Introduction

As an interim study topic, the Commission chair, Senator Dean E. Johnson, has designated a review by the Commission of the various benefit increase proposals remaining from the 2001 Regular Legislative Session. The benefit increase proposals remaining from the 2001 Regular Session are:

• S.F. 1179 (Johnson, D.E.); H.F. 1352 (Murphy): TRA; Modification of the Retirement Annuity Formula
• S.F. 1379 (Tomassoni); H.F. 1565 (Murphy): MSRS; Redefinition of Final Average Salary and Contribution Rate Increases
• S.F. 1439 (Johnson, D.E.); H.F. 1482 (Murphy): Various Plans; Various Retirement Provision Modifications
• S.F. 1445 (Solon); H.F. 1532 (Murphy): DTRFA; Retirement Benefit Modifications
• S.F. 1705 (Pogemiller); H.F. 1692 (Murphy): First Class City Teacher Retirement Plans; Retirement Benefit Modifications
• S.F. 2116 (Lessard); H.F. 1811 (Anderson, I.): Judges; Clarification of Retirement Benefit Increase Effective Date
• S.F. 2223 (Pogemiller); H.F. 2071 (Murphy): MTRFA and StPTRFA; Retirement Benefit Modifications

The first Commission interim consideration of the various benefit increase proposals occurred on October 9, 2001. This second consideration focuses on the five teacher retirement plan benefit increase proposals and is intended to allow the Commission an additional opportunity to receive testimony from potentially affected teacher groups on these benefit increase proposals.

This Commission staff issue memorandum will summarize the five teacher retirement plan benefit increase proposals remaining from the 2001 Regular Session, will summarize any available actuarial cost estimates related to the proposals, and will identify and discuss the other pension and related public policy issues arising from proposed legislation.

Background on the Affected Teacher Public Retirement Plans

1. In General. The Minnesota teacher retirement plans affected by the five benefit increase proposals are the Teachers Retirement Association (TRA), the Duluth Teachers Retirement Fund Association (DTRFA), the Minneapolis Teachers Retirement Fund Association (MTRFA), and the St. Paul Teachers Retirement Fund Association (StPTRFA).

2. Teachers Retirement Association (TRA). The Teachers Retirement Association (TRA) was created in 1935, to replace an earlier statewide teacher retirement program, the Teachers Insurance and Retirement Fund, that was created in 1915 and that went bankrupt. Initially, TRA provided a money purchase retirement annuity as its only retirement benefit. A money purchase benefit is a defined contribution benefit, meaning that the benefit is determined by the amount of contributions that were accumulated and the investment income earned on those amassed contributions. The other two statewide pension plans, the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General) and the Public Employees Retirement Association (PERA) were defined benefit plans from their inceptions, 1929 and 1931 respectively. Defined benefit plans provide a benefit based on a formula with each year of service producing an increment of the total benefit, typically based on a percentage of covered salary.

Initially, TRA was not coordinated with Social Security. Coordination with Social Security for TRA occurred on a "split group" election basis in 1959, with the group declining Social Security coverage constituting the TRA Basic Program. The TRA Basic Program has virtually been eliminated through the passage of time.

After the 1915 Law Teacher Insurance and Retirement Fund defaulted on benefit payments during the Great Depression, and when it was replaced in 1935 by TRA, optional memberships in the form of exemptions were enacted. Participants in the defunct 1915 Law Teacher Insurance and Retirement Fund were allowed to elect to be permanently exempt from TRA coverage. Newly hired teachers after 1931 who were under age 25 were also allowed to elect to be exempt from TRA coverage until reaching age 25. The permanent exempt status and the limited exempt status provisions of TRA were altered in 1957, with the elimination of the limited exempt status authority.

In 1969, in response to complaints from the teacher unions and others about the inadequacy of TRA retirement benefits, the Legislature created three alternative benefit programs. These alternative benefit programs were the Improved Money Purchase Program, to replace the prior money purchase program, the Career Average Salary Formula Program, to parallel the MSRS-General and PERA defined benefit plans, and the Variable Annuity Program, another defined contribution program that was invested wholly in equity (stock) investments. TRA members were provided an opportunity to elect between the three programs in 1969, with a deadline of 1973, and were placed in the Improved Money Purchase Program until they elected differently.

In 1973, the TRA Formula Program had the basis for its retirement annuity calculations changed form a career average salary to a highest five consecutive years average salary, with a simplification of its benefit accrual rates and a rate increase. In 1987, the TRA vesting requirement was reduced from 10 years to five years. In 1989, TRA was included in major benefit increases, primarily the creation of the "Rule of 90" benefit tier. In 1994, the TRA benefit accrual rate was increased, based wholly on an additional member contribution. In 1997, as part of "uniformity" legislation, similar benefit accrual rate increases and other benefit increases were extended to other general employee retirement plans.

3. The Duluth Teachers Retirement Fund Association (DTRFA). The Duluth Teachers Retirement Fund Association (DTRFA) was created in 1910, under Laws 1919, Chapter 343 (currently Minnesota Statutes, Chapter 354A). The plan covers teachers employed by Independent School District No. 709 (Duluth).

DTRFA coordinated with Social Security in 1957 on a total plan basis, meaning that all DTRFA members are coordinated program members.

Prior to May 1971, the Duluth TRA pension plan was essentially a money purchase scheme with the additional provisions of a guaranteed minimum, disability benefits, and certain augmentations to retired members. On May 10, 1971, a major revamping of the Duluth plan was adopted. The plan discarded the money purchase approach and adopted a five highest successive years average salary defined benefit plan, plus Social Security.

In 1981, DTRFA was granted a significant benefit increase, with the creation of two programs, the "old law" program and the "new law" program. The old law program was a continuation of the pre-July 1, 1978, benefit plan while the new law program is the Minnesota Statutes, Chapter 354A benefit plan.

DTRFA was included in the vesting requirement service length reduction in 1987, the 1989 benefit increases, which included the creation of the "Rule of 90" benefit tier, and the 1995-1997 benefit accrual rate increases. The 1997 legislation also included DTRFA in State aid.

4. The Minneapolis Teachers Retirement Fund Association (MTRFA). The Minneapolis Teachers Retirement Fund Association was created in 1909. The Legislature authorized the creation of a teachers retirement fund for Minneapolis by the teaching body with the consent of the City Council. The school authorities formulated the plan for the formation and incorporation of a retirement association, which was submitted to the City Council for approval. A majority of all teachers were required to approve the plan before the retirement association was created. The association was incorporated on September 17, 1909. The plan covers teachers employed by Special School District No. 1 (Minneapolis). Under the bylaws of the MTRFA, any amendments required the approval of the City Council of the City of Minneapolis. The law provided that up to 0.1 of a mill property tax could be levied in the City of Minneapolis to pay for the pension fund.

