Summary of H.F. 63 (Boudreau); S.F. 47 (Day)

H.F. 63 (Boudreau); S.F. 47 (Day) permits Mark D. Miller, described as a member of a narrow class based on particular facts applicable to him that in combination are likely to restrict the class to him, to purchase 2 years and 11 months of service credit from the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General) with the payment by him of an amount equal to the full actuarial value of the benefit obtained by the purchase. His employer, the Minnesota Department of Transportation (MnDOT) is prohibited from paying any portion of the payment amount. The purchase authority expires on July 1, 2004, or on the day that Mr. Miller terminates active State employment, whichever occurs earlier.

Background Information on Prior Service Credit Purchases

Attachment A presents background information on the Commission’s policy in handling prior service credit purchase requests.

Public Pension Problem of Mark D. Miller

Mark D. Miller, of Faribault, Minnesota, is an employee of the Minnesota Department of Transportation (MnDOT) who has a period of part-time employment by MnDOT (1984-1989) which was not covered by the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General). Mr. Miller did not indicate the reason for the lack of MSRS-General pension coverage for this part-time employment. MSRS has indicated that Mr. Miller was excluded from MSRS-General because he was a seasonal or temporary employee. Mr. Miller became an active member of MSRS-General in 1989, after he became a full-time MnDOT employee. Mr. Miller now desires to have MSRS-General coverage for the 2.92 years of State employment for which he does not have public pension coverage.

Discussion

Mark D. Miller is a current State of Minnesota employee who lacks allowable service credit in the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General) for 2 years and 11 months of seasonal part-time Minnesota Department of Transportation (MnDOT) employment (1984-1989) and now desires to purchase MSRS-General allowable service credit for that period. H.F. 63 (Boudreau); S.F. 47 (Day) would authorize Mr. Miller to purchase his part-time seasonal MnDOT employment period by paying an amount equal to its full actuarial value, calculated under Minnesota Statutes, Section 356.55 pr 356.551.

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

1. Appropriateness of Authorizing a Purchase of Service Credit for an Ineligible Employment Period.  The policy issue is the appropriateness of authorizing the purchase of allowable service credit for a Minnesota public pension plan for a period of governmental employment that was ineligible under law for coverage by that plan when it occurred and is still ineligible. Although the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General) covers virtually all State employees, with some very narrow exceptions, Mr. Miller was not eligible for MSRS-General pension coverage during the period of his seasonal part-time employment by the Minnesota Department of Transportation (MnDOT) during the period 1984-1989. Minnesota Statutes, Section 352.01, Subdivision 2b, Clause (17), excludes from MSRS-General temporary classified service employees and temporary unclassified service employees who are employed for a period of less than six months and for less than six months in any year. As a seasonal part-time employee of MnDOT, Mr. Miller was ineligible for MSRS-General coverage. The exclusion of Mr. Miller from public pension coverage was in force when he began his State employment, remains in force now, and does not appear ripe for being reversed. Because his period of service for purchase is deemed generally inappropriate for public pension coverage, Mr. Miller will bear the burden to convince the Commission that the period in his case must now be deemed appropriate for inclusion in his case.

2. Delay in Request from 1989. The policy issue is the appropriateness of the service credit purchase request when the request is delayed from 1989, when Mr. Miller became a full-time State employee. The Commission’s Principles of Pension Policy require that purchase requests not violate equitable considerations and be purchased at its full actuarial value. One equitable maxim is that equity aids the vigilant and does not assist those who slumber on their rights. Mr. Miller waited more than a decade, until 2000, before first bringing his request to legislative attention. Mr. Miller will need to explain the reason for that delay and argue why the delay was not unreasonable and should not disqualify his request.

