S.F. 2531 (Pogemiller); H.F. 2695 (Mares): Minneapolis Fire Relief Association (MFRA): Revising Alternative Service Pension Provision for Unmarried Members; Correcting Various Administrative and Benefit Provisions; Revising Certain Administrative Procedures, corrects errors introduced by the 2001 MFRA codification/ benefit improvement legislation (Laws 2001, First Special Session, Chapter 10, Article 15) in the MFRA thirteenth check provision; revises the surviving spouse member definition by including survivors of disabilitants and by correcting a length-of-marriage requirement; specifies that faithful performance bonding expenses are to be covered by the special fund; revises the composition of the board of examiners; clarifies the contributions to be deposited in the health insurance accounts; revises a reference in the surviving spouse benefit provision and revises maximum family benefits; and revises the alternative service pension for unmarried member provision by stating that the provision applies only to those with at least 25 years of service credit.

Section 1. Revises Section 423C.01, Subdivision 17, the definition of excess investment income for purposes of determining the thirteenth check eligibility, by making it conform with prior special law authority which specified that the investment return/salary increase comparisons are to be based on five-year rather than one-year comparisons.

Section 2. Revises Section 423C.01, Subdivision 25, the definition of surviving spouse member, by indicating that it can also include survivors of disabilitants and by correcting the length-of-marriage requirement from two years to one year prior to termination of service.

Section 3. Revises Section 423C.03, Subdivision 4, a performance bonding provision, by specifying payment from the special fund rather than general fund.

Section 4. Revises Section 423C.03, Subdivision 6, a board of examiners provision, by striking the requirement that the board include a physician, and by removing the requirement that relief association members of that board must be active duty members.

Section 5. Revises Section 423C.04, Subdivision 4, a health insurance account provision, by clarifying that the provision refers to applicable contribution that would otherwise go to the special fund.

Section 6. Revises Section 423C.05, Subdivision 7, the surviving spouse benefit provision, by revising a reference and by revising the maximum family benefit amount from 41 to 42 units.

Section 7. Revises Section 423C.05, Subdivision 9, the alternative service pension for unmarried member provision, by specifying that the provision applies only to those with 25-year pensions.

Section 8. INTENT. States that sections 1, 2, 6, and 7 are intended to correct provisions in the 2001 codification laws. Specifies that no provision in this bill or in the 2001 MFRA legislation are intended as a benefit revision or enhancement, and requires the MFRA to alert the city and the LCPR if any provision of this bill or the 2001 legislation has an impact on benefits.

Section 9. EFFECTIVE DATE. Section 1, 2, 6, and 7 are effective retroactive to October 25, 2001. Section 3, 4, and 5, are effective on the day following final enactment.

Several years ago, the Minneapolis Police Relief Association (MPRA) had its laws redrafted, and that redraft was coded in statute. Since then, the Minneapolis Fire Relief Association (MFRA) has sought a redrafting of its laws. Various proposals have been drafted by MFRA-retained lawyers and may have been introduced during legislative sessions. At times, a proposal was introduced or at least discussed, but the MFRA decided that benefit enhancements had higher priority and urged the Legislature to focus on benefit enhancements rather than a codification proposal. (The 2000 Legislative Session is an example, where the MFRA requested that the Legislature delay consideration of its codification proposal to allow time for legislative consideration of its excess-asset-distribution proposal, which would distribute to retirees a portion of assets in excess of 110 percent funding.)

Delays in the codification effort required drafts to be revised. The proposals were reworked to incorporate newly enacted provisions and any other revisions that the MFRA contend are needed. Progress has not been smooth. A constant issue with those drafts was whether the drafts fully and correctly captured the various general law and MFRA special law provisions. The rather vague and at times inconsistent nature of prior MFRA law led to conflicting interpretations of MFRA benefit provisions. This conflict carried over into effort to redraft these laws. At times it was unclear whether a redraft was clarifying benefit provisions or whether it was creating benefit improvements, adding cost to the plan.

Review of a codification proposal should include adequate time for a thorough review by all interested parties. This would ensure that the proposal states, as accurately as possible, the MFRA benefit plan and the MFRA’s general authority as stated in prior special and general law. The process that created the 2001 MFRA provisions enacted by the Legislature was far from ideal. Better review would have minimized the need for the bills currently before the LCPR, S.F. 2531 (Pogemiller); H.F. 2695 (Mares). Unfortunately, there is continuing controversy regarding the issue of whether these bills adequately address the shortcomings in last year’s legislation, including whether all benefit improvements that were in that legislation have been identified.

The review process last year was complicated by intentionally mixing a redraft/codification effort with benefit enhancements and benefit revisions, and by the minimal time that was permitted for LCPR staff and legislative review of the proposal During the 2001 Legislative Session, LCPR staff was informed shortly before a Commission meeting that the MFRA codification proposal would be added to the meeting agenda, in the form of a delete-all amendment (A01-0297) to the applicable bills, S.F. 1466 (Pogemiller), H.F. 1477 (Mares). Time did not permit producing a staff memo on that amendment or to allow for a thorough LCPR staff review. We dealt with the most obvious clean-up issues. Mr. Lawrence Martin reviewed the delete-all amendment and noted 34 problem areas with that draft document. Mr. Brian Rice, working on behalf of the MFRA, and Mr. Martin met briefly a few hours before the Commission meeting to discuss those items, and Mr. Martin prepared additional amendments for Commission consideration. The MFRA language that passed the Legislature a few months later during the Special Session addressed some of the issues and errors that had been identified, but some errors remain and some policy questions were not considered or addressed.

