S.F. 2790 (Betzold); H.F. 3161 (Mares) amends Minnesota Statutes, Chapter 355, the state law governing Social Security coverage for public employees, to consolidate various redundant provisions added over 46 years into a smaller number of sections, to reorganize the structure of the chapter, and to repeal obsolete or redundant current provisions.

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

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

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

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

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

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

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

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

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

S.F. 2790 (Betzold); H.F. 3161 (Mares) attempts to simplify the statutory provisions governing Social Security coverage for Minnesota public employees. While the proposed legislation was drafted by the Commission staff and while it is intended to be a substantively neutral recodification of existing law, it does raise several pension and related public policy issues for Commission consideration, as follows:

1. Accuracy of Recodification.  With any recodification, the primary policy issue is the accuracy of the recodification in capturing the substance of the prior law, without substantive omissions or additions. The draft proposed legislation was circulated prior to the 2002 Legislative Session to interested parties so they have had an opportunity to review the draft and to identify any unintended substantive omissions or changes and for the Commission staff to make the required corrections. No corrections or alterations have been forwarded to the Commission staff.

2. Appropriateness of Retaining Minnesota Statutes, Chapter 355 as Historic Document.  The policy issue is the appropriateness of leaving Minnesota Statutes, Chapter 355, as is as a historic document that indicates the development of Social Security coverage for public employees. Minnesota Statutes, Chapter 355, is infrequently amended because the document captures historical developments that, once they occur, have limited ongoing relevance. It is unclear that statute law is the best repository for historical developments.

3. Appropriateness of Total Repeal of Minnesota Statutes, Chapter 355.  The policy issue is the appropriateness of retaining any portion of Minnesota Statutes 2000, Chapter 355. The various Social Security coverage bills, once enacted, appear to have little ongoing substantive impact and probably should not have been coded in the first place, especially in light of the ongoing and pervasive impact of federal legislation and regulation.

1. In General.

Social Security, the Old Age, Survivors, Disability and Health Insurance Program (OASDHI), provides retirement benefits to older covered employees, to disabled employees, to certain dependents of living benefit recipients, and to certain dependent survivors of deceased covered employees. It also provides hospitalization insurance and medical insurance to eligible Social Security recipients and dependents under the Medicare Program.

2. Old Age, Survivors and Disability (OASDI) Insurance Program
1. Social Security Old Age Benefit.

1. year of eligibility (age 62) 1993
2. number of years 1951-1993 42
3. number of years included in calculation (42-5) 37
4. months in averaging period (37x12) 444
5. year (a) - 2 1991
6. national average wage for 1991 $21,811.60

7. indexed earnings table:

(1) Calendar Year	(2) Enter Covered Earnings for Year	(3) Maximum Taxable Earnings Base	(4) Enter the Smaller of Column (2) or Column (3)	(5) National Average Wage*	(6) Indexed Earnings [(f)x(4)/(5)] (to nearest cent)**
1951	$1,000	$3,600	$1,000	$2,799.16	$7792.19
1952	1,000	3,600	1,000	2,973.32	7,335.77
1953	1,500	3,600	1,500	3,139.44	10,421.41
1954	1,500	3,600	1,500	3,155.64	10,367.91
1955	1,500	4,200	1,500	3,301.44	9,910.04
1956	1,500	4,200	1,500	3,532.36	9,262.19
1957	2,400	4,200	2,400	3,641.72	14,374.48
1958	2,400	4,200	2,400	3,673.80	14,248.96
1959	2,400	4,800	2,400	3,855.80	13,576.39
1960	2,400	4,800	2,400	4,007.12	13,063.71
1961	2,400	4,800	2,400	4,086.76	12,809.13
1962	2,400	4,800	2,400	4,291.40	12,198.31
1963	2,400	4,800	2,400	4,396.64	11,906.33
1964	2,400	4,800	2,400	4,576.32	11,438.85
1965	2,400	4,800	2,400	4,658.72	11,236.53
1966	2,400	6,600	2,400	4,938.36	10,600.24
1967	4,800	6,600	4,800	5,213.44	20,081.88
1968	4,800	7,800	4,800	5,571.76	18,790.41
1969	4,800	7,800	4,800	5,893.76	17,763.82
1970	4,800	7,800	4,800	6,186.24	16,923.96
1971	4,800	7,800	4,800	6,497.08	16,114.27
1972	4,800	9,000	4,800	7,133.80	14,676.00
1973	8,400	10,800	8,400	7,580.16	24,170.66
1974	8,400	13,200	8,400	8,030.76	22,814.46
1975	8,400	14,100	8,400	8,630.92	21,228.03
1976	8,400	15,300	8,400	9,226.48	19,857.78
1977	8,400	16,500	8,400	9,779.44	18,734.96
1978	8,400	17,700	8,400	10,556.03	17,356.66
1979	16,500	22,900	16,500	11,479.46	31,350.90
1980	18,500	25,900	18,500	12,513.46	32,246.45
1981	18,500	29,700	18,500	13,773.10	29,297.30
1982	18,500	32,400	18,500	14,531.34	27,768.57
1983	18,500	35,700	18,500	15,239.24	26,478.66
1984	18,500	37,800	18,500	16,135.07	25,008.54
1985	21,140	39,600	21,140	16,822.51	27,409.54
1986	22,350	42,000	22,350	17,321.82	28,143.07
1987	23,244	43,800	23,244	18,426.51	27,514.10
1988	23,941	45,000	23,941	19,334.04	27,008.92
1989	25,138	48,000	25,138	20,099.55	27,279.22
1990	26,395	51,300	26,395	21,027.98	27,378.63
1991	27,979	53,400	27,979	21,811.60	27,979.00
1992	27,979	55,500	27,979	22,935.42	27,979.00
1993	27,979	57,600	27,979	23,132.67	27,979.00
1994	27,979	60,600	27,979	23,753.53	27,979.00
1995	29,657	61,200	29,657	23,753.53	29,657.00
1996	29,657	62,700	29,657	23,753.53	29,657.00

* This column applies only through 1991, the year of eligibility (age 62) less two years. Thereafter, use same figure as shown for 1991.