In 1924, the Minneapolis teachers pension plan was restructured to address major pension funding problems. Under the restructuring, the defined benefit plan for existing retirees remained unchanged. However, teachers with 20 or more years of service were able to elect between the old defined benefit plan or elect the new defined contribution plan, and teachers with less than 20 years were moved into a defined contribution plan for all future service. In addition, all senior teachers were now required to become members of the pension plan. The Legislature increased the property tax levy limit from .2 of one mill to 1.5 mills.

In 1952, the pension benefit formula changed from a defined contribution plan to a defined benefit plan. The defined benefit plan provided a formula annuity equal to 1.667% of average salary for the teacher’s high five consecutive salary, payable at any age with 30 years of service or at age 60. The funding for the pension plan continued through the property tax. The amount levied was based on a percentage of payroll plus an amount to cover administrative and a portion of unfunded annuity payments, as certified by the retirement fund board. The school district, as a legal entity separate from the City, was established in 1953. In 1967, state aid for teacher retirement plans was enacted. The Minneapolis teachers pension plan received state aid equivalent to the funding provided to the statewide TRA. The local property tax levy otherwise to be certified for the Minneapolis teachers pension plan was reduced by the amount of the state teacher retirement aid.

In 1975, the local property tax levy authority was eliminated and the employer contribution was based on a percentage of payroll. The MTRFA was funded by the State of Minnesota, with payment made directly to the retirement fund from the State’s general fund, initially based on the state aid provided to the statewide TRA and eventually based on a specified percentage of covered pay. The 1975 legislation also interrupted a pending benefit increase. The Legislative Commission on Pensions and Retirement was directed to study teacher retirement benefit levels. The 1975 benefit increase was approved by the Legislature in 1976.

The MTRFA coordinated plan for teachers with Social Security coverage was created for new members hired after July 1, 1978 and any existing members who elected the plan. The coordinated plan was patterned on the statewide TRA coordinated program. Before 1978, MTRFA was a "basic" program, meaning that its members had retirement coverage solely by the local retirement plan and without Social Security coverage by virtue of the Minneapolis teaching service. A Social Security referendum was conducted in 1978 for MTRFA basic program members who desired Social Security coverage to elect to have Social Security coverage, to be supplemented by the MTRFA "coordinated" program. The MTRFA coordinated program substantially replicated the coordinated program of the Teachers Retirement Association (TRA). All newly hired Minneapolis teachers after July 1, 1978 automatically were covered by Social Security and the MTRFA coordinated program. When a person was entitled to federal Social Security program coverage, the statute of limitations on correcting past omitted contributions is three years. The level of state funding for the MTRFA Basic Program was increased by approximately 1.1 percent of covered payroll in 1979.

In 1985, the state funding was converted to a categorical education aid to the school district. The direct payment of employer contributions by the State was replaced by employer contributions from the school district. In 1987, the categorical teacher retirement and Social Security aid was folded into the general education aid program.

MTRFA requested benefit increases were approved by the Legislature in 1979, 1985, 1986, 1987, 1989 and 1997. MTRFA requested and has received special State aid in 1993, 1996, and 1997.

The MTRFA has had a longstanding problem concerning the manner in which it determined eligibility for plan membership and credited service under its defined benefit plan, especially for part-time teachers, reserve teachers, and hourly teachers who were not eligible for tenure. Rather than rigorously monitoring the Minneapolis School District workforce to identify teachers for membership, MTRFA historically relied on the Minneapolis School District to report teachers who were eligible for MTRFA membership. For the period 1910-1979, MTRFA was governed virtually in whole by its own articles of incorporation and its own bylaws, with minimal statutory regulation. Membership was one of the provisions defined in the MTRFA articles of incorporation and bylaws. With the 1979 codification of the first class city teaches retirement fund coordinated program and related legislative changes, membership for part-time teachers was mandated. However, MTRFA did not implement that statutory mandate until 1988 and that noncompliance appears to have been ratified by the Legislature in whole or in part by Laws 1992, Chapter 598, Article 6, Section 19.

5. The St. Paul Teachers Retirement Fund Association (StPTRFA). The St. Paul Teachers Retirement Fund Association (StPTRFA) was created in 1909 under Laws `909, Chapter 343 (currently Minnesota Statutes, Chapter 354A). The plan covers teachers employed by Independent School District No. 625 (St. Paul).

Summary of Various 2001 Session Benefit Increase Proposals

1. S.F. 1179 (Johnson, D.E.); H.F. 1352 (Murphy). S.F. 1179 (Johnson, D.E.); H.F. 1352 (Murphy) amends Minnesota Statutes, Sections 354.05, Subdivision 38, defining the Teachers Retirement Association (TRA) "normal retirement age," and 354.44, Subdivision 6, the TRA formula retirement benefit accrual rates, by reducing the normal retirement age for post-June 30, 1989 hirees from age 66 to age 65, by increasing the retirement benefit accrual rates for post-July 1, 2001, service by 0.3 percent per year of service and by increasing the retirement benefit accrual rates during the period July 1, 2001, to June 30, 2010, by 1.0 percent per year of service after "Rule of 90" eligibility.

2. S.F. 1439 (Johnson, D.E.); H.F. 1482 (Murphy). Many provisions within S.F. 1439 (Johnson, D.E.); H.F. 1482 (Murphy) were included in the pension provisions that were passed during the 2001 First Special Session. Numerous provisions remain from those original bills, however. Some of those remaining provisions from S.F. 1439 (Johnson, D.E.); H.F. 1482 (Murphy) relate to the Teachers Retirement Association (TRA). A general summary of the relevant proposed changes is as follows:

1. Removal of Dependency Requirements from Dependent Child Definitions; Increases in Maximum Eligible Ages. Dependent child definitions applicable to all MSRS plans, and to the PERA and TRA plans, are revised by removing requirements that the child be financially dependent upon the deceased member to qualify for benefits, removing other dependency criteria, and permitting benefits to age 22 or later rather than a lesser age.

2. TRA Disabilitant Partial Re-Employment Benefit Level Revision. For partially re-employed disabilitants, the total income (re-employment earnings plus disability benefits) will be compared to salary at the time of disability, indexed for wage inflation over time, rather than to that pre-disability salary with no indexing.

3. Extending Current Refund Laws to Prior Terminated Employees. Refund provisions in all MSRS plans, and in PERA and TRA would be revised to allow current law refund policy (currently employee contributions plus six percent interest), not withstanding the law in effect at the date that previous employees terminated service.

4. MSRS-General Plan, TRA; Revised Surviving Spouse Benefits. In computing surviving spouse benefits in death-while active or deferred situations, rather than computing benefits using the ages of the deceased employee and the surviving spouse at the date of the member’s death, the benefit would be computed using the age of the surviving spouse when the benefit commences and the age the member would have been on that benefit commencement date.