MFRA History. The Minneapolis Police Relief Association (MPRA) was established in 1868, initially to provide relief to disabled firefighters and their families at a time when the Minneapolis Fire Department was a volunteer fire department. After the department became a paid fire department, the association incorporated under Minnesota law in 1886. The association began paying service pensions to retiring firefighters in 1897.

The Minneapolis Fire Department Relief Association is managed by a governing board of 12 members, of which five are active firefighters, five are retired members or surviving spouses, and two are appointed city of Minneapolis representatives. In addition to maintaining records and determining benefit amounts, the governing board is responsible for investing all plan assets of the special fund, general fund, and health insurance accounts.

In Minnesota, as public employee pension coverage has developed, there is a combination of statewide public pension plans and local public pension plans. The Minneapolis Fire Department Relief Association is one of the state’s local public employee pension plans and one of the few remaining local plans for police or paid firefighters. The other remaining local public safety plans are the Minneapolis Police Relief Association, Fairmont Police Relief Association, and Virginia Fire Relief Association.

Membership in the Minneapolis Fire Relief Association and other local police and paid fire relief associations which accepted the various state amortization aids was closed to new members in 1980. Police and paid fire hirees after that date are covered by the statewide Public Employees Retirement Association Police and Fire (PERA-P&F) Plan. As a result of closing the local funds, their membership is aging. At the present time most of the membership is retired, with active members representing an ever decreasing minority.

Initially, there were nearly 50 of these local police and paid fire relief associations. Many years ago, a few local relief associations consolidated into PERA-P&F under special legislation drafted for each association. More recently, in 1987, the Legislature developed a general law procedure (coded as Minnesota Statutes, Chapter 353A) to be used by any police or paid fire relief association that voluntarily elects to consolidate with PERA-P&F. Under these voluntary consolidations, plan administration shifts to PERA’s staff, the State Board of Investment (SBI) invests the association’s assets, and the prior relief association members receive an expanded array of options. Active members can elect the local plan benefits in their entirety, or PERA-P&F benefits in their entirety. Deferred pensioners and existing annuitants of the relief association continue to have their benefit as determined by the applicable local relief association laws, but they can elect to have post-retirement adjustments from the time of consolidation forward computed under the SBI Post Fund procedures rather than the escalator in local plan law. Since the general law consolidation procedure passed in 1987, over 40 local police and paid fire relief associations have used that process to consolidate into PERA-P&F.

MFRA Benefit Description. The association provides from its special fund a salary-related service pension to firefighters retiring at age 50 or older, a disability benefit to temporarily or permanently disabled firefighters, a survivor benefit to the surviving family of deceased active, retired, or disabled firefighters, and a return of contributions to the estate of a deceased active, retired, or disabled firefighter on whose behalf no survivor benefit is payable. Pensions and benefits are based on the salary of a first-grade firefighter, irrespective of the actual rank of the firefighter. The individual accrues a higher pension benefit with each additional year of service, up to 25 years of service. After 25 years of service, however, the additional years of employment do not increase the benefit.

When an individual retires and begins drawing benefits, those benefits are increased annually as the salary of a first-grade firefighter increases (the "escalator" post-retirement adjustment mechanism) and a payment is made based on the investment performance of the special fund (thirteenth check post-retirement adjustment). The thirteenth check post-retirement adjustment was enacted in 1989. A third post-retirement increase mechanism was added to law in 2000. If the funding ratio of the association exceeds 110 percent, the association is authorized to distribute a portion of the funding in excess of 110 percent of its liabilities to its benefit recipients.

Due to laws passed in 1990, the contributions by any member (eight percent of the pay of a first-grade firefighter) who has 25 or more years of service are not deposited in the special fund. Rather, the contribution is deposited in a health insurance account set up for the member. After retirement, in addition to the pension benefit paid from the association’s special fund, the retiree receives distributions from his or her health insurance account, which the retiree can use toward health care costs or other expenses of the retiree.

Finally, from the association’s general fund, the Minneapolis Fire Relief Association provides a lump sum death benefit to the survivors or estate of deceased active or retired firefighters and a lump sum retirement benefit to a retiring firefighter.

MFRA Membership Information; Actuarial Condition. Information on the MFRA membership and the special fund’s current actuarial condition is shown in the following table based on the most recent information available. The data is from the December 2000 actuarial valuation. The total membership is 792 individuals including all benefit recipients, deferred pensioners, and active members. Only 104 active members remained on the valuation date, and that number is less now. Individuals can retire from this association at age 50, and under this plan no additional service credit is received after 25 years of service. This service credit cap may encourage members to leave soon after reaching age 50. The demographic information in the actuarial report indicates that the average age of remaining active members was age 52, and the average service credit is 25.8 years.

PERA-P&F is more modern in its design than these two local plans. PERA-P&F pays benefits based on the actual salary of the individual, while the MFRA and MPRA follow an older model where benefits are based on a single salary (that of a top grade firefighter or patrol officer, as applicable). The PERA-P&F plan provides additional service credit accrual for each year of service, while the MFRA and MPRA cap service credit accrual at 25 years. PERA-P&F does not provide automatic surviving spouse coverage, since it is now more likely that the spouses of covered employees are also employed in the workforce with income and retirement coverage of their own. If desired, spousal coverage can be obtained by selecting joint-and-survivor optional annuities. The MPRA and MFRA, in contrast, provide automatic surviving spouse coverage, following a model that assumed that the covered employee is male and the wife is not employed.