** This computation applies through 1991. Thereafter, use the figure from Column (4).

total of highest entries for 37 years, excluding 1996 $810,585.95 average indexed monthly earnings ((h)/444) 1,825 lower bend point for 1993 $401 upper bend point for 1993 $2,420 amount by which (k) exceeds (j) $2,019 primary insurance amount

(i) 90% of lesser of (j) or (i) $401x.90 = $360.90

(ii) 32% of lesser of (l) or (i) minus (j) $1,424x.32 = $455.68

(iii) 15% of (i) minus (k), not less than zero $0

(iv) (m)(1) + (m)(2) + (m)(3), rounded down to $0.10 $816.50

8. post-age 62 general benefit increases

   1993	$816.50 x 1.026 = $837.70
   1994	$837.70 x 1.028 = $861.10
   1995	$861.10 x 1.026 = $883.40

2. Social Security Disability Benefit

A fully insured covered worker who becomes disabled will be entitled to a Social Security disability benefit equal to 100 percent of the primary insurance amount without reduction for payment earlier than the Social Security normal retirement age.

A covered worker who is older than age 30 and becomes disabled after 1990 must have 40 calendar year quarters of Social Security coverage and must have 20 calendar year quarters of Social Security coverage in the 40 quarter period ending with the quarter in which the disability began, which must not include any quarter used for a prior disability benefit. A covered worker who is older than age 23 and younger than age 31 and becomes disabled for a reason other than blindness must have 20 calendar year quarters of Social Security coverage after the quarter in which the covered worker attains age 21 and ending with the quarter in which the disability begins. A covered worker who is under age 24 and becomes disabled for a reason other than blindness must have six calendar year quarters of Social Security coverage in the 12 calendar year quarters ending with the quarter in which the disability begins. A covered worker who becomes disabled by blindness must have 40 calendar year quarters of Social Security coverage.

A covered worker is disabled if the person is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that is expected to result in death or either has continued or is expected to continue without interruption for a period of at least 12 months unless alcoholism or drug addition is a contributing material factor. For blindness that occurs after age 54, the inability must be to engage in the person’s usual occupation.

The Social Security primary insurance amount calculation for the Social Security old age benefit also applies to the Social Security disability benefit coverage.

Social Security disability benefits are not subject to the earnings test and limits applicable to Social Security old age benefits, but workers compensation benefits may be offset if the benefit combined with workers compensation and certain governmental disability programs exceed 80 percent of average current earnings, which is typically the average monthly earnings for the highest year in the six years of covered employment ending with the year in which the disability occurred. Social Security disability benefits are also subject to the windfall offset reduction that is applicable to Social Security old age benefits.

3. Social Security Benefit For Dependent of Living Recipient

The spouse, the divorced spouse, the child, or the grandchild of a Social Security old age benefit recipient or a Social Security disability benefit recipient will be entitled to a Social Security dependent benefit. The dependent benefit is 50 percent of the primary insurance amount subject to early receipt reductions after age 61 and before age 65 for dependent spouses and former spouses and subject to a family maximum benefit.

The dependent spouse benefit automatically applies to the spouse of an old age benefit recipient or a disability benefit recipient who is at least age 62. The dependent spouse benefit applies to the former spouse of an old age benefit recipient or a disability benefit recipient if the person is unmarried or is remarried after age 60 (age 50 if disabled), was married for at least ten years before the divorce and the divorce occurred after the benefit recipient began receipt or occurred two years before benefit receipt. The dependent spouse benefit also applies to the spouse who cares for a child under age 16 or is disabled, is unmarried, and is under age 22. The dependent child benefit applies to an unmarried child of a recipient who is either under age 18, is under 19 if a full-time elementary or secondary school student, or becomes disabled before age 22, when eligibility is continuing. The dependent grandchild benefit is identical in its requirements to the dependent child benefit, but additionally requires that the grandchild’s parents must be deceased or must be disabled.

The family maximum benefit limits the total amount of benefits payable with respect to the record of each covered worker or benefit recipient. For covered workers turning age 62 in 1996, the family maximum benefit formula for old age benefits and dependent benefits is as follows:

150 percent of the first $559 of the primary insurance amount, plus

272 percent of the primary insurance amount between $559 and $806, plus

134 percent of the primary insurance amount between $806 and $1,052, plus

175 percent of the primary insurance amount in excess of $1,052.

The disability benefit family maximum benefit is the smaller of the following:

the larger of 85 percent of the average indexed monthly earnings or 100 percent of the primary insurance amount; or

150 percent of the primary insurance amount.

A government pension offset also applies to dependent spouse benefits. The Social Security dependent spouse benefit will be reduced by 66.67 percent of the amount of any public pension benefit payable to the spouse based on the spouse’s own work in employment not covered by Social Security. Thus, a retiring State patrol trooper who is the dependent spouse of a Social Security old age benefit recipient will have an amount equal to 85 percent of the State Patrol Retirement Plan single life age and service retirement annuity offset against the 50 percent of the primary insurance amount dependent spouse benefit otherwise payable on account of the spouse of the trooper retiring with a Social Security old age benefit.

4. Social Security Survivor Benefits