5. TRA, Part-Time Teacher Program Revision for Legislators Who Are Teachers. TRA’s part-time teacher program would be revised by creating separate procedures applicable if the teacher is also a legislator. If a teacher is also a legislator, agreements to enter the program must be executed before March 1 of the fiscal year for which the teacher seeks to make contributions, rather than executed and filed with TRA before October 1, and any penalties for late filing do not apply providing the agreement is filed before March 1.

3. S.F. 1445 (Solon); H.F. 1532 (Murphy). S.F. 1445 (Solon); H.F. 1532 (Murphy) amends various provisions of Minnesota Statutes, Chapter 354A, the law governing the first class city retirement fund associations, including the Duluth Teachers Retirement Fund Association (DTRFA), by making the following changes:

1. DTRFA Age 65 Normal Retirement Age. The normal retirement age for post-June 30, 1989, hirees who are members of the DTRFA New Law Program is reduced from age 66 to age 65;

2. Partial DTRFA Post-Retirement Adjustments. DTRFA retirees who have been retired for less than one year would be eligible for a proportional partial post-retirement adjustment;

3. Increased DTRFA New Law Program Benefit Accrual Rate. For service occurring after June 30, 2001, the benefit accrual rate is increased by 0.2 percent;

4. Extension of "Rule of 90" to Post-June 30, 1989, DTRFA Hirees. DTRFA New Law Program members who were hired after June 30, 1989, are included in the "Rule of 90" benefit tier; and

5. DTRFA Old Law Program Benefit Accrual Rate Increases. A 0.1 percent increase in the DTRFA Old Law Program benefit accrual rate is authorized.

4. S.F. 1705 (Pogemiller); H.F. 1692 (Murphy), Remaining Provisions. The two remaining benefit-related proposals in S.F. 1705 (Pogemiller); H.F. 1692 (Murphy) seek to revise Minneapolis Teachers Retirement Fund Association (MTRFA) basic plan provisions. The first proposed change would authorize the MTRFA to revise its basic plan to provide disability benefits equal to the normal retirement annuity computed according to the applicable articles of incorporation without any reduction due to commencement of a benefit prior to normal retirement age or 30 years of service. The second proposed change would authorize the MTRFA to revise its basic plan to use the same salary base for determining the payment amount for medical leave of absence payments as is used for similar situations in the MTRFA Coordinated Plan.

5. S.F. 2223 (Pogemiller); H.F. 2071 (Murphy). S.F. 2223 (Pogemiller); H.F. 2071 (Murphy) amends Minnesota Statutes, Sections 354A.011, Subdivision 15a, defining the normal retirement age for the three first class city teacher fund association coordinated plans, by specifying an age 65 normal retirement age for all coordinated plan members rather than just those hired prior to July 1, 1989. The proposed legislation also would add a new subdivision in Minnesota Statutes, Section 354A.29, the Saint Paul Teachers Retirement Fund Association post-retirement adjustment provision, to permit payment of a prorated portion of the annual two percent automatic increase to those with less than 12 full months in retirement.

Actuarial Condition of the Affected Retirement Plans and Actuarial Cost Estimates

1. In General. The following sections present the actuarial valuation results as of July 1, 2001, for each retirement plan affected by the seven benefit increase proposals and, when available, an actuarial cost estimate prepared by Milliman USA, the consulting actuarial firm retained by the Commission, or an actuarial cost estimate prepared by the consulting actuary retained by the retirement plan where the retirement plan administration elected not to have Milliman USA prepare the actuarial cost estimate. The July 1, 2000, actuarial valuation results will be updated shortly and neither the actuarial liabilities nor the assets reflect current conditions. The actuarial cost estimates of the benefit increase proposals, where the requested estimate was provided, are broadly indicative of the magnitude of the impact of the proposed benefit increase, but, where not prepared by Milliman USA, will require extra scrutiny as to the underlying assumptions and formulation procedures, and where more than one benefit increase may apply, may not indicate the cumulative effect of the proposed increases.

2. TRA. The following presents the July 1, 2000, actuarial condition of the Teachers Retirement Association (TRA) and summarizes the available cost estimates for the proposed benefit increases:

	July 1, 2000		Impact of S.F. 1179; H.F. 1352 (Buck)				Impact of S.F. 1179; H.F. 1352 (Milliman)
	Actuarial Valuation Results		Change: Increase (Decrease)		Resulting Condition		Change: Increase (Decrease)		Resulting Condition
Membership
Active Members		70,508		--		70,508		--		70,508
Service Retirees		29,525		--		29,525		--		29,525
Disabilitants		509		--		509		--		509
Survivors		1,912		--		1,912		--		1,912
Deferred Retirees		7,375		--		7,375		--		7,375
Nonvested Former Members		17,833		--		17,833		--		17,833
Total Membership		127,662		--		127,662		--		127,662
Funded Status
Accrued Liability		$14,802,441,000		$629,959,000		$15,420,659,000		$296,335,000		$15,100,249,000
Current Assets		$15,573,151,000		--		$15,573,151,000		--		$15,573,151,000
Unfunded Accrued Liability		($770,710,000)		$629,959,000		($152,493,000)		($296,335,000)		($474,375,000)
Funding Ratio	105.21%		(4.22%)		100.99%		(2.08%)		103.13%
Financing Requirements
Covered Payroll		$2,813,696,000		--		2,813,696,000		--		$2,813,696,000
Benefits Payable		$755,036,000		--		755,036,000		--		$755,036,000
Normal Cost	9.09%	$255,746,000	0.89%	$25,041,000	9.98%	$280,807,000	1.91%	$53,742,000	11.00%	$309,507,000
Administrative Expenses	0.30%	$8,441,000	--	--	0.30%	$8,441,000	--	--	0.30%	$8,441,000
Normal Cost & Expense	9.39%	$264,187,000	0.89%	25,041,000	10.28%	$289,248,000	1.91%	$53,742,000	11.30%	$317,948,000
Normal Cost & Expense	9.39%	$264,187,000	0.89%	$25,041,000	10.28%	$289,248,000	1.91%	$53,742,000	11.30%	$317,948,000
Amortization	(1.47%)	($41,361,000)	(1.19%)	$33,483,000	(0.28%)	($7,878,000)	(0.57%)	($16,038,000)	(0.90%)	($25,323,000)
Total Requirements	7.92%	$222,826,000	2.08%	$58,524,000	10.00%	$281,370,000	2.48%	$69,794,000	10.40%	$292,620,000
Employee Contributions	5.00%	$140,710,000	--	--	5.00%	$140,710,000	--	--	5.00%	$140,710,000
Employer Contributions	5.00%	$140,710,000	--	--	5.00%	$140,710,000	--	--	5.00%	$140,710,000
Employer Add'l Cont.	0.00%	$0	--	--	0.00%	$0	--	--	0.00%	$0
Direct State Funding	0.00%	$0	--	--	0.00%	$0	--	--	0.00%	$0
Other Govt. Funding	0.00%	$0	--	--	0.00%	$0	--	--	0.00%	$0
Administrative Assessment	0.00%	$0	--	--	0.00%	$0	--	--	0.00%	$0
Total Contributions	10.00%	$281,420,000	--	--	10.00%	$281,420,000	--	--	10.00%	$281,420,000
Total Requirements	7.92%	$222,826,000	2.08%	$58,524,000	10.00%	$281,370,000	2.48%	$69,794,000	10.40%	$292,620,000
Total Contributions	10.00%	$281,420,000	--	--	10.00%	$281,420,000	--	--	10.00%	$281,420,000
Deficiency (Surplus)	(2.08%)	($58,594,000)	2.08%	$58,524,000	0.00%	($50,000)	2.48%	$69,794,000	0.40%	$1,200,000

