H.F. 349 (Sertich); S.F. 278 (Tomassoni) amends Minnesota Statutes, Section 353.01, Subdivision 16a, a provision of the law governing the General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General) and the Public Employees Police and Fire Retirement Plan (PERA-P&F) that permits PERA-General and PERA-P&F members to purchase pension service credit for prior or previously uncredited interim military service with a full actuarial value purchase payment, by alternatively authorizing PERA-General and PERA-P&F members who are Vietnam War veterans to purchase the pension service credit for a purchase payment of $5,000 per year of service credit.

Background information on the topic of purchases of prior service credit is set forth in Attachment A.

The proposed legislation would provide members of the General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General) and the Public Employees Police and Fire Retirement Plan (PERA-P&F) who actively served in the U.S. armed forces during the Vietnam War in the period July 1, 1961, to July 1, 1978, with a potentially subsidized prior service credit purchase of $5,000 per year of service credit.

The proposed legislation raises various pension and related public policy issues that may merit Commission consideration and discussion, as follows:

1. Appropriateness of Providing Certain Service Credit Purchasers a Subsidy. The policy issue is the appropriateness of providing certain General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General) and Public Employees Police and Fire Retirement Plan (PERA-P&F) members with a subsidy in their service credit purchase payment. Commission policy on service credit purchases requires the payment by the purchaser or by a combination of sources of the full actuarial value of the benefit obtained by the purchase. Providing a potential subsidy by specifying a $5,000 per year of service credit purchase payment obligation runs contrary to that policy. A $5,000 per year purchase payment price is likely to be a considerable subsidy in most cases. For instance, for a public employee who is a former Vietnam War-era veteran who is currently age 57, who has 31 years of service credit in PERA-General currently, who has a current salary of $60,000, and who has four years of prior military service, the current purchase price would be approximately $16,000 per year if four years of service credit were purchased or approximately $20,000 per year if two years of service credit (i.e., the minimum needed for "Rule of 90" eligibility) were purchased. As indicated in Attachment A, the current purchase payment amount utilized in the estimate generally understates the actual pension plan liability increase for a purchaser who is approaching retirement. To be deemed to be appropriate, the subsidy presumably must be justified by some significant equitable consideration. The equitable consideration most apt to be cited by proponents is the purchaser’s status as a Vietnam War-era armed forces veteran. While the contribution of armed forces veterans who engaged in combat or served in combat zones cannot be denied, Commission members may wish to discuss whether this significant proposed subsidy in addition to the various other governmental veterans programs is appropriate.

2. Appropriate Source of the Subsidy Burden. The policy issue is the appropriate source of any subsidy if a prior service credit purchase subsidy is deemed appropriate. The proposed legislation would place the burden of that subsidy on PERA-General or PERA-P&F directly and on the PERA-General or PERA-P&F active membership and their participating employing units indirectly. While there may be factors that provide a basis in equity for providing a subsidy for a prior service credit purchase, it is unclear why PERA-General or PERA-P&F is the appropriate source of any subsidy. If a veteran has made a contribution that merits additional compensation or benefits beyond the currently available package of veterans benefits, the beneficiary of that contribution by the veteran is the American society at large, rather than PERA-General or PERA-P&F. Probably the pension plans were selected as the source of the subsidy because they have potentially available assets at this time of strained general governmental resources.

3. Appropriateness of Restricting the Coverage of the Provision to PERA-General and PERA-P&F. The policy issue is the appropriateness of adding this provision to the PERA-General and PERA-P&F while not providing the same subsidized service credit purchase option to the other Minnesota retirement plans. Although the funded condition of the various retirement plans does differ, with the Minneapolis Teachers Retirement Fund Association (MTRFA) being the worst funded of the major local pension plans and the Teachers Retirement Association (TRA) being the best funded of the major statewide plans, Vietnam veterans who are members of other Minnesota public pension plans are unlikely to view kindly the favorable treatment that is proposed to be extended to PERA-General or PERA-P&F and which is not also proposed to be extended to the other retirement plans.

4. Appropriateness of the Applicability of the Subsidy to Non-Minnesota Veterans. The policy issue is the appropriateness of the proposed prior service credit purchase subsidy including Vietnam War-era military veterans who were not Minnesota residents when they entered military service and who may not be Minnesota residents currently. The basis in equity for the proposed subsidy from a Minnesota public pension plan, presumably, is the contribution that the Vietnam War-era veteran provided to Minnesotans. If the veteran was not a Minnesota resident when the service was rendered or if the veteran is employed by a Minnesota school district, but is not currently a Minnesota resident, the argument favoring the provision of the subsidy by a Minnesota pension plan on behalf of the State appears to be stretched past what may be reasonable.

