H.F. 656 (Lenczewski); S.F. 190 (Betzold) amends Minnesota Statutes, Sections 383B.49 and 383B.493, relating to the redemption of benefits or refunds from the Hennepin County Supplemental Retirement Plan, by changing the authority for the approval of benefit and refund applications from the Hennepin County Board to the Hennepin County Administrator’s Office. The proposed legislation requires local approval.

Supplemental pension programs are retirement programs established to augment the existing pension coverage for a group of public employees, typically with contributions by both employee and employer. The general motivation for creating a supplemental pension program has been to remedy an actual or perceived inadequacy in the pensions then presently available.

The 1969 Minnesota Legislature (Laws 1969, Chapter 950) authorized Hennepin County to establish a supplemental retirement program. Hennepin County is the only unit of local government offering a supplemental retirement program. The Hennepin County Supplemental Retirement Plan is similar to the Higher Education (formerly Teachers Retirement Association (TRA)) Supplemental Retirement Program which was established in 1965. Both programs are supplements to existing public pension programs. Laws 1975, Chapter 153, amended the Hennepin County Supplemental Retirement Program, lowering the retirement age from 65 to 62. Laws 1982, Chapter 450, closed the Hennepin County Supplemental Retirement Program to new hirees.

The Hennepin County Supplemental Retirement Plan is a defined contribution plan, meaning that the funding for the pension plan is fixed as a dollar amount or a percentage of payroll. The fixed element of funding leaves a variable element, which is the benefit amount that is ultimately payable. The plan member bears the inflation and investment risks. If there is poor investment performance, the plan member's pension assets will be depressed. If inflation impacts the immediate pre-retirement standard of living, the plan member’s benefit will be less adequate in meeting the person’s pre-retirement standard of living. The plan sponsor or employer loses any turnover gain potential, where past plan funding becomes more concentrated on a subgroup of the total plan membership. A defined contribution plan is a frequent choice as a supplemental plan to augment defined benefit plan coverage.

The Hennepin County Supplemental Retirement Plan requires all eligible employees and officers (pre-1982 hirees) who have five years of service to contribute one percent of salary to the Hennepin County Supplemental Retirement Fund. The county matches the employee contribution. All funds are invested in the Minnesota Supplemental Investment Fund, a family of mutual fund-like investment options administered by the State Board of Investment. Each participant has an individual account to which the shares are credited, with the necessary recordkeeping performed by Hennepin County. The shares gain or lose value as the underlying securities gain or lose value. Upon the occurrence of retirement, total and permanent disablement, death or termination of active employment prior to retirement, all or a portion of the shares to a participant’s credit can be redeemed and a benefit is paid. Upon retirement, at the age of 62, up to 20 percent of the total shares per year can be redeemed and the amount paid to the retiree. The same redemption schedule occurs upon the total and permanent disablement of the participant or upon the death of the participant whereupon the benefit is paid to the surviving spouse. Upon the termination of active employment prior to retirement, one half of the total shares to the former participant’s credit can be redeemed and paid as a withdrawal benefit and one half forfeits to the plan to be redistributed to all other participants on a per capita basis.

Since 1969, the Legislature has improved public employee pension and retirement programs. The General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General) has been coordinated with the Social Security system, and benefits have been increased. In addition, the Legislature has also authorized a deferred compensation program. The continuation of the county’s program was questioned in 1982 and the county’s program was phased out.

In 1971 (Laws 1971, Chapter 222), Minnesota state agencies and subdivisions were prohibited from creating supplemental retirement plans other than the 11 exceptions set forth in Minnesota Statutes, Section 356.24, Subdivision 1.

H.F. 656 (Lenczewski); S.F. 190 (Betzold) shifts from the Hennepin County Board of Commissioners to the Hennepin County Administrator’s Office the authority to approve requests for the redemption of investment account shares in the Minnesota Supplemental Investment Fund under the Hennepin County Supplemental Retirement Program to pay benefits or to make emergency withdrawals. The proposed legislation would be effective upon local approval by the Hennepin County Board.

The proposed legislation raises two policy issues that may merit Commission consideration and discussion, as follows:

1. Appropriateness of the Authority Delegation from the County Board. The primary policy issue with respect to the proposed legislation is the appropriateness of delegating the authority to approve Hennepin County Supplemental Retirement Program benefit withdrawals or emergency withdrawals to the Hennepin County Administrator’s Office when the approval process has been vested in the Hennepin County Board of Commissioners for 34 years. Because the Hennepin County Supplemental Retirement Plan was closed to new entrants 21 years ago, the number of participants currently should be very modest, although the Commission staff has no current information on the number of Hennepin County employees or the number of Supplemental Retirement Programs. The burden of processing benefit or emergency withdrawal requests should be substantially diminished, so the policy basis for Hennepin County in requesting the change is unlikely to be the level of the workload. The Commission should take some testimony on the reasons offered by Hennepin County for the change.

2. Appropriateness of the Authority Delegation to the County Administrator’s Office. The policy issue is the appropriateness of delegating the Hennepin County Supplemental Retirement Program account withdrawal authority to the office of the Hennepin County Administrator. The potential problem is the vagueness of the specification of the "County Administrator’s Office." If the vague reference really means the Hennepin County Administrator, not the office of the Administrator at large, then the proposed legislation would be improved by referencing the County Administrator. If the vague reference is intended to mean multiple persons in the office of the County Administrator, the authority could be employed by various individuals who, in determining hardship withdrawals, could utilize a variety of inconsistent standards. If the authority is intended to be centralized with the Hennepin County Administrator, Amendment LCPR03-072 would recraft the proposed legislation to specify the County Administrator. If greater flexibility is desired, but the potential for inconsistent practices and standards minimized, Amendment LCPR03-073 would revise the proposed legislation to specify the Hennepin County Administrator or the Administrator’s designee.