	July 1, 2000		Impact of S.F. 1439; H.F. 1482
	Actuarial Valuation Results		Change: Increase (Decrease)	Resulting Condition
Membership			No actuarial cost estimate provided by the plan administration.
Active Members		70,508
Service Retirees		29,525
Disabilitants		509
Survivors		1,912
Deferred Retirees		7,375
Nonvested Former Members		17,833
Total Membership		127,662
Funded Status
Accrued Liability		$14,802,441,000
Current Assets		$15,573,151,000
Unfunded Accrued Liability		($770,710,000)
Funding Ratio	105.21%
Financing Requirements
Covered Payroll		$2,813,696,000
Benefits Payable		$755,036,000
Normal Cost	9.09%	$255,746,000
Administrative Expenses	0.30%	$8,441,000
Normal Cost & Expense	9.39%	$264,187,000
Normal Cost & Expense	9.39%	$264,187,000
Amortization	(1.47%)	($41,361,000)
Total Requirements	7.92%	$222,826,000
Employee Contributions	5.00%	$140,710,000
Employer Contributions	5.00%	$140,710,000
Employer Add'l Cont.	0.00%	$0
Direct State Funding	0.00%	$0
Other Govt. Funding	0.00%	$0
Administrative Assessment	0.00%	$0
Total Contributions	10.00%	$281,420,000
Total Requirements	7.92%	$222,826,000
Total Contributions	10.00%	$281,420,000
Deficiency (Surplus)	(2.08%)	($58,594,000)

Cautionary Note: The Teachers Retirement Association (TRA) plan administration provided an actuarial cost estimate for S.F. 1179; H.F. 1352 and did not provide an actuarial cost estimate for S.F. 1439; H.F. 1482. The March 14, 2001, actuarial cost estimate provided by TRA covered 14 potential combinations of benefit increase proposals and was prepared by the consulting actuarial firm retained by the plan, Buck Consultants (San Francisco office). A March 30, 2001, actuarial cost estimate by Milliman USA, the consulting actuarial firm retained by the Commission, was provided to the Commission staff by Milliman USA as required under contract. The two actuarial cost estimates differ, based on different procedures between Milliman USA and Buck Consultants for calculating normal cost when different benefit accrual rates apply to different time periods. In comparing the accrued liability and normal cost increase results from Buck and Milliman, there is a difference in whether the benefit accrual rate increases are allocated to past service (accrued liability) in the Buck estimate or are allocated to future service (normal cost) in the Milliman estimate. The Buck estimate does not indicate the underlying assumptions or techniques used in preparing the estimate. The Milliman estimate includes results both under the current TRA actuarial assumptions and with proposed actuarial assumption changes resulting from the recent experience study, which indicated no net result. The TRA plan administrator indicated that TRA had not attempted to resolve the differences between the Buck and Milliman estimates.

3. DTRFA. The following presents the July 1, 2000, actuarial condition of the Duluth Teachers Retirement Fund Association (DTRFA) and summarizes the available cost estimates for the proposed benefit increases:

	July 1, 2000		Impact of S.F. 1445; H.F. 1532				Impact of S.F. 2223; H.F. 2071
	Actuarial Valuation Results		Change: Increase (Decrease)		Resulting Condition		Change: Increase (Decrease)		Resulting Condition
Membership
Active Members		1,441		--		1,441		--		1,441
Service Retirees		937		--		937		--		937
Disabilitants		6		--		6		--		6
Survivors		53		--		53		--		53
Deferred Retirees		172		--		172		--		172
Nonvested Former Members		575		--		575		--		575
Total Membership		3,184		--		3,184		--		3,184
Funded Status
Accrued Liability		$241,899,000		N/A		N/A		N/A		N/A
Current Assets		$251,007,000		N/A		N/A		N/A		N/A
Unfunded Accrued Liability		($9,108,000)		N/A		N/A		N/A		N/A
Funding Ratio	103.77%		N/A		N/A		N/A		N/A
Financing Requirements
Covered Payroll		$53,102,000		--		$53,102,000		--		$53,102,000
Benefits Payable		$12,360,000		N/A		$12,360,000		N/A		$12,360,000
Normal Cost	8.68%	$4,609,000		N/A		N/A		N/A		N/A
Administrative Expenses	0.75%	$398,000		N/A		N/A		N/A		N/A
Normal Cost & Expense	9.43%	$5,007,000		N/A		N/A		N/A		N/A
Normal Cost & Expense	9.43%	$5,007,000		N/A		N/A		N/A		N/A
Amortization	(0.92%)	($489,000)		N/A		N/A		N/A		N/A
Total Requirements	8.51%	$4,518,000	2.02%	$1,073,000	10.53%	$5,591,000	0.18%	$96,000	8.6%	$4,614,000
Employee Contributions	5.50%	$2,921,000	--	--	5.50%	$2,921,000	--	--	5.50%	$2,921,000
Employer Contributions	5.79%	$3,075,000	--	--	5.79%	$3,075,000	--	--	5.79%	$3,075,000
Employer Add'l Cont.	0.00%	$0	--	--	0.00%	$0	--	--	0.00%	$0
Direct State Funding	0.92%	$486,000	--	--	0.92%	$486,000	--	--	0.92%	$486,000
Other Govt. Funding	0.00%	$0	--	--	0.00%	$0	--	--	0.00%	$0
Administrative Assessment	0.00%	$0	--	--	0.00%	$0	--	--	0.00%	$0
Total Contributions	12.21%	$6,482,000	--	--	12.21%	$6,482,000	--	--	12.21%	$6,482,000
Total Requirements	8.51%	$4,518,000	2.02%	$1,073,000	10.53%	$5,591,000	0.18%	$96,000	8.69%	$4,614,000
Total Contributions	12.21%	$6,482,000	--	--	12.21%	$6,482,000	--	--	12.21%	$6,482,000
Deficiency (Surplus)	(3.70%)	($1,964,000)	2.02%	$1,073,000	(1.68%)	$891,000	0.18%	$96,000	(3.52%)	($1,869,000)

Cautionary Note: The Duluth Teachers Retirement Fund Association (DTRFA) plan administrator provided a summary of two actuarial cost estimates, but did not provide the requested copy of the actual actuarial cost estimate in either case. The actuarial cost estimates were indicated to have been prepared by the actuarial consulting firm of Hewitt Associates (Minneapolis office), rather than by Milliman USA. Without a copy of the actual actuarial cost estimate, it is impossible to ascertain the credentials of the person preparing the estimate, to ascertain whether or not that person is an approved actuary under Minnesota Statutes, Section 356.215, and to ascertain what underlying actuarial assumptions or techniques were utilized in preparing the estimate and their reasonableness. The actuarial cost estimate for S.F. 1445; H.F. 1532 was indicated to have not included the partial post retirement adjustment provision, for which the plan administrator provided a two-year summary of plan experience had the benefit change been in effect during the 1999 and 2000 fiscal years. The average 1999-2000 fiscal year plan experience cost has been added to the other summarized cost items in the summary of the estimate.