The MFRA and MPRA boards have long opposed consolidation with PERA-P&F, which can occur under the process in statute and which was briefly described above. The consolidation question caused tension within the Minneapolis Relief Association membership groups. The relief association board and most retirees opposed consolidation, while some active members remain interested in consolidation. To defuse some of this tension, the MFRA and MPRA have sought and received various benefit improvements in its laws. These benefit increases have included increases in the retirement, disability, and surviving spouse benefits, creation of optional joint-and survivor annuities in lieu of automatic survivor coverage, and various additional post-retirement increase mechanisms (the thirteenth check and 110 percent excess asset distribution provisions mentioned above).

These benefit increases and additional options stem from an effort by the MPRA and MFRA minimize interest by plan retirees in obtaining PERA-P&F post-retirement adjustments through a consolidation, to keep pace with PERA-P&F in general, and to provide members of these two local relief association plans with some of the design features that PERA-P&F had and which the MPRA and MFRA did not. Consolidation with PERA-P&F would have been a more straightforward solution. The multiple post-retirement increase mechanisms used by these plans and the layering of joint-and-survivor options on a plan that has automatic spousal survivor coverage has created unnecessary complexity, including some consequences which may not have been foreseen by those who proposed the initial benefit legislation. The revisions in the MFRA alternative service pension for unmarried members, section 7 of this bill, stems from complications created by the optional joint-and-survivor coverage extended to the MFRA plan in 1997 legislation.

The MFRA plan has long had automatic surviving spouse coverage. Under current law, this automatic coverage provision provides a surviving spouse benefit of 22 units (the applicable language for this automatic coverage is found in section 6 of the current bills, starting on page 3, line 17). This automatic 22-unit surviving spouse benefit is equal to 52.4 percent of the service pension benefit received by the retired member prior to that member’s death, assuming the member had retired with 25 or more years of service credit. (The service annuity is 42 units, and 22 ¸ 42 = 52.4 percent.) The service pension schedule, which appears in Minnesota Statutes 2001 Supplement, Section 423C.05, Subdivision 2, is reproduced below. The headings refer to funding ratios. The last column is the service pensions payable, expressed in units (a unit is 1/80 of the salary of a first grade firefighter) providing the funding ratio (actuarial assets divided by liabilities) is greater than 92.49 percent.

Table 2
MFRA Service Pension Schedule

In 1997, MFRA law was revised to add optional surviving spouse coverage that could be elected in lieu of the automatic coverage. Presumably, the MFRA sought that change on behalf of its married members who wanted joint-and-survivor options, similar to those provided in the PERA-P&F plan. The provision was part of a MFRA and MPRA benefit-related article added late in the process of producing the 1997 omnibus pension bill. The MFRA and MPRA provisions received little review by the LCPR. In a 1997 memo dealing with that legislation, LCPR staff raised reservations concerning the effect of adding joint-and-survivor options to a plan that provides automatic coverage, but staff recalls no discussion by the LCPR of the implications of adding these optional annuities to these plans. The options that were authorized in the law are 50 percent, 75 percent, or 100 percent joint-and-survivor annuities. The applicable language is now coded as Section 423C.05, Subdivision 8. That subdivision includes a requirement that these optional annuities "must be actuarially equivalent to the service pension and automatic survivor coverage otherwise payable to the retired member and the member’s beneficiaries."

The implications of these optional annuities should have been discussed in 1997. The LCPR did not recognize the full implications of the provisions and it is possible that the MFRA was similarly unaware. Given the actuarial equivalence requirement in the language of Section 423C.05, Subdivision 8, the MFRA has interpreted this optional annuity provision as requiring the association to pay a service annuity, when a 50 percent optional annuity is elected, which is in excess of the service pension amounts authorized in its service pension provision as stated in the table reproduced above. The reasoning can be illustrated assuming a 25-year service pension. Under the service pension law and the automatic surviving spouse coverage, the total value of the annuity must be sufficient to provide a 42-unit pension for life for the retired member and a surviving spouse annuity of 22 units if the spouse survives the retired member (52.4 percent of the deceased retiree’s monthly benefit prior to death). If a retiring member elects a 50 percent joint-and survivor annuity, in lieu of the automatic survivor coverage that would otherwise apply, some survivor coverage is sacrificed. To make the service annuity with a 50 percent survivor benefit equal in value (actuarially equivalent) to a service annuity with 52.4 percent survivor benefit coverage, the service annuity must be increased by an amount equal to the increment of sacrificed survivor annuity. As a consequence, the MFRA has now concluded that its service pension law should not be interpreted in isolation. Rather, the service pension law provision must be interpreted as being modified by interaction with the optional annuity provision. The MFRA began paying a service annuity slightly above 42 units, despite the apparent 42-unit limit in the service pension law, to retiring married firefighters who elect 50 percent joint-and-survivor annuities.

