The authors of H.F. 1435 (Demmer); S.F. 2716 (Senjem) have requested that the Commission consider a delete-all amendment to the bill rather than the bill as introduced. This memo reviews delete-all amendment LCPR04-061. The issue of the deceased Hayfield Police Chief is not a new legislative topic, although this is the first time it has received a Commission hearing. A bill dealing with the situation was introduced during the 2002 Legislative Session, H.F. 3536 (Sviggum); S.F. 2716 (Day), but was not heard. The current bill authors, Representative Demmer and Senator Senjem, requested a delete-all amendment to replicate the language of the 2002 bill.

Delete-All Amendment LCPR04-061 would require the Public Employees Retirement Association (PERA) to hold an administrative hearing to determine whether the chief of police of the city of Hayfield (who was injured on April 29, 1977, while performing duties as the chief of police, and who was diagnosed in March 1978 as having amyotrophic lateral sclerosis), who died from conditions resulting from the April 29, 1977, injury. If the administrative law judge concludes that the individual’s death was caused by the April 29, 1977, injury, then the surviving spouse is entitled to payment, in a lump sum, of the value of the disability benefits that the deceased would have received if PERA had provided duty-related disability benefits following the date of the injury. The surviving spouse will also receive a survivor annuity computed as though the deceased had elected a 100 percent joint-and-survivor annuity prior to death.

H.F. 1435 (Demmer); S.F. 2716 (Senjem), as introduced, differs from the delete-amendment in two key respects. Under the bill as introduced, the determination of whether death was attributable to the 1977 injury would be made by the Commissioner of Health rather than by an administrative law judge. Second, the bill would provide a considerably more modest total benefit than the delete-all amendment. H.F. 1435 (Demmer); S.F. 2716 (Senjem), as introduced, attempts to provide a PERA-P&F surviving spouse benefit, although it is not clear from the bill language how that benefit is to be computed. Under the bill, the surviving spouse, who is also a PERA member, would continue to receive this survivor benefit when she retires or she would receive a benefit based on her own service, whichever provided the higher benefit. She would not receive both. In contrast, the delete-all amendment would provide the value of retroactive duty-related disability benefits, plus a surviving spouse annuity, and Ms. Claassen (the person affected by the bill) would also receive a pension based on her own service when she retires.

Staff’s knowledge of the situation consists of copies of letters and other materials on this issue that were received several years ago. Ms. Kathy Claassen indicates that on April 29, 1977, her now deceased husband Douglas Claassen, who was acting as the police chief for the city of Hayfield, was injured apprehending a driver who was under the influence of drugs. Ms. Claassen indicates that Mr. Claassen received blows to the neck and lower back during the incident. Following that incident, for a period of approximately one year, Mr. Claassen was treated by a chiropractor for neck and back problems, but the symptoms persisted. In March 1978, Mr. Claassen went to the Mayo Clinic seeking further diagnosis or treatment for the back and neck problems, where he was diagnosed, apparently incorrectly, as having amyotrophic lateral sclerosis (ALS, or Lou Gehrig’s Disease). The prognosis was that paralysis and death would occur within one year.

For his service as a police officer, Mr. Claassen was covered by the Public Employees Police and Fire Retirement Plan (PERA-P&F). In the late 1970s, Mr. Claassen requested PERA-P&F disability benefits. The PERA Executive Director apparently denied this application, since the letter indicates that sometime in 1978 or 1979, Mr. Claassen, with the help of an attorney, appealed directly to the PERA Board. The PERA Board rejected the request for PERA-P&F disability benefits.

