H.F. ____ ( ); S.F. 1856 (Bachmann) allows the Marine on St. Croix Volunteer Firefighters Relief Association to pay a full service pension with ten years of service credit, rather than the 20 years of service credit required by the generally applicable State law, Minnesota Statutes, Section 424A.02, Subdivision 2, and pays a prorated portion of the service pension with between five and ten years of volunteer fire service.

In Minnesota, volunteer firefighters typically have pension coverage as part of their compensation package and that pension coverage is provided by the various local volunteer firefighter relief associations. These volunteer firefighter relief associations are creatures of state law and are subject to various additional statutory regulations.

Under Minnesota Statutes, Section 424A.001, Subdivision 4, volunteer firefighter relief associations are required to be nonprofit corporations organized under Minnesota Statutes, Chapter 317A, the Minnesota Nonprofit Corporation Act. Minnesota Statutes, Chapters 69 and 424A, contain the additional regulation. A volunteer firefighter relief association is governed by a nine-member board of trustees, composed of the city mayor, the city finance manager, the municipal fire chief, and six elected firefighters. Minnesota Statutes, Section 424A.05, requires that every relief association establish and maintain a special fund. The special fund is the fund from which volunteer firefighter pension benefits are payable and into which state aid, municipal contributions, and other public money is deposited.

Minnesota Statutes, Chapter 424A, the primary statutory regulation, consists of specifying certain minimum eligibility requirements and certain benefit maximums, with the actual benefit plan assembled in the articles of incorporation or the bylaws of the particular volunteer firefighters relief association. The primary benefit coverage provided by a volunteer firefighters relief association is the service pension coverage, and the minimum eligibility requirements and benefit maximums largely relate to the service pension coverage. The minimum period for the receipt of a reduced service pension is five years of firefighting service and the minimum period for the receipt of an unreduced service pension is 20 years of firefighting service. Minnesota Statutes, Section 424A.10, requires a volunteer firefighters relief association that pays a lump sum service pension to pay a supplemental benefit from the relief association special fund to retiring firefighters who receive a lump sum service pension. The supplemental benefit is an amount equal to ten percent of the lump sum service pension paid, up to $1,000. The supplemental benefit is reimbursable to volunteer firefighter relief associations annually, in March, from the State General Fund by the Commissioner of Revenue.

The funding of volunteer firefighter relief associations is governed by the 1971 Volunteer Firefighters Relief Association Financing Guidelines Act, coded as Minnesota Statutes, Sections 69.771 through 69.775, and it requires annual municipal contributions if fire state aid is insufficient to fund the determined annual financial requirements of the volunteer firefighters relief association.

A vesting requirement is a requirement for a public pension plan member or beneficiary to obtain an enforceable entitlement to a pension benefit, typically the acquisition of credit for a specific minimum period of allowable service. Vesting requirements exist in defined benefit plans to provide a minimum threshold to be achieved before the pension plan member gains a non-forfeitable entitlement to an eventual retirement benefit. Vesting requirements can contribute significantly to the actuarial turnover gain that funds the retirement benefits payable to other public pension plan members.

Vesting requirements also reflect the contribution that public pension plan coverage is intended to provide to the public employing unit’s personnel system. The minimum vesting requirement for any retirement benefit and the minimum vesting requirement for a full retirement benefit will generally induce many public employees to continue in public employment for at least one of those periods of time.

The volunteer firefighter personnel system varies considerably in the 700+ localities in Minnesota with volunteer fire department coverage, with some localities providing a considerable compensation package to volunteer firefighters and other localities providing no compensation beyond the volunteer firefighters relief association service pension. A vesting period for the volunteer firefighters relief association service pension will allow a locality to recover any resources that it expended in training a volunteer firefighter and will reduce the turnover of firefighters which consequentially demands efforts to recruit new firefighters.