Prior to 1997 when these joint-and survivor annuity options were added to MFRA law, presumably service pensions above that indicated in MFRA service pension law applicable at that time were not paid to any firefighter, whether the firefighter was married or unmarried. In that environment, unmarried MFRA-covered firefighters presumably were willing to accept that they received no benefit derived from the automatic surviving spouse coverage provided by the plan because they had no spouse. However, when married firefighters began receiving service pensions in excess of the service pension amounts authorized in the service pension law, by sacrificing some surviving spouse coverage below that provided by the automatic surviving spouse benefit provision that would otherwise apply, some of the unmarried firefighters were no longer willing to accept the situation. On behalf of unmarried firefighters, the MFRA sought a benefit improvement in 2001. The provision was included in the MFRA 2001 recodification/ benefit improvement legislation and is coded as Section 423C.05, Subdivision 9. It permits certain unmarried MFRA members to have a slightly higher annuity upon retirement, 42.3 units rather than the 42-unit benefit specified in the MFRA service pension law. According the MFRA officials, the additional increment above 42 units was intended by the MFRA to provide the same service annuity to these unmarried retirees as is provided to married retirees with 25 years of service who elect 50 percent joint-and-survivor coverage.

1. Current Issues Relating to the Alternative Service Pension for Unmarried Member Provision (Section 7 of the Bill Draft)
   
   The provision that grants an additional service pension increment to certain unmarried firefighters appears as Section 7 (starting on page 4). In this bill, new language is added (page 4, line 36) which is intended to close a loophole in the law. The current wording of the law permits firefighters who are unmarried on two specific dates (the effective date of the 1997 MFRA benefit improvement/benefit revision bill and the effective date of the 2001 MFRA recodification/benefit bill) to receive a 42.3-unit pension, which is 0.3 units above benefit amount applicable for a 25-year service pension according to Section 423C.05, Subdivision 2, the MFRA service pension law. A problem with the provision as it passed last year that this enhanced 25-years-of-service pension benefit, 42.3 units, is payable to eligible unmarried retirees even if the individual had less than 25 years of service credit. The new language on page 4, line 36 is intended to specify that a 42.3 unit pension is payable to those who otherwise qualify under the provision providing the individual has 25 years of service credit. Problems with this intended fix and other problems that are not addressed in the drafting found in section 7 are as follows:

1. Pension Levels For Those With Less Than 25 Years Of Service. The original law and the proposed revision do not address service pensions payable to unmarried retirees who have less than 25 years of service. Lacking any language in this law to address that situation, the pension for unmarried retirees with less than 25 years of service credit would be as stated in Section 423C.05, Subdivision 2, the general service pension law.
   
   This proposed treatment may lead to another request next year for the Legislature to address treatment for the unmarried-less-than-25-year service pension group. An alternative to the current proposal would be to consider language specifying that 0.3 units will be added to service pensions specified for eligible individuals under section 7. That approach would added the additional 0.3 unit increment for those with 25 years of service, and also for those with lesser amounts of service credit.
   
   LCPR staff met with Mr. Walter Schirmer, MFRA Executive Secretary, and with Mr. Robert Johnson and Mr. Brian Rice. The preference of these representatives of the MFRA is to provide the additional increment only for those with 25 years of service. They indicate that this was their intention last year, and extending that treatment to the group that has less than 25 years of service would be a clear benefit improvement, which the MFRA is not requesting, and which would clearly require that this legislation have a local approval clause. The LCPR, however, may choose to consider that in a future year, they may be asked to address this benefit issue for the single-less-than-25-years-of-service group.

2. Unclear Coverage Group, Likely Abuse.  (In the following discussion, all subdivision references are referring to subdivisions within Section 423C.05, the MFRA benefit section.) Regarding the coverage group and the treatment in law, we note two additional problems. The first is that some married people will qualify under the provision, which may not have been the intention. Second, even those who are single when they receive coverage under this provision may later have a spouse who does receive automatic surviving spouse coverage.
   
   Regarding the effort to define this group, we note that under Subdivision 9 individuals who are unmarried on two specific dates (the date that the joint-and-survivor optional annuities were added to the plan, and the date that this "alternative service pension for unmarried member" provision became effective) are entitled to a benefit enhancement, a 42.3-unit pension, rather than the lesser unit amount specified in the general service pension law. It is unclear what policy justifies providing an additional benefit to individuals who were unmarried on two specific dates. More likely, the MFRA was attempting to define an additional benefit payable to individuals were unmarried on those two dates and unmarried at the time of retirement. If that is the case, the existing language is not sufficient. Under the current drafting, an individual can be single on those two dates and then become married, retiring from the plan as a married member and receive the 42.3 unit service pension specified in section 7 of the draft bill. Under existing MFRA laws, given the cross-references that appear in these various laws, an individual who receives a service annuity under section 7 (Section 423C.05, Subdivision 9), rather than the general MFRA service annuity provision (Subdivision 2), is not entitled to elect an optional joint-and-survivor annuity under Subdivision 8, the 50/75/100 percent optional annuity provision. However, as MFRA law is now drafted, the spouse of the member will qualify for automatic surviving spouse coverage under Subdivision 7. This may not have been foreseen, but will eventually result in another round of benefit improvement requests, as members of one of the MFRA groups [the (1) married group or (2) single group or (3) the single-on-the-effective-dates-but married-afterwards-group] decide that the situation is unfair to members of their particular group, and benefits must be revised to regain parity.
   