4. MTRFA. The following presents the July 1, 2000, actuarial condition of the Minneapolis Teachers Retirement Fund Association (MTRFA) and summarizes the available cost estimates for the proposed benefit increases:

	July 1, 2000		Impact of S.F. 1439; H.F. 1482		Impact of S.F. 2223; H.F. 2071
	Actuarial Valuation Results		Change: Increase (Decrease)	Resulting Condition	Change: Increase (Decrease)		Resulting Condition
Membership			No actuarial cost estimate was requested by the MTRFA plan administration. The plan administration suggests that there will be a small associated cost increase or no actuarial cost increase at all.
Active Members		5,777				--		1,441
Service Retirees		3,033				--		937
Disabilitants		20				--		6
Survivors		254				--		53
Deferred Retirees		756				--		172
Nonvested Former Members		1,815				--		575
Total Membership		11,655				--		3,184
Funded Status
Accrued Liability		$1,554,358,000				N/A		N/A
Current Assets		$1,027,633,000				N/A		$1,027,633,000
Unfunded Accrued Liability		$526,725,000				N/A		N/A
Funding Ratio	66.54%				N/A		N/A
Financing Requirements
Covered Payroll		$255,488,000				--		$255,488,000
Benefits Payable		$86,440,000				--		$86,440,000
Normal Cost	10.76%	$27,485,000				N/A		N/A
Administrative Expenses	0.24%	$616,000				N/A	0.24%	$616,000
Normal Cost & Expense	11.00%	$28,101,000				N/A		N/A
Normal Cost & Expense	11.00%	$28,101,000				N/A		N/A
Amortization	14.25%	$36,400,000				N/A		N/A
Total Requirements	25.25%	$64,501,000			0.99%	$2,529,000	26.24%	$67,030,000
Employee Contributions	6.10%	$15,595,000			--	--	6.10%	$15,595,000
Employer Contributions	8.95%	$22,854,000			--	--	8.95%	$22,854,000
Employer Add'l Cont.	0.00%	$0			--	--	0.00%	$0
Direct State Funding	7.22%	$18,444,000			--	--	7.22%	$18,444,000
Other Govt. Funding	0.98%	$2,500,000			--	--	0.98%	$2,500,000
Administrative Assessment	0.00%	$0			--	--	0.00%	$0
Total Contributions	23.25%	$59,393,000			--	--	23.25%	$59,393,000
Total Requirements	25.25%	$64,501,000			0.99%	$2,529,000	26.24%	$67,030,000
Total Contributions	23.25%	$59,393,000			--	--	23.25%	$59,393,000
Deficiency (Surplus)	2.00%	$5,108,000			0.99%	$2,529,000	(2.99%)	($7,637,000)

Cautionary Note: The MTRFA plan administration did not request an actuarial cost estimate for S.F. 1705; H.F. 1692 and requested a cost estimate from the consulting actuarial firm that it retains, undisclosed, for S.F. 2223; H.F. 2071. The plan did not apparently request an actuarial cost estimate from the consulting actuarial firm retained by the Commission, Milliman USA. The actuarial cost estimate by the MTRFA actuary was summarized by the MTRFA plan administration, but the consulting actuary was not indicated and the actual actuarial cost estimate was not provided. Thus, it is not possible to ascertain what the credentials of the MTRFA actuary are, whether the actuary is an approved actuary under Minnesota Statutes, Section 356.215, what actuarial assumptions or techniques underlie the estimate, and what the allocation of the cost increase between past service (the actuarial accrued liability) and future service (the normal cost) was.

5. StPTRFA. The following presents the July 1, 2000, actuarial condition of the St. Paul Teachers Retirement Fund Association (StPTRFA) and summarizes the available cost estimates for the proposed benefit increases:

Other Pension and Related Public Policy Considerations

1. In General. In addition to the estimated actuarial cost of the proposed benefit increase, with the available information summarized in the preceding section, there are a number of other pension and related public policy considerations. These considerations are briefly discussed below, grouped into those considerations that apply to many or all of the benefit increase proposals and those considerations that apply to a specific benefit increase proposal or a limited number of benefit increase proposals.

2. Generally Applicable Policy Considerations.

1. Pending Actuarial Valuation Updates. The policy issue is the need to consider pending updated actuarial valuation reports before reaching a final decision on the various proposed benefit increases. Actuarial valuation reports as of July 1, 2001, for all of the affected retirement plans are due between November 1, 2001, and December 31, 2001. Since July 1, 2000, the date of the actuarial valuations summarized in the previous section, assets have likely suffered some general erosion through June 30, 2001, while actuarial accrued liabilities would likely have risen. While many of the Minnesota public pension plans made striking funded status gains over the past four years, based on unprecedented asset gains from investment performance, that progress over the July 1, 2000, to June 30, 2001, period has been likely reversed to some degree.

2. Impact of Pending Actuarial Assumption Changes. The policy issue is the need to assess the various proposed benefit increases in light of pending actuarial assumption changes for six of the affected retirement plans, the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General), the General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General), the Teachers Retirement Association (TRA), the Duluth Teachers Retirement Fund Association (DTRFA), the Minneapolis Teachers Retirement Fund Association (MTRFA), and the St. Paul Teachers Retirement Fund Association (StPTRFA). Quadrennial experience studies required by Minnesota Statutes, Section 356.215, were performed in May 2001 for MSRS-General, PERA-General, and TRA by the actuarial firm retained by the Commission, Milliman USA. Six-year period experience studies were also performed this spring by Milliman USA under contract with DTRFA, MTRFA, and StPTRFA. A study of the actuarial cost of the Combined Service Annuity and related provisions, Minnesota Statutes, Sections 356.30, 356.302, and 356.303, also was conducted by Milliman USA under contract with the various retirement plans. The Commission reviewed these experience study reports and the Combined Service Annuity study during the August 2001 meeting, which included an indication of the direction of likely actuarial assumption changes as a result, actuarial assumption changes are likely to be submitted for Commission approval early in the 2001 Legislative Session. These assumption changes will affect the actuarial accrued liabilities of the six retirement plans and will go into effect for the July 1, 2002, actuarial valuations.