3. Full Actuarial Value Service Credit Purchase Cost. The policy issue is the appropriateness of the proposed service credit purchase payment amount to be paid. The redrafted proposed legislation references either Minnesota Statutes, Section 356.55 or Minnesota Statutes, Section 356.551, whichever applies, as governing the service credit purchase payment amount determination. Both require a full actuarial value payment where generally the payment equals the actuarially computed value of the benefit to be obtained by the purchase, although the statutes differ in the particulars of the calculation. This is consistent with Commission policy on service credit purchases, but the actuarial purchase cost is potentially very large. The Minnesota State Retirement System estimated the payment requirement under Minnesota Statutes, Section 356.55, in 2001 at $18,930, which, updated for two years of interest at 8.5 percent, would now be $22,300.

4. Allocation of the Purchase Payment Requirement. The policy issue is the allocation of the purchase payment requirement and whether the employer should be mandated to participate, simply allowed to participate, or prohibited from participating, as H.F. 63 (Boudreau); S.F. 47 (Day), provide. The established policy of the Commission over the past several years has been to mandate employer funding of most of a service credit purchase payment amount if the employer was in some way at fault for the uncredited period. Otherwise, it is Commission policy to permit the employer to contribute a portion of the purchase price, at its discretion. The Commission lacks any factual basis for assessing any portion of the service credit purchase payment against MnDOT. Prohibiting an employer contribution would be unique in this type of legislation and would establish a potential precedent.

5. Appropriateness of "Rule of 90" Early Normal Retirement Age Encouragement. The policy issue is the appropriateness of the Legislature undertaking special measures to allow one State employee to eventually retire with a larger benefit at an earlier age that he would otherwise be able to do so. In 1989, when the Legislature enacted the MSRS-General "Rule of 90" benefit tier as well as the "Level Benefit" benefit tier, as part of an amendment on the floor of the House of Representatives, offered without favorable Commission recommendation, the "Rule of 90" early normal retirement provision was placed on phase-out status by making it applicable to only pre-July 1, 1989, hirees. This proposed legislation would blur that phase-out date for one individual by allowing him to purchase entitlement to the authority that otherwise would not be open to him. By phasing out the provision in 1989, the Legislature indicated that it did not favor making the early retirement provision a permanent part of public pension coverage.

6. Appropriateness of Precedent for Other Purchases; Existence of Comparably Situated Potential Purchasers. The policy issue is the appropriateness of the proposed legislation in setting a precedent for any other comparably situated potential purchasers. Mr. Miller was not the only part-time MnDOT employee during the period 1984-1989 who was excluded from MSRS-General retirement coverage and the proposed legislation will constitute a precedent for those potential purchasers, whenever they may emerge, and the precedent of this proposed legislation will be difficult to distinguish in the future. David Bergstrom, Executive Director, MSRS, indicated on March 15, 2001, that MSRS-General covers 5,819 current MnDOT employees. Of that group, 1,037 employees, or 18 percent of the total MnDOT covered group, have some period of uncovered State service. Mr. Bergstrom indicated that the MSRS records of those 1,037 employees contain a field indicating that there is some uncovered service, but the MSRS records provide no further detail on the specific uncovered employment position that may be involved, or any general information on the nature of the uncovered employment (training positions, temporary positions, other).

7. Appropriateness of the Request in Light of Lack of 2001 Buyback Subcommittee Support. The policy issue is the appropriateness of the commission considering Mr. Miller’s service credit purchase request in light of a lack of support by the Commission’s Service Credit Purchase Subcommittee in 2001 for the request. The Subcommittee heard Mr. Miller’s request twice, on March 14, 2001, with testimony from Representative Boudreau, Mr. Miller, and David Bergstrom, the MSRS Executive Director, and again on March 21, 2001, with testimony from Representative Boudreau and Mr. Bergstrom. The Subcommittee took no action on the bill at either meeting and did not include it in its recommendations to the Commission for the 2001 Session. The impact of the proposed legislation as a potential precedent for other MnDOT seasonal part-time employee service credit purchase requests (see issue #6) seems to have been of concern to the Subcommittee, according to the Commission files on the Subcommittee hearings.