   Similar issues are raised in cases where an individual is unmarried on the two dates required in the law and also on the date of retirement. These individuals qualify for the annuity, 42.3 units, specified under Subdivision 9. However, they can marry after retirement, and a surviving spouse of that individual will qualify for surviving spouse benefits under clause 2 of Subdivision 7. This was not intended. The 42.3 unit retirement benefit provided to those who qualify under Subdivision 9 was intended to provide the same 42.3-unit retirement annuity to this group as is provided to married service retirees who elect a 50 percent joint-and-survivor annuity. Given current drafting, a married individual or unmarried individual who qualifies for a 42.3-unit service annuity under Subdivision 9 could qualify for the automatic survivor coverage provided by the plan, which provides a survivor benefit equivalent to a 52.4 percent joint-and-survivor annuity. The "single" retiree group under Subdivision 9 receives greater total value than the "married" group with a benefit under Subdivision 2 who elect a 50 percent joint-and-survivor annuity. Unless this situation is addressed, it may lead to another round of benefit escalation. An LCPR staff amendment, described in more detail later, addresses this situation by limiting any survivor coverage for individuals who have a service retirement computed under Subdivision 9 to the equivalent of a 50 percent joint-and-survivor annuity.

2. Disabilitant/Surviving Spouse Benefit Issue (Section 2 of the Draft).
   
   There are a few additional surviving spouse benefit issues. The first issue dealt with some implications of explicitly adding spouses of disabled firefighters to the surviving spouse definition, by adding the word "disabled" on page 2, line 4. In a meeting with MFRA representatives, they indicated that they would now prefer to remove that proposed language. Given that action, we will not cover issues relating to that original proposal. Language to remove the new language on line 4 in included as part of an amendment.

3. Surviving Spouse Benefit Issue—Confused Benefit Amount Language (Section 6 of the Draft).
   
   Surviving spouses who qualify as a "surviving spouse member" receive a 22-unit surviving spouse pension. This is stated on page 3, line 19 to 24. "Surviving spouse member" is defined in section 2 of the draft (page 1, line 25 to page 2 line 12), and includes those individuals legally married to the firefighter while the firefighter "was regularly entered on the payroll and serving on active duty in the fire department," and meeting certain other requirements.
   
   Several years ago, the MFRA sought authority to provide a benefit to certain surviving spouses who did not meet the usual definition. To the extent that the issue was discussed at the time, staff’s recollection was that the MFRA wished to provide a benefit to surviving spouses in cases where marriage occurred after retirement. These individuals do not meet the standard definition of surviving spouse member in MFRA law because the marriage did not occur while the firefighter was enrolled on the payroll of the department. While the MFRA wanted authority to provide a benefit in these cases, the MFRA also was interested in limiting its liabilities in these cases. The MFRA was concerned about assuming liabilities due to deathbed marriages. One requirement added to the law was that the marriage had to occur at least two years before the death of the retired firefighter. This language appears on page 3, lines 27 to 29. The other action taken as to add some "actuarial equivalence" language. That language appears on page 3, line 32 to page 4, line 1.
   
   The issue for the LCPR is the impact of that "actuarial equivalence" language. The claim made by the MFRA at the time that language passed was that this language provided a safeguard against paying an annuity with a very high total value to a very young surviving spouse. For a very young surviving spouse, due to a marriage during retirement or under some other circumstance which disqualifies the surviving spouse from being a "surviving spouse member," payment of a 22-unit benefit for many decades was viewed as excessive. The MFRA sought to cap the benefit’s value in some way. It was claimed that the "actuarial equivalence" language provides that protection to the fund. The "actuarial equivalence" language is confusing and could use clarification. The language could be read to have the opposite effect in many cases, leading to higher rather than lower payouts.
   
   The problem can be illustrated as follows. The spouse that does not qualify as a "surviving spouse member" is to receive the treatment specified on page 3, line 32 to page 4, line 1, which specifies a 22-unit-per-month benefit "except that if the surviving spouse is younger than the decedent, the surviving spouse benefit must be actuarially equivalent to a surviving spouse benefit that would have been paid to the member’s spouse had the member been married to a person of the same or greater age than the member’s age prior to retirement." Assume a firefighter who retires at age 50, marries after retiring, and dies at age 70 leaving a 68-year-old surviving spouse. This language could be interpreted as entitling the surviving spouse to a 22-unit-per-month benefit adjusted to have the same lifetime value as a 22 unit per month benefit payable for life to a survivor assumed to be age 50, or slightly under age 50. Therefore, the benefit to the 68-year-old must be increased above 22 units per month if that benefit is to have the same value as the 22-unit benefit payable for life to a survivor assumed to be age 50. The same lifetime value must be paid out in fewer years, because the 68-year-old’s expected remaining lifespan is 18 years less than the expected remaining lifespan of the 50 year-old.
   
   The LCPR may need to consider an amendment which correctly or at least more clearly captures the intended policy. Perhaps the MFRA’s intention was to provide a 22-unit benefit under this clause to a survivor who, on the date of the retired firefighter’s death, was as old or older than the firefighter’s age on that firefighter’s retirement date or disability date, whichever is applicable. A reduction would occur only if the surviving spouse, on the date that the surviving spouse annuity accrues, is younger than the firefighter was on the date of retirement or disability.
   
   There is another issue in the same section. Page 4, line 2 indicates that the benefit could be less than "17 units." The purpose of this language should be made more clear, or it should be deleted.
   
   The MFRA indicated that the actuarial equivalence language mentioned above was an effort to limit payouts and should not be interpreted in a manner that would increase payouts. An LCPR staff amendment which includes clarification is attached.

