H.F. 776 (Davnie); S.F. 499 (Skoglund): Minneapolis Fire Relief Association: Benefit for a Certain Surviving Spouse, is a proposed special law provision to permit a surviving spouse of a Minneapolis Fire Relief Association (MFRA)-covered firefighter, who did not qualify under MFRA general law for a surviving spouse benefit due to the short duration of marriage prior to the retired firefighter’s death, to receive a surviving spouse benefit. Local approval is required.

1. Nature of the Plan; Benefits. The Minneapolis Fire Relief Association (MFRA) 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.

• 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.

1. The first of these provisions is a standard escalator tied to increases in the salary of a first-grade firefighter. This escalator increases retirement benefits by the same percentage increase as the percentage increase in first-grade firefighter pay.

2. A second increase provision is based on the investment performance of the special fund, and is referred to as the 13^th check post-retirement adjustment. The 13^th check post-retirement adjustment was enacted in 1989.

3. 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.

Finally, from the association’s general fund, the MFRA 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.

2. Survivor Benefits. The MFRA plan offers two alternative benefit forms that may be used to provide continuing income to a survivor after the death of the firefighter. The first of these is automatic survivor coverage, currently provided under Minnesota Statutes, Section 423C.05, Subdivision 7. Automatic survivor coverage has been a part of this plan for many decades. Currently, that automatic coverage provides a 22-unit survivor benefit (52.4 percent of the benefit received by the retired firefighter immediately prior to the firefighter’s death) if the surviving spouse qualifies as a "surviving spouse member." Joint-and-survivor annuity options were added to the plan in 1997, permitting a retiring firefighter to elect a 50 percent, or 75 percent, or 100 percent joint-and-survivor annuity. By electing the joint-and-survivor coverage the firefighter waives the automatic coverage that would otherwise apply.

3. Surviving Spouse Eligibility, According to Statements in Current Law. Under the definition of "surviving spouse member" (found in Minnesota Statutes, Section 423C.01, Subdivision 25) a surviving spouse member is any spouse married to an active firefighter in death-while-active situations (if death occurs prior to the firefighter terminating from service or retiring). If the ex-firefighter’s death occurs after the individual terminates service with the department, the surviving spouse is a "surviving spouse member" if the marriage occurred at least one year prior to termination of service, according the statement in statute.

The automatic surviving spouse coverage provision in statute also provides a benefit to surviving spouses who do not meet the definition of surviving spouse member, providing that the surviving spouse was legally married to the member and residing with the member for two years prior to the death of the retired firefighter. A surviving spouse in this latter category receives the same benefit as a surviving spouse member (a benefit equivalent to 52.4 percent of the benefit received by the retired firefighter immediately prior to the firefighter’s death), except in cases where the surviving spouse on the date of the ex-firefighter’s death is younger than the firefighter’s age when the firefighter first started to receive the retirement annuity. In these cases, the survivor benefit is downsized slightly to limit the lifetime value of the survivor benefit. The adjustment may be best understood by an example: If a firefighter retired at age 50 and married shortly thereafter, and the ex-firefighter died at age 70 leaving a 45-year-old surviving spouse, the surviving spouse is eligible for a benefit because the marriage occurred more than two years prior to the retiree’s death. However, the surviving spouse benefit would be reduced slightly so that the lifetime expected value of the payout would be the same as that payable to a surviving spouse assumed to be age 50.

The individual covered by H.F. 776 (Davnie); S.F. 499 (Skoglund) has a pension-related problem because she did not qualify for an MFRA surviving spouse benefit under either surviving spouse definition. Death occurred after the firefighter retired, and the retiree’s death occurred barely a year after the date of marriage. (The marriage occurred on September 17, 2000 and death occurred on September 26, 2001.) She would have had to be married to the firefighter for two years to qualify for a benefit under MFRA law.

A check of recently enacted law indicates that the 2000 Legislature enacted a special law provision to pay a benefit to a surviving spouse who did not meet the eligibility requirements to receive a surviving spouse benefit under MFRA law applicable at that time. The applicable special law, found in Laws 2000, Chapter 461, Article 17, Section 6, did have a local approval clause. That provision provided a survivor benefit to an individual who married an MFRA firefighter after the firefighter retired, and the firefighter died slightly less than five years after the date of the marriage. At that time, the MFRA laws indicated that a surviving spouse benefit could be paid to an individual who did not qualify as a surviving spouse member providing the marriage occurred at least five years prior to the ex-firefighter’s death. A more recent statement in the 2001 Supplement specifies that the marriage had to occur at least two years prior to death, but it is unclear what legislation authorized the that change.

Pension Policy Issues

H.F. 776 (Davnie); S.F. 499 (Skoglund): Minneapolis Fire Relief Association: Benefit for a Certain Surviving Spouse, is a proposed special law provision to permit a surviving spouse of an MFRA-covered firefighter, who did not qualify under MFRA general law for a surviving spouse benefit due to the short duration of marriage prior to the retired firefighter’s death, to receive a surviving spouse benefit. Local approval is required.

The marriage occurred a few weeks before the firefighter retired, and the firefighter died somewhat less than one year after retirement. Due to the short duration of the marriage, this surviving spouse does not qualify for a surviving spouse benefit under applicable MFRA law. MFRA requires that marriage occurs at least two years before the annuitant’s death, and perhaps longer.

H.F. 776 (Davnie); S.F. 499 (Skoglund) raises a number of pension policy issues.

1. Erosion of Requirements. MFRA law reflects a desire to avoid the financial implications, which can occur when marriage occurs shortly before the death of the service pensioner. Until recently, the marriage would have had to occur at least five years prior to the service retiree’s death for a survivor to be eligible for a benefit. An exception to the law that normally would apply was made in 2000 for a survivor who was not married for a full five years prior to the retiree’s death. The case covered by the current bills would address a situation where the marriage lasted slightly more than one year prior to death. The Legislative Commission on Pensions and Retirement (LCPR) may wish to consider whether these cases are sufficiently similar. The LCPR may be concerned that granting another exception to MFRA law would lead to further requests by other similarly situated individuals.

2. Plan Cost Implications; Post-Retirement Implications. Paying a benefit would add to plan liabilities. Although we have no specific estimates, the annuity may add a few hundred thousand dollars to MFRA liabilities. Paying a benefit in this case would also have an immediate impact on current MFRA benefit recipients, although the impact on any given benefit recipient is not significant. The MFRA provides certain post-retirement adjustments that are a distribution of a specified percentage of fund assets. Adding another individual to share in that allocation lessens the amount allocated to the other recipients.

3. Local Approval Issues. It is unclear whether the MFRA or city would support this legislation. The Legislature typically does not take action on a matter that is not supported by the applicable city, which could veto the legislation.

4. Self-Help Issues/Equitable Concerns. The LCPR may wish to consider the possibility that the now-deceased firefighter did not intend to provide survivor coverage. If it were desired by the firefighter, presumably the firefighter and spouse would have taken action to ensure that surviving spouse coverage would be available. Information provided with this drafting request indicated that the applicable individuals had a close relationship for decades, but did not marry until a month before the firefighter retired. Earlier marriage would have ensured that a surviving spouse benefit would have been provided. The LCPR may also wish to inquire whether the firefighter requested joint-and-survivor coverage for his spouse at the time of retirement. That coverage may have provided coverage despite the short length of marriage.