5. Appropriateness of the Length of the Eligible Military Service Period Specified. The policy issue is the appropriateness of the length of the specification of the eligible military service period in the proposed legislation. The proposed legislation indicates a period from July 1, 1961, to July 1, 1978. That period matches the period of military service that makes a former veteran eligible for a Vietnam War veteran automobile license plate, but does not match the period specified under federal law for Vietnam War-era veteran status. Federal law, U.S. Code Title 38, Section 101, Clause (29), defining the term "Vietnam era" for federal veteran benefit purposes, specifies the Vietnam War period as February 28, 1961, to May 7, 1975. For qualification for a Vietnam Service Medal from an armed service branch, the military service period is July 4, 1965, to March 28, 1973, and for qualification for a Bronze Star related to Vietnam War military service, the first available star relates to the Vietnam Advisory Campaign beginning November 15, 1961, and the last available star relates to the Vietnam Cease Fire ending on January 28, 1973. For a benefit or honor that has a low financial impact on public funds, like a special automobile license plate, precision in specifying the dates for the qualifying military service may not be as necessary, but when the subsidy can approach $45,000 in value, precision in the qualifying military service is presumably more important.

6. Appropriateness of Not Differentiating Subsidy Amounts Based on the Extent of Military Service. The policy issue is the appropriateness of the proposal that provides the same subsidy no matter the nature or extent of the military service rendered. Under the proposed legislation, a veteran of the Vietnam conflict who was in multiple tours of duty, served in combat, and received a Congressional Medal of Honor will receive the same subsidy as Vietnam War-era veterans who worked a desk position and never left the United States. When subsidies can approach or exceed $45,000 per person, some differentiation based on the extent of a PERA-General or PERA-P&F member’s Vietnam War service or risk seems appropriate. If a differentiation based on the quantity of Vietnam War military service, its risk, or its personal impact is not deemed appropriate by the proponents of the proposed legislation, the proponents should be given an opportunity to explain the rationale for that choice.

7. Appropriateness of the Omission of Other Military Service from the Proposed Subsidy. The policy issue is the appropriateness of limiting the proposed service credit purchase subsidy to Vietnam War veterans. While it is unlikely that there are any World War II veterans or many Korean War veterans still in the PERA-General or PERA-P&F active membership, there undoubtedly are veterans of other military actions during the last 30 years who could argue that their situation is comparable. U.S. Code Title 38, Section 101, extends veterans benefits to individuals with military service during the Persian Gulf War. Other conflicts where U.S. troops served also have occurred in Granada, Panama, Lebanon, Somalia, and Bosnia.

8. Precedent. The policy issue is the existence of any prior legislation that could be argued to be a precedent for this proposal and the potential for this proposal, if enacted, to become a precedent for a further legislation extension. In 1982 (Laws 1982, Chapter 427), Vietnam veterans who were TRA active members were accorded a special option to purchase TRA service credit, but the purchase was not subsidized from the pension plan or otherwise. The special authority, coded as Minnesota Statutes, Sections 354.531 and 354.532, was repealed in 1989. Beyond that legislation, there does not appear to be any past "on point" precedent. Clearly, if enacted, Vietnam War-era veterans who are members of other public pension plans would demand a comparable subsidy based on the precedent value of this proposed legislation.

9. Appropriateness In Light of Alternatives. The policy issue is the appropriateness of the proposed legislation in light of the existence of at least two alternative methods for addressing the problem faced by many potential service credit purchases of very large prior service credit purchase payment requirements. The two alternatives that the Commission staff can readily identify are as follows:

   1. Military Affairs Department Appropriation. A State General Fund appropriation could be made to the Commissioner of Military Affairs that would be expended by the Commissioner to buy down a portion of the prior military service credit purchase payment amount determined under the current law. The buy-down would be based on applications for state assistance filed by public employees who are veterans and on criteria established by the Commissioner in advance. The actual purchase would be made at the calculated full actuarial value. The subsidy, thus, would be shifted away from the retirement plan to State government more generally.

   2. Prior Service Credit Purchase Member and Employer Contribution Surcharge and Award Board. An ongoing program for funding prior service credit purchases could be developed, with the establishment of a board to prioritize prior service subsidy requests and award subsidies. The program could impose a one-tenth of one percent surcharge on both member and employer public pension plan contributions, with the surcharge proceeds deposited in a special dedicated account in the State Treasury. A special board, perhaps chaired by the Lieutenant Governor or other constitutional officer, and with members drawn from the various public pension plan governing boards, could be charged with evaluating prior service credit purchase subsidy requests and with meeting quarterly to award prior service credit purchase subsidy amounts, based on that prioritization, from the prior quarter’s contribution surcharge receipts. Annually, the special service credit purchase subsidy board would be required to report to the Legislature and to the Legislative Commission on Pensions and Retirement on its priority criteria and subsidy awards. Again, the actual purchase would be made at the calculated full actuarial value, with the subsidy shifted to the contribution surcharge proceeds rather than any public pension plan.