4. Intent Section Issues—Incompatibility.
   
   The 2001 MFRA Codification/Benefit Improvement Provisions included a section (Laws 2001, First Special Session, Chapter 10, Article 15, Section 16) stating the intention not to modify or otherwise revise any MFRA benefit as it existed in prior general or special law, other than creating the higher benefit for unmarried firefighters which has been discussed extensively in this memo. The bill currently before the Commission, S.F. 2531 (Pogemiller); H.F. 2695 (Mares) also includes an intent section, section 8, appearing on page 5, lines 3 to 17. This section is not consistent or compatible with the one enacted last year. Section 8 refers to the MFRA provisions from the recent Special Session (Laws 2001, First Special Session, Chapter 10, Article 15) and states that that entire article was intended solely to codify provisions without revising or creating any new benefit. If that is the case, the revised benefit for unmarried firefighters and any other benefit improvement stemming from the 2001 legislation should be repealed. Alternatively, the LCPR may need to revise the intent section, section 8 of the current bill.

5. Disability Benefit Issues—Benefit Amount Issues.
   
   Beginning in 2000 and continuing into 2001, LCPR exchanged a series of letters with Mr. Walter Schirmer, MFRA Executive Secretary, regarding the MFRA disability benefits. We note two disability benefit issues here from that discussion. One issue was whether the MFRA was providing disability benefits during the disability period in excess of the amounts permitted under law. A second related issue regarded a practice at MFRA of recomputing disability benefits at the time that the firefighter reached retirement age. In each case where a disabilitant was transitioning to retirement status, the board minutes indicate that the board, through a motion brought before the board, took action to "grant additional service credit" to the disabilitant to provide that individual with sufficient covered service to receive a 25-year service pension of 42 units.
   
   Regarding the first issue, the proper level of benefit during disability, the MFRA law clearly provided at least a 40-unit service disability pension, and it is possible that a phase-out of a health-and-welfare benefit added another unit, bringing the amount to 41 units. However, the 2001 MFRA provisions specified a service-related disability benefit of 42 units. This is found in Laws 2001, First Special Session, Chapter 10, Article 15, Section 5, Subdivision 5. In a recent meeting with the MFRA, they indicate that the disability benefit level authorized by law prior to the 2001 MFRA codification provisions was 41 units. Therefore, the 42-unit duty-related disability benefit stated in Laws 2001, First Special Session, Chapter 10, Article 15, Section 5, Subdivision 6, is in error, and is a benefit improvement that was not authorized. According to the intent section that passed as part of the 2001 legislation (Laws 2001, First Special Session, Chapter 10, Article 1,5 Section 16, paragraph (c), the only benefit improvement intended in that article is the increase for unmarried firefighters. According to that paragraph, any other provisions found to improve or otherwise revise benefits are to be brought to the attention of the LCPR and the City of Minneapolis for corrective action. Language is included in an LCPR staff amendment to revise the service-related duty disability provision found in the codification from 42 units to 41 units.
   
   Language to take this action regarding the duty-disability provision is included in an LCPR amendment. According to the MFRA, despite the unit values stated in the codification proposal, the association did not adjust any disability benefits to conform to that higher level. It continued as though the prior law was in effect.
   
   It is unclear whether action is needed regarding the MFRA non-duty disability pension. This is found in Section 423.05, Subdivision 6. That provision as stated in the codification provides a 41-unit benefit. If the duty-related disability benefit is corrected from 42 units to 41, there may be a need to revise the non-duty-related provision from 41 units to 40. LCPR staff’s understanding of this issue is that it is not uncommon to have some differential between the duty-related disability benefit and the non-duty benefit. The MFRA position, based on conversation with Mr. Rice, is that the non-duty related disability benefit provision as stated in the codification should remain at 41 units. A copy of the MFRA by-laws, dated in 2000, suggests that the non-duty and duty disability benefits may be the same.
   
   The one remaining disability benefit issue is the practice followed by the MFRA of adjusting the benefit paid to a disabilitant at the time that the disabilitant reaches normal retirement age. The disability benefit that the individual had been receiving up to that date, a benefit of 40 or 41 units, was adjusted to a 42-unit retirement pension by a board action to grant additional service credit to the disabilitant to bring total covered service up to 25 years. At that point, the MFRA Board declared the individual to be a 25-year-of-service retiree, rather than a disabilitant, and began providing a 42-unit service pension. LCPR staff is not aware of any legal basis for granting additional service credit or for recomputing these annuities at the time of retirement. We are aware of specific language in general law police and fire law, which explicitly prohibits any recomputation of the annuity at normal retirement age. That language is found in Minnesota Statutes, Chapter 423A, a chapter providing general law governing police and salaried firefighters’ relief associations. Section 423A.11, Recomputation of a Disability Benefit as a Service Pension, in Subdivision 2, explicitly prohibits any adjustment in the benefit at the time that the disability pensioner is transferred to general retirement status.
   
   The MFRA indicated that it would review this disability transfer issue to determined whether the practice that the MFRA has followed (revising the benefit upward at the time that the disabilitant reaches age 50 and is deemed to be a service retiree) is supported by law. Hopefully, some materials or general review will be available for the Commission meeting.
   
   If the Commission takes no action and a legal review indicates that this revision of disability benefits at the time of retirement is not permissible under existing law, the MFRA would be bound by law to seek recapture of any excess benefit that has been paid.
   
