Summary of H.F. 247 (Nelson, C.); S.F. 400 (Senjem)

H.F. 247 (Nelson, C.); S.F. 400 (Senjem) amends Laws 2000, Chapter 461, Article 4, Section 4, the effective date and sunset date provision of the 2000 omnibus pension bill and sunset date provisions of the 2000 omnibus pension bill relating to prior military service credit purchases for the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General), the General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General), and the State Patrol Retirement Plan by eliminating the May 16, 2003, sunset date on the authority.

Background Information on Prior Service Credit Purchases

Background information on the Commission policy on prior service credit purchases is presented in Attachment A.

Discussion and Analysis

H.F. 247 (Nelson, C.); S.F. 400 (Senjem) makes permanent the prior military service credit or previously unpurchased military service credit purchase provisions for the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General), the State Correctional Employees Retirement Plan of the Minnesota State Retirement System (MSRS-Correctional), the General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General), the Public Employees Police and Fire Retirement Plan (PERA-P&F), and the State Patrol Retirement Plan, that were enacted in 2000 and were scheduled for expiration in 2003.

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

1. Modest Use of Service Credit Purchases Makes Need for Permanent Status Questionable. The policy issue is the appropriateness of making the military service credit purchases for the five affected retirement plans permanent when the 2000-2002 use of the provisions has been modest. As part of the regular annual actuarial valuations of the statewide and major public pension plans, the consulting actuary retained by the Commission provides a report on the number of prior service credit purchases and compares the prior service credit purchase payment received by the pension plan with the public pension plan actuarial accrued liability increase associated with the purchase. For the five plans involved, for the three years studied, covering 200,915 public employees, only 99 individuals have purchased prior or unpurchased interim military service credit (0.05 percent), as follows:

Assuming that there was a potential backlog of interested purchasers that would have swelled the number of purchases during the initial years of the purchase authority, which now has passed, the very modest number of actual purchasers 2000-2002 would indicate that there is likely little future interest in these purchases and that the extension of the provisions beyond the current expiration date will have little effect.

2. Appropriateness of a Temporary Extension in the Deadline in Lieu of the Proposed Permanent Extension. The policy issue is the appropriateness of the proposed permanent extension of the five military service credit purchase authorizations when an alternative of a further temporary deadline extension exists. An extension of the deadline by one year or by a few years would permit further monitoring of the need for the provision without placing the provision permanently on the statute books when the need will likely evaporate. Amendment LCPR03-099 would extend the provision to a future date certain, yet to be specified.

3. Appropriateness of the Omission of Teacher Pension Plans. The policy issue is the appropriateness of the proposed legislation omitting making the same change of the four teacher pension plans, the Teachers Retirement Association (TRA), the Duluth Teachers Retirement Fund Association (DTRFA), the Minneapolis Teachers Retirement Fund Association (MTRFA), and the St. Paul Teachers Retirement Fund Association (SPTRFA). The proposed legislation covers five plans granted this service credit purchase authority in 2000, but omits the four plans granted this authority in 1999, also with a May 16, 2003, repealer date. If the military service credit purchase provisions are all to be treated the same, additional language would be needed. Amendment LCPR03-100 would make the TRA, DTRFA, MTRFA, and SPTRFA military service credit purchase provisions permanent. Amendment LCPR03-101 would extend the TRA and first class city teacher retirement military service credit purchase provisions to a future date certain, yet to be specified.

4. Question of the Long-Term Policy on Service Credit Purchases. The policy issue is the Commission’s future view of its long-term policy on service credit purchases and whether the 1995-1996 pension policy principle should be modified. Because of the significant departures from the 1995-1996 pension policy principles that occurred in 1998-2001, if those changes represent a permanent change in policy rather than a temporary interruption in the prior policy, a major revision in the 1995-1996 principle will be necessary. If the Commission desires to incorporate the 1998-2001 prior service credit purchase legislation elements into its policy principle on this topic, the following potential revision in the 1995-1996 prior service credit purchase policy principle would attempt to reflect these recent developments.