S.F. 2322 (Pogemiller); H.F. 2458 (Kahn): PERA: Removing PERA Coverage Exclusion of Foreign Citizens On Work Permits and Visas, strikes the PERA coverage exclusion for foreign citizens working for a governmental subdivision while on a work permit or visa for less than three years of employment.

The effect of this change is to require that these individuals become covered Public Employees Retirement Association General (PERA-General) employees unless excluded under some other requirement of law.

The Commission�s Statement of Principles of Pensions Policy states, "To the extent possible, membership in a public pension plan should be mandatory for the personnel employed on a recurring or regular basis." This approach is most consistent with treating employees consistently and fairly, and with stable and broad-based funding of the pension plan. This approach also helps to minimize problems of lost service credit where an individual, late in their public service career, seeks to obtain service credit for a period of public or quasi-public service that was not covered by a public plan in order to enhance his or her annuity or to qualify for an early retirement provision.

Consistent with the above principle, covered Public Employees Retirement Association (PERA) provides coverage to the broad spectrum of local and county employees. PERA, like other public pension plans, has an excluded employee provision. The reason for many of these exclusions is obvious. PERA�s excluded employee provision, Section 353.01, Subdivision 2b, excludes from PERA coverage employees who, although they work for a city, county, or other PERA-covered governmental employer, due to some peculiarity of the current or prior employment of the individual, has coverage by another Minnesota public pension plan. In these situations, the PERA exclusion avoids a double-coverage situation. In recent years, exclusions have been added for certain trades personnel employed by some school districts and other local government employers. This exclusion was added because of pension coverage provided through trade union pension plans. Given that coverage, the added PERA coverage could be viewed as double coverage, was not desired by the employees, and may have placed a burden on employing units. Various other exclusions exist in PERA law, presumably because the employment is not regular or recurring, or of sufficient duration. Employees who may fall into this category are employees in temporary positions, employees hired by a public employer to deal with short-term emergency situations, interns, student employees of various types, and, under current law, foreign citizens working for a PERA-covered employing unit while on a three-year-or-less work permit or H-1b visa. Under this exclusion (found in Minnesota Statutes 2001 Supplement, Section 353.01, Subdivision 2b, clause (12)), these excluded foreign employees are to be reported for PERA coverage if the work permit or visa is extended beyond the three-year period.

S.F. 2322 (Pogemiller); H.F. 2458 (Kahn): PERA: Removing PERA Coverage Exclusion of Foreign Citizens On Work Permits and Visas, strikes the PERA coverage exclusion for foreign citizens working for a governmental subdivision while on a work permit or visa for less than three years of employment.

Our understanding is that these bills are desired by the Hennepin County Medical Center, which is trying to attract foreign workers to fill nursing positions or other medical or non-medical employment positions at the medical center. The contention is that PERA-General pension coverage would be a useful tool to attract and retain these employees.

Pension issues are:

Need for change. The issue is whether there is any need to change PERA pension law given that other remedies or tools may be available. It may be possible to provide added salary, or some other starting bonus or other employee benefit to compensate these individuals on work permits or visas for the lack of pension coverage. The approach taken in the bills and in the attached amendments are all efforts to address a current employment problem by tinkering with pension law. In the process, violence is done to pension policy.

Nature of change. If the Legislative Commission on Pensions and Retirement (LCPR) concludes that some change is appropriate in the PERA excluded employee provision dealing with foreign visa or work permit employees, the LCPR will need to consider what specific change is appropriate. The proposal creates some tension within PERA law and with pension policy. The general proposal is to revise PERA law to extend PERA coverage to a group of employees who may be in permanent employment positions, but who might be expected to be short-term employees because they are foreign citizens on three year work permits or visas. One question is whether these employees are viewed to be similar to employees who are citizens of this county but who are in temporary employment positions. Under PERA law these temporary employees are excluded from PERA coverage and will remain excluded.

The LCPR may wish to consider several options discussed below. All the amendments have somewhat different consequences and cost implications.

Employer-specific versus global remedy. If this legislation is desired only by the Hennepin County Medical Center, the LCPR may wish to consider amending the bill draft to limit its coverage to that employer. The approach taken in the bill draft would result in PERA-General coverage by all employees throughout Minnesota who are working for a governmental subdivision and who are foreign citizens on work permits or visas. Many of these employees may not want PERA-General coverage. Many employers may not favor the change either, since the employer would be required to make PERA-General employer contributions on the behalf of these employees.