   It may not be possible for the Commission to fully consider this matter and resolve this issue at the current time. Corrective action, if needed, could be taken at a later date, either by revising MFRA law to clearly permit this at-the-time-of-retirement disability benefit adjustment, with possible retroactive language, or by ratifying past actions but not permitting this adjustment in the future. Any action that amounted to a benefit improvement would require local approval.

S.F. 2531 (Pogemiller); H.F. 2695 (Mares): Minneapolis Fire Relief Association (MFRA): Revising Alternative Service Pension Provision for Unmarried Members; Correcting Various Administrative and Benefit Provisions; Revising Certain Administrative Procedures, corrects errors introduced by the 2001 MFRA codification/benefit improvement legislation (Laws 2001, First Special Session, Chapter 10, Article 15) in the MFRA thirteenth check provision; revises the surviving spouse member definition by including survivors of disabilitants and by correcting a length-of-marriage requirement; specifies that faithful performance bonding expenses are to be covered by the special fund; revises the composition of the board of examiners; clarifies the contributions to be deposited in the health insurance accounts; revises a reference in the surviving spouse benefit provision and revises maximum family benefits; and revises the alternative service pension for unmarried member provision by stating that the provision applies only to those with at least 25 years of service credit.

Pension policy issues are as follows:

1. Legislative Time: Non-Critical Nature Of Several Provisions.  The question is whether many of the sections in S.F. 2531 (Pogemiller); H.F. 2695 (Mares) warrant legislative consideration given the very tight deadlines that the Legislature has set for itself this session. Several of the provisions are administrative and their clarification or revision is not urgent. A few deal with benefit-related provisions of MFRA law, but in some cases the changes suggested in the draft are non-urgent clarifications, while in other cases the more serious flaws in the provisions are not addressed in the bill draft. These can be dealt with through amendment, but understanding the issues will take some time.
   
   The first two sections are efforts to correct benefit eligibility provisions, but it is possible that delaying correction for another year would do no harm. Section 3 through 5 deal with administrative issues. Section 6 deals with eligibility for surviving spouse benefits, but the suggested changes are not critical at this time. The clarification of when the actuarial equivalence correction within that provision is to apply, and the ages to be used in that adjustment seems to be a worthwhile clarification, but was not attempted in the bill draft. Section 7 revises in the alternative service pension for unmarried members, but as noted above in the previous discussion, the proposed solution is problematic and the issue of survivor benefits for those who marry and yet qualify for a benefit under this provision is not addressed. The intent section, section 8, is not consistent or compatible with the intent section in the 2001 MFRA codification legislation.

2. Disability Benefit Issue, The Issue Of Benefit Improvement. As noted in the above discussion, the 2001 MFRA codification legislation included a higher duty disability benefit level, 42 units, than was authorized under prior law. This benefit increase was not intended according the 2001 codification legislation. Language to state the correct benefit level, 41 units, is included in an amendment. The non-duty related disability provision may warrant further review.

3. Issue Of Disability Benefit Adjustment At Normal Retirement Age.  This association has been adjusting disability benefits from 41 units to 42 units at the time of retirement. The issue is whether that is an administrative practice that is not supported by law. Several months ago, LCPR staff requested information on the legal support for that policy, but the response left doubt concerning the legal basis. At a recent meeting with the MFRA to discuss S.F. 2531 (Pogemiller); H.F. 2695 (Mares), we again requested that the MFRA indicate the legal support for that policy, and materials provided by the MFRA may be available at the Commission meeting for its consideration.
   
   If the policy is supported by law, no action is needed. If the policy is not supported by law, the Commission may wish to take some action, either currently or in the future. The Commission may conclude that this matter does not need to be considered in the context of the current bills. The current bills and the 2001 MFRA codification are an effort to create a clear and accurate description of MFRA law. The Commission may conclude that this disability adjustment at the time of retirement is a question of whether the MFRA is acting in conformance with its laws, and can not or should not be remedied through a revision of its law.
   
   As noted previously, if the Commission concluded that the MFRA disability or service retirement law should be revised to explicitly authorize this practice, that may be a benefit improvement and would require a local approval clause. The position of the city in not known. The cost would be slight, but it is possible that the city would not be willing to accept any contribution requirement increase, however modest.

4. Surviving Spouse Benefit Computation Issue. The issue is whether the surviving spouse benefit provision, in cases where the surviving spouse does not qualify as a surviving spouse member (reasons include because the marriage occurred in retirement, or the marriage occurred very close to retirement) needs to be clarified to better specify when the actuarial adjustment referred to in that section is applied, and how that adjustment is computed. As discussed above, the language currently in that provision could be interpreted to pay higher benefits, in some cases, to surviving spouses who do not qualify as surviving spouse members than is paid to those who do qualify. The MFRA has indicated that that was not their intention and it supports an effort to clarify that language. Clarifying language is included in an LCPR staff amendment.

5. Alternative Unmarried Service Pension Issues–What Action To Take. Section 7 of the bill is the alternative unmarried service pension for unmarried members. The bills propose to add a requirement that the unmarried individual must have 25 years of service credit to be eligible for this provision. The provision provides an enhanced 25-year service pension, 42.3 units, which is identical to that provided to a married member who elects a 50 percent joint-and-survivor annuity. The MFRA was concerned that the provision as it appeared in the 2001 MFRA codification would provide a windfall to single members who did not have 25 years of service. As that provision is worded, these individuals would receive a larger pension than that which is consistent with their service credit. The proposed change does seem appropriate to eliminate that potential windfall, but there is a question of whether that is the only change worthy of consideration.
   