The PERA Board rejection seems based on a conclusion that Mr. Claassen was not eligible under PERA law for disability benefits because the disability was due to disease, not job-related injury. Minnesota Statutes 1978, Section 353.656, Subdivision 3, provides a disability benefit due to sickness or injury that is not job-related if the member has at least five years of PERA-P&F service credit. Mr. Claassen did not yet have five years of PERA-P&F service credit. This five-year vesting requirement is waived if the disability is due to duty-related injury. Ms. Claassen’s letter indicates that at the PERA Board hearing her husband’s attorney offered evidence of the ALS diagnosis, but not of any possible job-related injury. PERA’s Board denied the disability benefit request, presumably based on the conclusion that the health problems stemmed from disease, ALS. Because Mr. Claassen had less than five years of service credit, he did not qualify for non-duty related disability benefits under PERA law, and Mr. Claassen’s only benefit option was to apply for a refund of the employee contributions he had made to PERA-P&F. That refund, approximately $1,400, presumably was received sometime in 1978 or 1979.

Despite the Mayo Clinic diagnosis in the late 1970s, including an estimate that death would occur within one year, Mr. Claassen lived until March 1999, although during those intervening years Mr. Claassen’s health problems worsened. He lost the use of his limbs, suffered several heart attacks, and had breathing problems. Ms. Claassen claims that an autopsy report following her husband’s death supports a conclusion that Mr. Claassen’s death was causally related to the work injury that occurred on April 19, 1977. Based on that autopsy report, Ms. Claassen contacted PERA seeking a survivor pension, payable if she repaid the refund that was received in the late 1970s. PERA staff informed her that no action was possible under existing PERA law and that special legislation would be required.

Ms. Claassen’s letter indicates that Mr. Claassen did receive workers’ compensation benefits, but only following litigation. Mr. Claassen retained a lawyer in 1979 or 1980 to assist in obtaining the workers' compensation benefits, which were awarded through a court decision in 1984. The decision was appealed but was upheld by the Minnesota Supreme Court in 1986. Following Mr. Claassen’s death, Ms. Claassen applied for death benefits from the workers’ compensation system, which were denied. That issue may currently be in litigation. The difficulty in obtaining various workers’ compensation benefits suggests that the autopsy report and other health records may not conclusively link Mr. Claassen’s death to a work-related injury, but rather than to disease or other causes.

Delete-All Amendment LCPR04-061 would require the Public Employees Retirement Association (PERA) to hold an administrative hearing to determine whether the chief of police of the city of Hayfield (who was injured on April 29, 1977, while performing duties as the chief of police, and who was diagnosed in March 1978 as having amyotrophic lateral sclerosis), who died from conditions resulting from the April 29, 1977, injury.

If the administrative law judge concludes that the individual’s death was caused by the April 29, 1977, injury, then the surviving spouse is entitled to payment, in a lump sum, of the value of the disability benefits that the deceased would have received if PERA had provided duty-related disability benefits following the date of the injury. The surviving spouse will also receive a survivor annuity, computed as though the deceased had elected a 100 percent joint-and-survivor annuity prior to death.

The issues presented by the delete-all amendment are complex, and determining whether a legislative remedy is practical is made more difficult by the passage of so many years. H.F. 1435 (Demmer); S.F. 2716 (Senjem), in the form of delete-all amendment LCPR04-061, raises the following pension policy issues:

1. Equity Issues. The issue is whether Mr. or Mrs. Claassen made a serious effort to have the disability/survivor benefit issue reconsidered before the last few years. The 1978 Mayo Clinic diagnosis suggested Mr. Claassen would live for one year, but Mr. Claassen lived for over twenty more years. It seems reasonable that by the early 1980s, Mr. or Mrs. Claassen would have questioned the original medical diagnosis of ALS and would have sought a reevaluation of the cause of Mr. Claassen’s medical problems. The Commission may wish to inquire whether that occurred. If such a reevaluation had occurred, it may have led to a more timely review and reconsideration of the PERA disability determination and other subsequent events. It may be difficult at this time, after more than twenty years have passed, to obtain details regarding the PERA Board review of this case back in 1978 or 1979, and other factual information which may be useful for a current reconsideration.

2. Requests for Similar Treatment. The Commission may be concerned that recommending this legislation to pass will lead to other special law requests for similar action. The Commission is being asked to overturn the result of a disability case that was appealed to the PERA Board nearly 25 years ago. Other individuals who appealed to PERA’s board, or the board of any of the other public pension funds in this state, and had their appeal denied, may seek legislative relief. Recommending the bill to pass may undermine the appeal process used by the fund administrations and may lead to numerous legislative requests.