3. Impact of Post-July 1, 2001, Valuation Asset Losses. The policy issue is the need to include in the consideration of any benefit increase legislation proposals the impact of the severe downturn in the financial markets that has occurred since the July 1, 2001, valuation date. The July 1, 2001, valuations will be based significantly on the market value of retirement plan assets as of June 30, 2001. While those asset values will reflect a general softening of the United States economy that was already in effect, there has been a further significant decline in market values generally based on events following June 30, 2001, which will not be reflected in the valuation reports. If the Commission wishes to gain a sense of the June 30, 2001, asset value softening and the impact of post-June 30, 2001, events on Minnesota retirement plan values, the State Board of Investment would be available to provide the requested information.

4. Affordability of Various Benefit Increases. The policy issue is the affordability of the various proposed benefit increases. The policy issue is a corollary to the issue of the actuarial cost of the proposed benefit increases. Some of the benefit increases depend on employer contribution increases by the State for their future financing, but anecdotal information suggests that the State budget may be unable to absorb any contribution increases. Other benefit increases depend upon drawing down past funding gains for their financing, but those past funding gains may have been temporary or illusory. Other benefit increases depend on current position imbalances between contribution and actuarial costs, where an alternative approach to benefit increases could be contribution reductions. Finally, other benefit increases, principally related to the Minneapolis Teachers Retirement Fund Association (MTRFA), wholly ignore the current financial difficulties of the retirement plan and the current negative imbalance between contribution rates and actuarial costs.

5. Adequacy of Contribution Rate Increases. The policy issue is the adequacy of the contribution rate increases that accompany some benefit increase proposals, where provided, and the appropriateness of omitting any contribution rate increase from other benefit increase proposals. Generally, the proposed benefit increase proposals do not include any contribution rate increases. The benefit increase proposals largely appear to be designed to take advantage of 2000 actuarial valuation contribution sufficiency margins before the Legislature is able to consider any other alternatives, from restructuring retirement plan coverage to considering retirement contribution rate reductions. To insure the future financial health and security of Minnesota’s retirement plans, which has been the primary goal and function of the Legislative Commission on Pensions and Retirement since its creation in 1955, the Commission will need to evaluate the balance between actuarial cost and total contribution rates as well as to assess the magnitude of contribution rates in light of retirement plan normal costs.

6. Desirability of Gubernatorial Input. The policy issue is the potential desirability of receiving input from the Governor, the Department of Finance, and other relevant Executive Branch sources on the proposed benefit increase. While in Minnesota, historically, public pension policy has largely become the purview of the Legislative Branch by default or design, most public policy issues reflect a considerable interplay between the Executive Branch and the Legislative Branch. When considering public pension policy proposals as significant as some of the proposed benefit increases, it may be advisable to provide the Governor and the Executive Branch with an opportunity to weigh in on these proposals and to consider any input provided. To this end, the Commission Chair, Senator Dean E. Johnson, has invited by letter Governor Jesse Ventura to provide any reactions and policy advice on the benefit increase proposals. On behalf of the Governor, Finance Commissioner Pam Wheelock sent Senator Dean Johnson a letter indicating the Governor’s interest in the issue and requesting inclusion in the information flow as actuarial information is received.

7. Lack of Uniformity in the Various Benefit Increase Proposals. The policy issue is the impact of the various benefit increase proposals on the alleged or actual growing uniformity of the benefit coverage between various types of Minnesota public pension plans. In 1997, the year of the last major retirement increases, the package of benefit increases was argued by its proponents as being necessary to achieve uniformity among the various Minnesota public retirement plans. Benefit uniformity became the stated goal of the 1997 legislation to such an extent that it functioned as the shorthand title for the legislation as it progressed. Little of this total package of proposed benefit increases promotes uniformity between the various affected plans, even within the same type of plan.

8. Potential Extensions of Specific Benefit Increases. The policy issue is the appropriateness of pursuing a specific pension benefit increase proposal without considering likely or probable demands for their extension to similar circumstances or other plans. Limitations on benefit increases that are imposed when the increase is enacted frequently evaporate over time, even if the limitation was a key factor to the enactment of the benefit increase. For instance, although S.F. 1179 (Johnson, D.E.); H.F. 1352 (Murphy) limits the Teachers Retirement Association (TRA) benefit accrual rate increase to prospective service (post-July 1, 2001), that arbitrary start date may likely be extended back for a variety of potential reasons. Similarly, if S.F. 1445 (Solon); H.F. 1532 (Murphy) was enacted, the prospective and retroactive service benefit accrual rate increase for the Duluth Teachers Retirement Fund Association (DTRFA) Old Law Program and the prospective service only benefit accrual rate increase for the DTRFA New Law Program could coincide for only a limited period before the DTRFA New Law Program members would demand retroactive service benefit accrual rate increases also.

9. Precedent for Other Benefit Increases. The policy issue is related to the immediately previous consideration and is the potential for any retirement plan change to become the precedent that argues significantly or conclusively for the same change to another plan. If the Commission is to seriously consider increasing the Teachers Retirement Association (TRA) benefit accrual rate, the Commission should obtain actuarial cost estimates for that total package of benefit increases for all retirement plans prior to making any final recommendation, because it is unlikely that the Legislature could successfully argue that a TRA enhanced benefit accrual rate is not a precedent for similar benefit increases to all other general employee retirement plans.

10. Alternative Practice of Delayed Effective Dates or Conditional Benefit Increases. The policy issue is the advisability of the Commission establishing an alternative practice of utilizing a delayed effective date for benefit increase legislation or of conditioning a benefit increase on actuarial or other developments rather than immediate implementation. As indicated in other policy considerations above, there is considerable uncertainty about the future magnitude of actuarial accrued liabilities of retirement plans affected by pending actuarial assumption changes or by the current State employee strike and about the financial condition of various retirement plans at the brink of what may become a prolonged period of economic disruption. If delaying legislative consideration or approval of these benefit increase proposals until there is more clarity in these matters is not possible or desirable, the Commission should consider beginning the practice of delaying the effective date of any benefit increase to allow for legislative reconsideration of the actuarial impact of the increase before the increase actually takes hold. Alternatively, the Commission could extend the practice it has used in benefit increase legislation for the Minneapolis Firefighters Relief Association and the Minneapolis Police Relief Association of conditioning benefit increases on the achievement (and perhaps maintenance) of certain actuarial goals or benchmarks.

11. Alternative Supplemental Defined Contribution Plan Creation/Increase Instead of Defined Benefit Plan Increase. The policy issue is the advisability of the Commission establishing an alternative practice to further defined benefit plan increases by creating or augmenting a supplemental defined contribution plan. At some moment in time, the combination of Social Security coverage and the applicable defined benefit retirement plan coverage will provide a sufficient retirement base for a majority of public employees and the provision of supplemental defined contribution coverage will provide an enhancement and a flexibility to those public employees that is impossible in the blunt policy instrument that is the State’s current defined benefit plans. Additionally, redirecting benefit increase demands into defined contribution retirement coverage avoids the uncertain future actuarial accrued liabilities always present in defined benefit plan benefit increases.