   In a meeting with MFRA representatives, LCPR staff noted that there are individuals who are single, and who may retire with less than 25 years of service credit. Although there is no apparent justification for giving them a 25-year enhanced service pension, they may contend that they are entitled to some type of adjustment, and may pressure the MFRA to seek another benefit enhancement bill. One possibility is a proposal that would add an increment to each benefit specified in the service credit provision, perhaps, 0.3 units, corresponding to each year of service indicated in that provision. The MFRA indicated that they would not favor that approach, since it would be a benefit improvement requiring local approval, and the city may not be supportive.
   
   Another issue with this provision is that married individuals can use this provision, if they are single on the two dates specified in the law but are married at the time of retirement, or they can marry while retired. The MFRA was resistant to any language to restrict this provision to individuals who are single at the time of retirement, perhaps because married individuals have already retired under this provision. The MFRA was, however, supportive of the need to place limitations on the spousal benefits that individuals retiring under this provision can access. As noted in previous discussion, due to interaction of this provision with the surviving spouse benefit provision, it is possible to use this provision to obtain a 42.3 unit service pension and they obtain a 22-unit surviving spouse benefit. This would put these individuals at an advantage over the married individuals who receive benefits under the usual service pension provision. By selecting a 50 percent joint-and-survivor annuity, those individuals are receiving a 42.3 unit service pension and 50 percent survivor coverage, which is less surviving spouse coverage than those retiring under section 7 will receive. This could set off another round of benefit enhancement requests, as the married firefighters contend that they are placed at a disadvantage. To address this situation, an LCPR staff amendment includes language that restricts that those using section 7 to spousal coverage equivalent to that provided by a 50 percent joint-and-survivor annuity.

6. Intent Section Drafting. As noted previously, the intent section needs redrafting to permit the alternative service pension for unmarried members provision enacted in 2001, which was a benefit improvement, to remain in effect. That section may also need revision to be consistent with the current bills, as proposed for revision by the LCPR.

7. Examining Board Issues. Section 4 of the bill revises the board of examiners. The applicable existing law requires the MFRA board to create a board of examiners. That board is to investigate and report on disability cases. The law specifies that the examining board must include as a member of that board a physician and at least three active duty relief association members. There is no requirement in that law that these relief association members on the board of examiners must be members of the MFRA Board. The MFRA has indicated in correspondence that this provision is archaic and has not been followed. In practice, the MFRA Board acts as the board of examiners, with a physician providing advice to the board.
   
   The issues are whether any change is needed at this time, and why changes in this provision are needed now although the MFRA wanted this language in last year’s codification. If administrative provisions are archaic, the MFRA should address these issues in a timely manner, rather than ignoring its laws and operating in a manner that is inconsistent with those laws. The MFRA has indicated that it wants this change because there are only two active members on the MFRA Board at the current time, and this provision requires three active members. The MFRA could meet that requirement of the existing law by appointing another active member of the association to service on a board of examiners. There does not appear to be any requirement in existing law that the members of the board of examiners must be MFRA Board members.

8. Cost. The issue is whether the provisions of these bills, as they may be recommended for passage by the LCPR, are have any actuarial cost recognizable for purposes of an actuarial valuation.

9. Effective Date Issue. The issue is whether a local approval clause is needed. If any provisions of the bill are benefit improvements and have a recognizable actuarial cost, or could create actuarial losses, a local approval clause may be appropriate.

10. Amendments. Three amendments are attached, as follows:
    
    Delete-all amendment LCPR02-020. Staff recommends that the LCPR work from this delete all amendment rather than from the original bills. This amendment makes technical revisions in various sections of the original bills and the makes the various substantive revisions discussed previously. The changes in sections 1 to 5 as they appeared in S.F. 2531 (Pogemiller); H.F. 2695 (Mares) are largely technical or grammatical changes. The most significant change within those provisions is removing "disabled," which appeared on page 2, line 4 of the bills, a deletion that the MFRA supported in discussions with them. A section is added, appearing as section 6 in LCPR02-020, to revise the duty-disability benefit provision for consistency with prior law, which the MFRA agreed was a necessary addition to these bills for consistency with the intent of the MFRA codification. Another section is added to revise the non-duty related disability provision, not to revise the unit value, but rather to eliminate an unnecessary reference to the board of examiners, which could have lead to some confusion and inconsistency given proposed revisions in the board of examiner provision. The surviving spouse benefit provision has been revised for clarity to avoid any possibility that a member may contend that the adjustment should be an upward adjustment, creating a benefit worth more than 22 units, rather than a downward correction. The alternate service pension for unmarried members is revised to limit any survivor benefit receivable by a spouse of a member who elected a service annuity under this provision to the equivalent of a 50 percent joint-and-survivor annuity. This would keep this group on a par with married firefighters who elect a 50 percent joint-and-survivor. The intent section is clarified, and necessary changes in the effective date provision to account for the added sections are made.
    
    LCPR02-021. This amendment is drawn to the delete-all amendment and would add a local approval clause to the bills if the Commission concludes one is needed.
    
    LCPR02-023. This amendment, drawn to the delete-all amendment, would revise the intent section in last year’s MFRA codification proposal to make it consistent with the intent section in the current bills, and to clarify that any benefits or annuities authorized by prior law were to continue. The intent provision in last year’s law could be interpreted as permitting continuation of benefit payments that are noted in the records of the association but which are unauthorized or are incorrectly computed.