3. Cost Due to Benefits. The cost imposed by delete-all amendment LCPR04-061 on PERA P&F, if the administrative law judge concludes that the death was a result of conditions arising from the 1978 injury, would be substantial, much higher than benefit proposed in the original bill. The total value of the benefits may exceed $500,000, and could be considerably more. Staff does not have an estimate of that cost, but which, presumably can be provided by PERA.

4. Cost of Hearing Process. The delete-all amendment requires PERA to hold an administrative hearing to determine whether the deceased died from consequences of the April 29, 1977, injury, and there is a cost associated with that hearing. The issue is who should cover that cost. As drafted, PERA would presumably pay the cost. The Commission may wish to consider whether Ms. Claassen should cover the cost.

5. Actuarial Condition of PERA-P&F. The issue is PERA P&F’s current actuarial condition, which would be modestly worsened by the delete-all amendment. At the Commission’s February 10, 2004, meeting, Milliman USA, the actuary retained by the Commission, indicated that the PERA-P&F funding situation deserves careful watching due to the considerable deterioration in the actuarial condition of this plan, as indicated in the table below.

	July 1, 2003 Actuarial Valuation		July 1, 2002 Actuarial Valuation
Membership
Active Members		9,948		9,940
Service Retirees		4,381		4,191
Disabilitants		614		574
Survivors		1,213		1,206
Deferred Retirees		758		637
Nonvested Former Members		740		663
Total Membership		17,654		17,211
Funded Status
Accrued Liability		$4,390,953,000		$3,886,311,000
Current Assets		$4,713,606,000		$4,707,255,000
Unfunded Accrued Liability		($322,653,000)		($820,944,000)
Funding Ratio	107.35%		121.12%
Financing Requirements
Covered Payroll		$582,688,000		$541,250,000
Benefits Payable		$225,434,000		$212,405,000
Normal Cost	22.05%	$128,469,000	20.22%	$109,474,000
Administrative Expenses	0.12%	$699,000	0.12%	$650,000
Normal Cost & Expense	22.17%	$129,168,000	20.34%	$110,124,000
Normal Cost & Expense	22.17%	$129,168,000	20.34%	$110,124,000
Amortization	(2.65%)	($15,441,000)	(7.26%)	($39,295,000)
Total Requirements	19.52%	$113,727,000	13.08%	$70,829,000
Employee Contributions	6.20%	$36,127,000	6.20%	$33,558,000
Employer Contributions	9.30%	$54,190,000	9.30%	$50,336,000
Employer Add'l Cont.	0.00%	$0	0.00%	$0
Direct State Funding	0.00%	$0	0.00%	$0
Other Govt. Funding	0.00%	$0	0.00%	$0
Administrative Assessment	0.00%	$0	0.00%	$0
Total Contributions	15.50%	$90,317,000	15.50%	$83,894,000
Total Requirements	19.52%	$113,727,000	13.08%	$70,829,000
Total Contributions	15.50%	$90,317,000	15.50%	$83,894,000
Deficiency (Surplus)	4.02%	$23,410,000	(2.42%)	($13,065,000)

The plan went from a sizable contribution surplus in 2002 to a contribution deficiency in 2003. In 2002 there was a 2.42 percent of payroll contribution surplus, by 2003 this had changed to a 4.02 percent of payroll contribution deficiency. This indicates that, given a continuation of the present situation, this plan will not be fully funded at the full funding date (July 1, 2033), despite appearing to have more assets than liabilities at the current time.

If market value of assets is used rather than the actuarial value of assets, the current situation is much worse. If we use the actual PERA-P&F market value, rather than the actuarial value, which is currently considerably in excess of the fund’s actual market value, the contribution deficiency is 8.42 percent of payroll, not 4.02 percent of payroll. Another memo for this meeting (the memo for S.F. 1616 (Betzold): PERA P&F; Disability Determination Process Modifications), notes that the PERA P&F situation is worse than depicted in the above table because of higher than predicted use of PERA-P&F disability benefits. Under more accurate disability assumptions, the portion of plan normal cost related to disability benefits may rise.