12. Appropriateness of Retirement Plan Administrators or Retirement Plan Administrative Boards in Proposing Benefit Increases. The policy issue is the appropriateness of retirement plan administrators or of retirement plan administrative boards in formulating proposed benefit increases. Retirement administrators and retirement boards are obligated by both common law and Minnesota Statutes, Chapter 356A, with the fiduciary obligation of the faithful administration of the current retirement plans. Picking winners and losers among plan members in selecting between potential retirement benefit increases by retirement plan administrators or by retirement plan governing boards is difficult or impossible to square with the faithful, non-prejudicial, implementation of the retirement plan once those potential benefit increases are enacted. The legislative process does not lack for potential sponsors or proponents of benefit increases, including active and/or retired plan member organizations and labor unions. Clearly, retirement plan administrators and retirement plan administrative boards have a role to play in the legislative process of evaluating benefit increase proposals, including providing information on the administrative and related considerations or obstacles in proposals, but as specific benefit increase proposal sponsors and proponents, they blur or deviate from their proper role as fiduciaries.

3. Bill-Specific Policy Considerations.

1. S.F. 1179 (Johnson, D.E.); H.F. 1352 (Murphy): TRA; Modification of the Retirement Annuity Formula.

1. Lack of Any TRA Contribution Sufficiency Margin After Benefit Increase. The policy issue is the appropriateness of the Teachers Retirement Association (TRA) proposal of seeking a net of benefit increases with an actuarial cost that exactly equals, according to the TRA actuary, the current (July 1, 2000) contribution sufficiency, without any remaining margin. The actuary retained by the Legislative Commission on Pensions and Retirement assesses the actuarial cost of the proposed benefit increase differently, with an actual contribution deficiency. That practice differs from the practice proposed by the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General) and the Correctional Employees Retirement Plan of the Minnesota State Retirement System (MSRS-Correctional) of retaining all or most of the current contribution sufficiency model.

2. Appropriateness of Encouraging Early or Earlier Normal Retirement. The policy issue is the appropriateness of increasing the "Rule of 90" benefit tier benefit accrual rate percentage, thereby encouraging early or earlier normal retirements. A shortage of teachers in Minnesota has either already occurred or is projected for the near future, largely because of the early retirement of teachers. In the face of that teacher shortage, proposed legislation that would encourage more early retirements by teachers would be ill advised.

3. Appropriateness of Attempting to Counter Early Normal Retirements While Encouraging Early Retirements. The policy issue is the appropriateness of attempting to design a benefit increase to induce non-utilization of early normal retirement provisions while also augmenting those early retirement provisions. The proposed benefit increase would be an additional benefit accrual rate percentage for every year of unused "Rule of 90" eligibility, while also increasing the "Rule of 90" benefit accrual rate. To encourage early normal retirement or to discourage early normal retirement would be logical, but to do both indicates a failure of sound policy making.

4. Appropriateness of Limiting Benefit Accrual Rate Increases to Prospective Service. The policy issue is the appropriateness of increasing the benefit accrual rate percentages for prospective service credit only. Historically, benefit accrual rate increases generally have been for all prior service credit as well as prospective service credit. This practice of "retroactive" benefit accrual rate increases is obviously favored by long service plan members, who will likely argue that they are being omitted or discriminated against by this proposed benefit increase practice.

2. S.F. 1439 (Johnson, D.E.); H.F. 1482 (Murphy): Various Plans; Various Retirement Provision Modifications.

1. Appropriateness of Proposed Removal of Financial Dependency Requirement. The proposed legislation removes the requirements that the child be financially dependent upon the member for at least half support prior to the death of the member, and that the child be unmarried. Remaining is a less definite indicator of dependency, which is age. The step away from dependency as a requirement raises the issue of whether the changes are consistent with the purpose of the pension plan, and whether this extension is appropriate for a pension plan. Alternatively, the matter can be thought of as a determination of the proper dividing line between public pension plan coverage and insurance policies. Current law suggests that children of deceased members should receive financial support from the deceased employee’s pension plan providing there is a clear demonstration of dependence (based on age and financial need). If not, and the employee wishes to provide income to these individuals in the event of the member’s death, that income should be provided by life insurance policies. The proposal removes the financial dependency requirement, making benefits from the pension plan to the child an entitlement providing the maximum age has not been exceeded. In its most basic form, a defined benefit pension plan provides coverage for the employee, providing an inducement to remain in service and providing an income in retirement. It has become customary to provide coverage, or at least the option of coverage, beyond the employee to the family unit. In death while active situations, the surviving spouse is generally entitled to benefits; typically, an annuity based on the annuity to which the member would have been entitled at the time of death. The Legislature has also followed a policy of authorizing benefits to dependent children of the deceased employee, based of notions of compassion and public purpose. Current law reflects an intention that financially dependent children should be provided with monetary support from the pension plan that covered the deceased employee.

2. Appropriateness of the Proposed Removal of Marriage and Continuing Education as Surviving Child Benefit Entitlement Requirements. The benefit increase proposal removes, where they exist, any requirement that that a child of the member be unmarried to retain eligibility to dependent child benefits, and language which permitted benefits to continue after age 18 only if the child was enrolled in an accredited school or college. These can be viewed as indicators of financial need. The policy question is whether these requirements should be retained rather than moving toward a concept of paying benefits to children of deceased active or deferred members as an unrestricted right. Removing these requirements will mean that more individuals will be entitled to benefits, adding to plan cost.

3. Appropriateness of Proposed TRA Disabilitant Partial Reemployment Benefit Level Revision. The proposed benefit increase legislation would change the limit against which disability benefits and partial reemployment earnings in TRA would be measured. The provision may be intended to encourage TRA disabilitants to attempt partial reemployment by providing them larger disability benefits (less of a potential reduction). However, reliance on this incentive may become a justification for TRA not to rigorously monitor the continuing eligibility of TRA disability benefit recipients for those benefits.