Current law, Minnesota Statutes, Section 424A.02, Subdivision 2, permits (if the volunteer firefighters relief association bylaws so provide) a partial benefit (40 percent of the amount of the earned service pension) with five years of volunteer fire service in that relief association, scaling up to the full earned service pension amount with 20 or more years of service. Most Minnesota volunteer firefighters relief associations (about 80 percent) provide lump sum service pensions, which are a designated number of dollars per year of service rendered for the fire department as a member of the relief association. The amount of lump sum service pensions in 2001 ranged from $25 per year of service credit (Nassau Volunteer Firefighters Relief Association) to $3,600 per year of service (Marshall Volunteer Firefighters Relief Association). For example, under the partial vesting provision, for a volunteer firefighters relief association providing a $500 lump sum service pension, a firefighter who terminates active fire service with ten years of service/relief association membership would be entitled to the following service pension amount:

($500 x 10 years) x .60) = $3,000

Before 1977, the minimum vesting period permitted by statute was 20 years of firefighting service. A shorter vesting period that was not necessarily supported by the volunteer fire community (as represented by the League of Minnesota Cities) was added in 1977, at the instigation of the then Pension Commission chair, but it was not widely implemented. As part of the 1979 revision of volunteer firefighters relief association laws assembled jointly by the Pension Commission staff, the Minnesota Fire Department Association, and the League of Minnesota Cities, the current vesting provision replaced the 1977 early vesting provision.

Five volunteer firefighter relief associations have special laws from before 1979 that provide vesting earlier than 20 years (Brooklyn Park (1975), Caledonia (1963), Dassel (1969), Golden Valley 91973), and Rockford (1976)). Only two volunteer firefighter relief associations have had special legislation enacted to provide early vesting since 1979, Minnetonka (Laws 1989, Chapter 319, Article 11, Section 5) and Eden Prairie (Laws 1995, Chapter 262, Article 10, Section 5).

The Minnetonka Volunteer Firefighters Relief Association early vesting was full proportional vesting at five years of service (i.e., for a $500 pension, a pension of $2,500 with five years and $5,000 with ten years). The Eden Prairie Volunteer Firefighters Relief Association early vesting was 40 percent of the accrued amount at five years up to 100 percent of the accrued amount at ten years (i.e., for a $500 pension, $1,000 at five years and $5,000 at ten years).

H.F. ____ ( ); S.F. 1856 (Bachmann) would allow for the payment by the Marine on St. Croix Volunteer Firefighter Relief Association of an unreduced service pension with ten years of service rather than the 20 years of service required by the applicable general volunteer firefighters relief association law and would downsize the reduction in the service pension amounts required of volunteer firefighters who terminate active Marine on St. Croix firefighting service with between five and ten years of service.

The proposed legislation raises several pension and related public policy questions, as follows:

1. Need to Accommodate Mobility. The policy issue is the appropriateness of attempting to accommodate the actual or perceived mobility of Marine on St. Croix Volunteer Firefighters Relief Association members. The proposed legislation apparently was initiated by a request from the Marine on St. Croix fire chief that was prompted by a perception that society is more mobile and that employers are requiring their employees to relocate more frequently than in the past. The service pension paid by the Marine on St. Croix Volunteer Firefighters Relief Association reportedly is the only compensation provided to Marine on St. Croix volunteer firefighters. Some volunteer firefighters in other jurisdictions in the State do receive hourly or "per run" compensation. Under the current law, which requires 20 years of service for a full service pension, when a Marine on St. Croix volunteer firefighter leaves the fire service with less than 20 years, all or a portion of the person’s individual account amount forfeits and ultimately directly increases the service pensions of all other active Marine on St. Croix volunteer firefighters. The attempt to accommodate employment and residential mobility could attract new volunteer firefighters and accommodate a mobile volunteer firefighter workforce, but could come at the cost of a shortened period during which the Marine on St. Croix fire department could recover the expense of training volunteer firefighters. Municipalities (and many senior, long-service volunteer firefighters) desire stability in their volunteer firefighter workforce and to recover training costs by extended volunteer firefighter service, arguing for longer vesting periods, while new potential firefighters and firefighters who may change residences frequently seek more flexibility in volunteer firefighter benefits, arguing for shorter vesting periods.

2. Financial Impact of the Proposed Change. The policy issue is the ability of the Marine on St. Croix Volunteer Firefighters Relief Association and its firefighter members to bear the financial impact of the proposed vesting acceleration. The Marine on St. Croix Volunteer Firefighters Relief Association is different than the usual Minnesota volunteer firefighters relief association, since it provides a defined contribution service pension (sometimes referred to as a split-the-pie or individual retirement account benefit), rather than a defined benefit service pension (typically a lump sum service credit).