6. The Question of Harm by PERA. Any payout of a non-trivial amount from PERA-P&F makes it likely that PERA will oppose the legislation. PERA may take the position that it did not cause harm to Mr. Claassen or Ms. Claassen and it should not be the party that provides a financial payout. Ms. Claassen indicated in her letter that Mr. Claassen’s attorney, in his dealings with PERA and his presentation before the PERA Board, failed to offer evidence of the work injury. Presumably, the presentation focused entirely on the ALS diagnosis, which apparently was assumed at the time by all parties to be the correct cause of Mr. Claassen’s medical condition. Since ALS is a disease and is not work-related, and since Mr. Claassen did not have sufficient service credit to qualify for non-duty related PERA-P&F disability benefits, the PERA Board made the right decision given all of the information that was known at that time and that was provided to the Board for consideration. This supports an argument that PERA did not err in its actions, did not cause harm, and should not be the party required to provide any financial settlement, assuming financial compensation is justified.

7. Alternative Remedies. The issue is the existence of alternative remedies. The diagnosis by the Mayo Clinic appears to have been incorrect. If that misdiagnosis resulted in lost or delayed receipt of workers’ compensation benefits and possible loss of PERA-P&F disability benefits, then an alternative to the legislative action would be to consider litigation against the Mayo Clinic for financial harm stemming from its diagnosis.

8. Need to Specify a Start Date of Disability Benefits/Timing. The delete-all amendment is in part an effort to provide retroactive disability benefits payable to Ms. Claassen. To compute those benefits, it is necessary to determine when the disability benefits would have started, assuming the PERA’s Executive Director and Board had approved those benefits. Even if Mr. Claassen’s death in 1999 is attributable to a 1977 injury, it may not be possible to determine when disability benefits would have commenced. One possibility is that Mr. Claassen would have been granted duty-related disability benefits as of the date of the PERA Board meeting in 1977 or 1978. That may not be the case. The situation may not have been sufficiently severe at that time to warrant disability benefits. It may be difficult now to shed much light on this timing issue. However, there is a need to specify a start date. The delete-all amendment is flawed by not specifying a start date. The Commission may need to consider an amendment to either specify an assumed start date for the disability benefit computation, or to specify a procedure to be determined to set that date.

LCPR04-062 would specify a start date, to be set by the Commission, to determine the value of disability benefits to be paid. The Commission may wish to use the date of the PERA Board meeting when Mr. Claassen’s appeal was heard (if PERA or some other party can provide that information) or some more recent date. The more recent the date, the lower the total value of the disability benefits will be.

LCPR04-063 could be used if the Commission feels that the total benefits payable should be reduced in some manner. Rather than paying the full benefits (the value of all disability benefits that would have been paid if the PERA Board had approved rather than rejected the disability claim, plus survivor benefits), some fraction less than one could be set. If the Commission inserted the figure of one-half, then half of the proposed benefit total would be paid. A problem with this approach is that it blurs the question of whether the claim is just. If the proposal has merit and it can be determined that the cause of the physical infirmities and eventual death was due to the 1977 duty-related injury, a case can be made that the entire benefit should be paid. If not, no benefit should be paid.

LCPR04-064 could be used if the Commission desires to eliminate the administrative hearing and simply authorize payment of the claimed benefits. A problem with this approach is that the Commission may not feel sufficiently confident in the merit of the claim to impose this treatment on PERA-P&F. Under the circumstances, an administrative hearing may be a useful process presented by the delete-all amendment.

LCPR04-065 would require Ms. Claassen to pay for the cost of the administrative hearing if the hearing examiner determines that benefits are not payable. This amendment can be used if the administrative hearing requirement remains in the bill.