4. Appropriateness of Extending Current Refund Laws to Prior Terminated Employees. The proposed legislation allows plan members who terminated service at any time in the past are entitled to a refund with six percent interest, rather than the interest specified in the law at the time of the individual’s termination from public service, if any. The proposed revisions are a step away from a presumption against retroactivity in retirement law. That is a significant change, one which warrants careful consideration of the implications. Refunds are part of the package of benefits provided by Minnesota defined benefit plans, along with retirement annuities, disability benefits, survivor benefits, and other miscellaneous benefits. Changes in Minnesota retirement plan laws are presumed to not have retroactive application. This is consistent with the notion that the retirement plan with the specific benefits offered are part of the package of salary and benefits offered to active employees to induce the individuals to become public employees, to retain the employees, and to out-transition the employees at the end of their productive working careers. Retirement plan laws are revised many times during the career of a longterm employee, and for all employees who terminate, the presumption is that the law that applies to the terminated individuals, whether it be refund laws or any other benefit offered by the plan, are the laws in effect on the date of termination from covered service. Those laws reflect the final agreement or legal promise between the employer and the now-terminated employees. The proposed change likely can not be implemented with any degree of consistency, fairness, or efficiency. Under law, a refund terminates all further rights in the given plan. Clearly, to date, none of the applicable plans have made any effort to keep current addresses for individuals who were presumed to have terminated all rights in the plan. In the past, some of these plans paid no interest on a refund. Then, over time, laws were revised to pay two percent interest, then three percent interest, then five percent interest until, at the current time, laws in most of the statewide plans specify that six percent interest is to be paid on a refund. Under this proposal, it will now be necessary to try to locate any individual who accepted a refund with less than six percent interest, or who has an inactive account with any of these plans. Many of the individuals to which these changes would apply terminated service many years ago, indeed decades ago, and many took refunds with whatever interest, if any, was applicable at the time. Given the passage of time, it will be difficult, expensive, and time-consuming to locate these individuals to inform them of their new right under law and to pay them whatever additional interest is payable. Many will be missed. For those who are located, the added payment will be a windfall.

5. Appropriateness of Survivor Benefit Improvement. The proposed legislation revises surviving spouse death-while-active-or-deferred benefits by basing the benefit on the age the employee would have been when the surviving spouse benefit commences, rather than upon the member’s age at death. This change will increase the benefit somewhat in any case where the surviving spouse delays receipt of the benefit. The policy issue is the amount of the benefit improvement and the need for that improvement.

6. Appropriateness of Creating Special Rules for Legislator-Teachers Within the TRA Part-Time Teaching/Full-Time Service Credit Program. The proposed legislation authorizes teachers who are legislators to enter into part-time teaching agreements under this provision by March 1 of the applicable school fiscal year for which the agreement applies, rather than by October 1 of the applicable school year, and by waiving any penalties that would have otherwise applied ($5 per day) for failure by the school district to file before the prior October 1. In 1999 (Laws 1999, Chapter 222, Article 8, Sections 1 and 11) the Legislature revised TRA’s part-time teacher program law, Minnesota Statutes, Section 354.66, by revising Subdivision 5, to permit teachers who are also legislators to take part in the part-time teacher program. That subdivision, as amended, permitted them to receive a full year of service credit in TRA for part-time teaching if they have an agreement with the school district under this provision, although they are covered for legislative employment in either the Legislator’s Plan or the Unclassified Plan. The effective date of the revised provision was January 2, 2001. Teachers can participate in the TRA part-time teacher program under agreements between the teacher and the applicable school district. Under existing law, whether or not the teacher is also a legislator, those agreements must be entered into before October 1 of the applicable school year. To avoid a $5 per day penalty, the school district must file that agreement with TRA by October 1. In no event may TRA accept an agreement that is filed more than 15 months late. The policy issue is the need for the proposed legislation. The program in law does work without the creation of special rules for legislator-teachers. The changes may represent a benefit enhancement for teacher-legislators not intended or evident from the 1999 legislation.

3. S.F. 1445 (Solon); H.F. 1532 (Murphy): DTRFA; Retirement Benefit Modifications.

1. Appropriateness of Encouraging Early Retirement. The proposed legislation reduces the normal retirement age for post-June 30, 1989, hirees from age 66 to age 65 and extends the "Rule of 90" normal retirement age to post-June 30, 1989, hirees. The proposed legislation raises the same issues of the appropriateness of encouraging early retirement by teachers as discussed in S.F. 1179; H.F. 1352.

2. Appropriateness of Revising "Rule of 90" Phase-Out. The phase-out of the "Rule of 90" was part of the 1989 benefit increases and was a significant compromise in the passage of that benefit program. The proposed legislation would revise that phase-out. If this portion of the 1989 benefit compromise is reversed, perhaps other portions of the 1989 package should be revised to affect the impact of this change.

4. S.F. 1705 (Pogemiller); H.F. 1692 (Murphy): First Class City Teacher Retirement Plans; Retirement Benefit Modifications.

1. Appropriateness of MTRFA Basic Program Disability Benefit Increase. The proposed legislation would authorize the MTRFA to revise its bylaws to have the basic member disability benefits computed like basic member retirement annuities, but without any reduction due to commencement of the benefit before normal retirement age. The proposal is a benefit increase. The MTRFA basic member disability benefit is an annuity based on the continued accumulation of employee and city contributions ‘at the current rate’ for a period of 15 years, plus an additional benefit equal to the smaller of 100 percent of the annuity provided by the city contributions or $150 per month, plus (for teachers with 20 or more years of service) an additional $7.50 per month. The proposal is to instead provide a benefit computed like a retirement annuity, but without any reduction due to early receipt. The change is allegedly to promote more consistency between the basic and coordinated plan. The justification for the benefit change is unclear.

2. Appropriateness of MTRFA Basic Program Medical Leave Salary Base Usage. The proposed legislation would authorize MTRFA to amend its bylaws to change the basic member contribution requirements on medical leaves to correspond to the procedure used for MTRFA Coordinated Plan members. The policy issue is whether a change is needed, and how this revised procedure differs from that in current use. Given the MTRFA’s current funding situation, the proposal should be carefully scrutinized so that it does not amount to a reduction in the contributions required for service credit under these leaves. Teachers Retirement Association (TRA) and first class city teacher fund association leave of absence contribution payment procedures explicitly subsidize many forms of leave due to the timing of the contribution payments. Rather than requiring payment during the leave, contributions are permitted many months later, and in some cases more than a year after the leave has terminated, without any interest. The delay in the receipt of the contributions creates an interest-free loan. These arrangements, like any form of subsidy, increase the total contribution requirement of the plan. The proposal also does not require any interest with the contributions providing contributions are received before the end of the fiscal year in which the leave terminates. If contributions are further delayed, interest is only charged from the end of the fiscal year during which the leave terminated until paid. Given the MTRFA’s actuarial condition and contribution deficiency, it would be reasonable for the MTRFA to consider proposing changes in many leave of absence provisions to revise contribution procedures in an effort to keep their pension fund whole.

5. S.F. 2223 (Pogemiller); H.F. 2071 (Murphy): MTRFA and StPTRFA; Retirement Benefit Modifications.

1. Appropriateness of Encouraging Earlier Normal Retirement Ages for Teachers. (See similar discussion for S.F. 1445; H.F. 1532.)

2. Appropriateness of Providing Benefit Increases For Plans With Significant Funding Difficulties. The proposed legislation would provide benefit improvements for two pension plans that have had significant funding problems over a considerable period of time, and that consequently receive sizable amounts of special State funding. Given those funding problems, granting additional benefits, irrespective of their magnitude, should be done cautiously, if at all.