   As of December 31, 2002, the most recent available financial information from the Office of the State Auditor for the Marine on St. Croix Volunteer Firefighters Relief Association, the financial situation of the plan is as follows:

Because the Marine on St. Croix Volunteer Firefighters Relief Association is a defined contribution plan and because defined contribution plans are fully funded, there will not be any adverse financial impact on the relief association caused by the change. As a defined contribution plan, any turnover-related benefit forfeitures by short service Marine on St. Croix volunteer firefighters currently get reallocated to the remaining long-service Marine on St. Croix volunteer firefighters and the proposed change will reduce this positive impact on their benefits. If the Marine on St. Croix Volunteer Firefighters Relief Association, as an organization, supports the change, it can be assumed that the current relief association membership has assessed this potential adverse impact and is knowledgeably foregoing that potential gain due to equitable or other considerations. If the proposed special legislation for the Marine on St. Croix Volunteer Firefighters Relief Association was enacted, it would require local approval by the Marine on St. Croix city council and would need to be implemented by a relief association bylaw change that would be accomplished locally and about which any disgruntled relief association members could make their dissatisfaction known at that time.

3. Precedent. The policy issue is the prior precedent for the change and the potential for the proposed change to become a precedent for further adverse legislation. Any volunteer firefighter special law proposal also raises precedent issues, because there are 700 Minnesota volunteer firefighter relief associations. The Legislature has approved earlier vesting for two volunteer firefighter relief associations in recent years, for the Eden Prairie Volunteer Firefighters Relief Association and for the Minnetonka Volunteer Firefighters Relief Association. The Minnetonka Volunteer Firefighters Relief Association early vesting was full proportional vesting at five years of service (i.e., for a $500 pension, a pension of $2,500 with five years and $5,000 with ten years). The Eden Prairie Volunteer Firefighters Relief Association early vesting was 40 percent of the accrued amount at five years up to 100 percent of the accrued amount at ten years (i.e., for a $500 pension, $1,000 at five years and $5,000 at ten years). The early vesting special legislation for the Eden Prairie Volunteer Firefighters Relief Association in 1995 and for the Minnetonka Volunteer Firefighters Relief Association in 1989 were not controversial proposals, although the reason or reasons for that lack of controversy are not self evident and may not necessarily be replicated with this proposed change. In 1989, the Legislative Commission on Pensions and Retirement did not function in its normal manner, so much of the pension legislation that passed that year received less scrutiny than normal. The 1995 Eden Prairie legislation was less generous than the 1989 Minnetonka legislation and potentially was less controversial as a result. The two cities involved also supported the proposed legislation, further reducing their controversy.

4. Support by Community of Interest. The policy issue is the extent of support by the various organizations with an interest in volunteer fire department staffing issues and volunteer fire benefit issues. There are four groups with an interest in volunteer fire issues, the Minnesota Fire Department Association, the Minnesota State Fire Chiefs Association, the League of Minnesota Cities, and the Minnesota Area Relief Association Coalition (MARAC). Although the proposed legislation is special legislation for one locality and should not be subject to a veto by any statewide organization, the reactions to the proposed legislation by the statewide interest communities will be a measure of the precedence value of the proposal and will be an indicator of any potential personnel and fire service provision problems inherent in the change.

5. Appropriateness of Recasting the Proposal as General Legislation. The policy issue is the appropriateness of converting the proposed special legislation to general legislation. If employment mobility by current and potential volunteer firefighters is of concern to the broader volunteer fire community, as may be indicated by the reaction of the four organizations with an interest in the topic discussed in policy issue number 4, it may be appropriate to recast the proposal as general legislation. If the Marine on St. Croix Volunteer Firefighter Relief Association is a harbinger of developments in the future and there is statewide interest (or at least a lack of animosity) in making the proposed change applicable more broadly, the proposed legislation could be readily converted into general legislation. General legislation relating to a statewide issue is more appropriate than numerous special legislation enactments and the adoption of general legislation early would save the legislative time that could be consumed by processing numerous special legislation bills. Amendment LCPR04-069 provides the mechanism for converting the special legislation into general legislation.

6. Extent of Municipal Support. The policy issue is the extent of support by the City of Marine on St. Croix for the proposed change. When the Legislative Commission on Pensions and Retirement processes local legislation, it generally requires an indication of support by the governing body of the applicable municipality. The expression of municipal support will avoid wasting legislative time in enacting local legislation that might be unlikely to receive local approval. The best way for the City of Marine on St. Croix to express its support for the proposed change is a city council resolution. No Marine on St. Croix city council indication of support has been forwarded to the Commission office.