Cost. The Commission may wish to consider the cost that the proposal, possibly with modifications, will have on the applicable employer units and employees due to contribution requirements to PERA. Some employees may not desire this coverage, and some employing units similarly may find the proposal undesirable. The cost to PERA may also need to be considered.

Other Issues. Several delete-all amendments are attached, providing the LCPR with several courses of action. If the LCPR wishes to take any action on this issue it will need to do so through an amendment. S.F. 2322 (Pogemiller); H.F. 2458 (Kahn) was drafted last session and is drawn to the 2000 version of PERA�s excluded employee provision. That provision was amended last session, so it is necessary to have language to revise the version found in Minnesota Statutes 2001 Supplement, assuming the LCPR wishes to take an action similar to that specified in the original bills. The various attached amendments raise pension policy issues which may be specific to the particular amendment, in addition to general pension issues mentioned above. Some of these amendment-specific policy issues are mentioned in the description appearing below regarding the applicable amendment.

LCPR02-039. This amendment is identical to S.F. 2322 (Pogemiller); H.F. 2458 (Kahn), except that it is drawn to Minnesota Statutes 2001 Supplement, Section 353.01, Subdivision 2b, and it adds an effective date provision.

LCPR02-040. This version creates PERA-General coverage for foreigners hired by Hennepin County in employment in county medical facilities who are on three-year-or-less work permits or visas, while leaving the exclusion in place for similar employees hired by other government employing units. Since this would impose a cost on a specific local government unit, a local approval clause is added. The approach creates equity issues. These foreign-worker Hennepin county employees would receive PERA coverage while comparable employees in other counties would not. This approach may address a county employment problem at the expense of equitable treatment of similar employees across counties, and may not represent a workable long-term solution.

LCPR02-041. This version leaves the exclusion unchanged. However, it adds a section which permits an employee, if that employee is reported for PERA coverage because the work permit has been extended beyond three years, to receive service credit for the prior period of service with the employer by making employee contributions with interest for that prior period. If the individual desires that prior coverage, the employee payments must be made within one year of the date that the individual is reported for PERA-General coverage. The employer would then be required to make applicable employer contributions with interest for that period. This treatment is comparable to that used for leaves of absence to permit a member to receive service credit for a leave period. Issues raised by this approach include the issue of undermining PERA excluded employee provisions. Instead of being excluded, they are "conditionally excluded." These foreign workers are excluded only if they do not provide three years of employment. In cases where they do provide at least three years of employment, they are excluded from coverage during the first three years only if they choose not to purchase that service. A related issue is that other groups of excluded employees may wish to have similar treatment. Thus the undermining of exclusions may expand. Another problem this approach may create is that many years in the future, some employees who did not make this purchase may request legislation to obtain the service credit, similar to the numerous provisions added on a temporary basis in teacher plan law in recent years on behalf of individuals who failed to use the authority that had been provided to purchase service credit under a leave of absence provision, because the time limit for payments under the applicable provision has been exceeded.

This approach may be the most desirable from the standpoint of the employer and applicable employees. Those employees who do not want that initial coverage and/or will leave employment with the governmental subdivision before they could become vested (three years), will not be enrolled in the plan. Those who do want the coverage and who value vesting can get that coverage upon providing three years of covered service. The applicable employer will avoid the expense of making employer contributions on behalf of those employees who do not remain employed for three years. When three years of employment occur, the employee under current law must be reported to PERA. At that point the employer will begin making employer contributions for the applicable employees relating to prospective service, including employer contributions for the prior three-year period on behalf of those employees who want that prior coverage and who make required employee contribution for that coverage.

LCPR02-044. This amendment is identical to LCPR02-041, except that the only employees who could make the contributions to receive service credit for the period of prior exclusion are the applicable foreign worker employees from Hennepin County. This approach raises all the policy issues raised by the prior amendment plus the equity issues raised by restricting payment rights to Hennepin County employees, while comparable employees in other counties are denied authority to make the purchase. This may not represent a workable long-term solution.