workers are covered by Social Security. Most uncovered workers are public employees.

2. Coverage of Public Employees. Old Age, Survivors, Disability and Health Insurance program (Social Security) coverage for public employees, under 42 U.S. Code Section 418, is generally provided through coverage agreements between the applicable state and the federal Department of Health and Human Services. When Social Security was established in 1935, it did not permit coverage for public employees since it is funded by employee and employer payroll taxes (the Federal Insurance Contribution Act or FICA tax) and taxation of state governments by the federal government is unconstitutional. In 1954, Social Security coverage was extended to public employees by virtue of intergovernmental (state-federal) agreements. The applicable law is Minnesota Statutes, Chapter 355. In 1990, Social Security coverage was extended to any public employee who is not covered by a public employee pension plan.

1. Constitutional Officers first taking office before July 1, 1997;
2. Legislators first taking office before July 1, 1997;
3. Judges first taking office before July 1, 1973;
4. Members of the State Patrol Retirement Plan;
5. Members of the Public Employees Police and Fire Plan (PERA-P&F);
6. Members of the various local police or salaried fire relief associations or consolidation accounts administered by Public Employees Retirement Association (PERA);
7. Members of the PERA Basic Program (pre-1967 hirees);
8. Members of the Teachers Retirement Association (TRA) Basic Program (pre-1959 hirees);
9. Members of the Minneapolis Teachers Retirement Fund Association (MTRFA) Basic Program (pre-1978 hirees);
10. Members of the St. Paul Teachers Retirement Fund Association (StPTRFA) Basic Program (pre-1978 hirees);
11. Members of the Minneapolis Employees Retirement Fund (MERF, pre-1979 hirees);
12. State or local government employees excluded from the coverage by the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General), PERA, TRA, MERF, or the first class city teacher retirement plans; and
13. Members of the various volunteer firefighter relief associations for their volunteer firefighter service.

1. Benefits of Social Security Coverage. A summary of the benefits payable from Social Security, prepared by the Commission staff in connection with a 1998 interim study of the 1997 changes in the Legislators Retirement Plan and the Elected State Officers Retirement Plan, is attached, as Attachment A.

Minnesota Statutes, Chapter 355, was first enacted in 1955 (Laws 1955, Chapter 665), to implement 1954 federal legislation that permitted Social Security coverage to be extended to public employees. On each occasion of the extension of Social Security coverage to a new governmental employee group, Minnesota Statutes, Chapter 355, was amended to implement the extension, using highly repetitious legislation on each extension.

The following summarizes the content of Minnesota Statutes 2000, Chapter 355:

Draft Proposed Legislation LCPR01-213 amends Minnesota Statutes, Chapter 355, the state law governing Social Security coverage for public employees, to consolidate various redundant provisions added over 46 years into a smaller number of sections, to reorganize the structure of the chapter, and to repeal obsolete or redundant current provisions.

Draft Proposed Legislation LCPR01-213, while intending to be a substantively neutral recodification of existing law, does raise several pension and related public policy issues for Commission consideration, as follows:

1. Accuracy of Recodification. With any recodification, the primary policy issue is the accuracy of the recodification in capturing the substance of the prior law, without substantive omissions or additions. By circulating the draft proposed legislation at this time, prior to the 2002 Legislative Session, interested parties will have an opportunity to identify any unintended substantive omissions or changes and for the Commission staff to make the required corrections.
2. Appropriateness of Retaining Minnesota Statutes, Chapter 355 as Historic Document. The policy issue is the appropriateness of leaving Minnesota Statutes, Chapter 355, as is as a historic document that indicates the development of Social Security coverage for public employees. Minnesota Statutes, Chapter 355, is infrequently amended because the document captures historical developments that, once they occur, have limited ongoing relevance. It is unclear that statute law is the best repository for historical developments.
   
3. Appropriateness of Total Repeal of Minnesota Statutes, Chapter 355. The policy issue is the appropriateness of retaining any portion of Minnesota Statutes 2000, Chapter 355. The various Social Security coverage bills, once enacted, appear to have little ongoing substantive impact and probably should not have been coded in the first place, especially in light of the ongoing and pervasive impact of federal legislation and regulation.
   
4. Appropriateness of the Continuing Exemption From Social Security Coverage for Public Safety Employees. The policy issue is the appropriateness of Minnesota not including police officers and firefighters in Social Security coverage. Other states provide Social Security coverage for public safety officers. The Correctional State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-Correctional) and the Local Government Correctional Employees Retirement Plan of the Public Employees Retirement Association (PERA-Correctional) are prototypes for developing public safety pension coverage that includes Social Security coverage. The issue has not been thoroughly discussed by the Commission for some period of time and the issue may benefit from a new public airing.