LCPR04-061

  1.1     ............... moves to amend H.F. No. 1435; S.F. No. 

  1.2  1352, as follows: 

  1.3     Delete everything after the enacting clause and insert: 

  1.4     "Section 1.  SURVIVOR BENEFIT FOR DECEASED PUBLIC 

  1.5  EMPLOYEES RETIREMENT ASSOCIATION POLICE AND FIRE PLAN MEMBER. 

  1.6     Subdivision 1.  APPLICATION. An eligible individual under 

  1.7  subdivision 2 is eligible to receive the benefit specified in 

  1.8  subdivision 3 upon satisfying requirements specified in 

  1.9  subdivision 4. 

  1.10    Subd. 2.  ELIGIBILITY. An eligible individual is a 

  1.11 surviving spouse of a deceased previous member of the Public 

  1.12 Employees Retirement Association police and fire plan who: 

  1.13    (1) was born on October 10, 1933; 

  1.14    (2) was injured on April 29, 1977, while performing duties 

  1.15 as the chief of police for the city of Hayfield; 

  1.16    (3) was incorrectly diagnosed in March 1978 as having 

  1.17 amyotrophic lateral sclerosis; 

  1.18    (4) received a refund of employee contributions to the 

  1.19 Public Employees Retirement Association police and fire plan; 

  1.20 and 

  1.21    (5) died on March 13, 1999, from conditions resulting from 

  1.22 the April 29, 1977, injury. 

  1.23    Subd. 3.  BENEFIT AMOUNT. (a) The benefit amount is the 

  1.24 amount specified in paragraph (b) plus the amount specified in 

  1.25 paragraph (c). 

  1.26    (b) The executive director of the Public Employees 

  1.27 Retirement Association must compute the present value, on the 

  1.28 first of the month following the date all requirements under 

  1.29 subdivision 4 are satisfied, of duty-related disability benefits 

  1.30 assuming that the Public Employees Retirement Association board 

  1.31 had concluded that the deceased chief of police for the city of 

  1.32 Hayfield, as described in subdivision 2, met the requirements of 

  1.33 Minnesota Statutes 1978, section 353.656, subdivision 1, for 

  1.34 disability benefits due to duty-related injury.  The computation 

  1.35 must assume that the disability benefit would have been paid 

  1.36 from the first of the month following the determination of the 

  2.1  Public Employees Retirement Association board that the deceased 

  2.2  chief of police for the city of Hayfield, described in 

  2.3  subdivision 2, met the requirements of Minnesota Statutes 1978, 

  2.4  section 353.656, subdivision 1, until the individual's death on 

  2.5  March 13, 1999.  The computation must include any increases or 

  2.6  other adjustments payable under the Minnesota postretirement 

  2.7  investment fund or its predecessor fund or funds.  The 

  2.8  disability benefits assumed in the computation must be reduced 

  2.9  by any workers' compensation benefits paid or payable, if 

  2.10 required under applicable law.  The executive director must 

  2.11 subtract, from the present value, the present value of the 

  2.12 refund plus any applicable interest that was paid to the now 

  2.13 deceased employee.  The computations under this paragraph must 

  2.14 assume 8.5 percent interest, compounded annually.  The 

  2.15 computations must also assume election of a 100 percent 

  2.16 joint-and-survivor optional annuity at the earliest opportunity 

  2.17 authorized under Public Employees Retirement Association law or 

  2.18 administrative procedure.  The amount determined under this 

  2.19 paragraph is payable on the first of the month following the 

  2.20 date all requirements under subdivision 4 are satisfied. 

  2.21    (c) An annuity is payable to the eligible individual under 

  2.22 subdivision 2, computed assuming the deceased police officer had 

  2.23 elected a 100 percent joint-and-survivor annuity.  The annuity 

  2.24 accrues from April 1, 1999.  Any amounts representing monthly 

  2.25 annuity payments prior to the date all requirements under 

  2.26 subdivision 4 are met are payable as a lump sum amount, 

  2.27 including 8.5 percent interest compounded annually, payable on 

  2.28 the first of the month following the date all requirements under 

  2.29 subdivision 4 are met.  The executive director is authorized to 

  2.30 transfer assets representing the full actuarial reserves for the 

  2.31 annuity authorized under this paragraph from the Public 

  2.32 Employees Retirement Association police and fire fund to the 

  2.33 Minnesota postretirement investment fund. 

  2.34    Subd. 4.  ADMINISTRATIVE HEARING; OTHER REQUIREMENTS. (a) 

  2.35 The Public Employees Retirement Association shall hold an 

  2.36 administrative hearing under Minnesota Statutes, sections 14.57 

  3.1  to 14.62, to determine whether the previous member of the Public 

  3.2  Employees Retirement Association police and fire fund plan 

  3.3  described in subdivision 2 died from conditions resulting from 

  3.4  the April 29, 1997 injury.  Notice of the hearing must be 

  3.5  provided within 30 days of the effective date of this section 

  3.6  and the hearing must be held as soon as practicable after the 

  3.7  notice is provided.  The findings of the administrative law 

  3.8  judge must be filed with the executive director of the Public 

  3.9  Employees Retirement Association, the eligible individual under 

  3.10 subdivision 2, and the executive director of the Legislative 

  3.11 Commission on Pensions and Retirement. 

  3.12    (b) Benefits are payable under this section if the 

  3.13 administrative law judge concludes that the individual's death 

  3.14 on March 13, 1999, was caused by conditions resulting from the 

  3.15 April 29, 1977, injury. 

  3.16    (c) The eligible individual under subdivision 2 must 

  3.17 provide the executive director of the Public Employees 

  3.18 Retirement Association with all relevant documentation to verify 

  3.19 that all remaining eligibility requirements in this section are 

  3.20 satisfied and with any other applicable information that the 

  3.21 executive director may request. 

  3.22    Sec. 2.  EFFECTIVE DATE. 

  3.23    Section 1 is effective the day following final enactment." 

  3.24    Amend the title as follows: 

  3.25    Page 1, line 4, after "benefit" insert "and retroactive 

  3.26 disability benefit"

LCPR04-062

  1.1     ............... moves to amend LCPR04-061, the delete all 

  1.2  amendment to H.F. No. 1435; S.F. No. 1352, as follows: 

  1.3     Page 1, line 31, after "that" insert ", as of date,"

LCPR04-063

  1.1     ............... moves to amend LCPR04-061, the delete all 

  1.2  amendment to H.F. No. 1435; S.F. No. 1352, as follows: 

  1.3     Page 1, line 23, after "is" insert "... percent of" 

  1.4     Page 1, line 24, after "plus" insert "... percent of"

LCPR04-064

  1.1     ............... moves to amend LCPR04-061, the delete all 

  1.2  amendment to H.F. No. 1435; S.F. No. 1352, as follows: 

  1.3     Page 2, line 34, delete "ADMINISTRATIVE HEARING;" and 

  1.4  delete "(a)" 

  1.5     Page 2, delete lines 35 to 36 

  1.6     Page 3, delete lines 1 to 15 

  1.7     Page 3, line 16, delete "(c)" 

  1.8     Page 3, line 19, delete "that all remaining" and delete 

  1.9  "requirements" and insert "for the benefits provided" and delete 

  1.10 "are" 

  1.11    Page 3, line 20, delete "satisfied"

LCPR04-065

  1.1     ............... moves to amend LCPR04-061, the delete all 

  1.2  amendment to H.F. No. 1435; S.F. No. 1352, as follows: 

  1.3     Page 3, after line 21, insert: 

  1.4     "(d) If benefits are not payable under this section, the 

  1.5  cost of the administrative hearing required by this subdivision 

  1.6  shall be paid by the surviving spouse identified in subdivision 

  1.7  2.  The executive director may require the surviving spouse to 

  1.8  provide a payment to the Public Employees Retirement Association 

  1.9  before a date is set for the administrative hearing sufficient 

  1.10 to cover all expected costs of the hearing."