This memorandum and the attached draft amendment LCPR04-109 are in response to your request of March 1, 2004, transmitted by Ms. Helene Johnson, for the preparation of a legislative vehicle to assist the employees of the privatizing Government Training Service in retaining their current retirement coverage.

Government Training Service was created in 1976 as a joint powers organization and is currently governed by a board of 19 representatives from the Association of Minnesota Counties, the League of Minnesota Cities, the Minnesota Association of Townships, the Minnesota Regional Development Organizations, the Minnesota School Boards Association, the Minnesota State Colleges and Universities System, the State of Minnesota, and the University of Minnesota.

Currently, Government Training Service employs seven persons, with five full-time employees and two part-time employees. The Government Training Service employees currently have retirement coverage by the General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General).

Government Training Service is privatizing in the near future and will become a nonprofit organization to be known as Government Training Services. Unless legislation is enacted to provide differently, Government Training Service employees will lose their future PERA-General retirement coverage upon its privatization. The employees of Government Training Service desire to continue coverage by PERA-General after privatization.

Potential amendment LCPR04-109 is proposed special legislation that would continue the current Government Training Service employees in retirement coverage by the General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General) after privatization of the organization and would include the new organization, Government Training Services, as a governmental subdivision under PERA law so long as any of the current Government Training Service employees continue in the employment of Government Training Services.

Draft amendment LCPR04-109 continues General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General) retirement coverage for the current employees of Government Training Service after the privatization of the organization as Government Training Services.

The draft amendment raises several pension and related public policy issues, as follows:

1. Appropriateness of the Proposed Continued Retirement Coverage Eligibility. The policy issue is the appropriateness of continued retirement coverage by the General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General) for the current employees of the Government Training Service after privatization as Government Training Services. The draft amendment would continue in PERA-General coverage for the existing seven employees (five full time and two part time) for the remainder of their careers with Government Training Services. The draft amendment would represent a shift from recent policy, where privatized employees have been granted enhanced deferred member public pension rights, but have not been continued in future public pension coverage. Continued public pension coverage was provided for the St. Paul-Ramsey County Hospital (1986), the Gillette Children’s Hospital (1988), and the Foster/Wheeler Inc./University of Minnesota steam plant (1993), but has not been utilized by the Legislature for a privatization since 1993. The applicable public pension plans have opposed the continuation of privatized employees in public pension coverage because of a potential threat that those inclusions bring to continued treatment by the federal government as governmental pension plans. The issue has largely been resolved, with incorporations of de minimis members of private sector employees determined by the federal government not to challenge the categorization of the plan as a governmental plan. Continued public pension coverage for privatized employees as requested by the Government Training Service employees will eliminate any disruption in future pension coverage from the privatization, but may increase the future pension cost of the new privatized employer and will result in different, potentially unequal or inconsistent, pension coverage of the privatized employer’s workforce over time.

2. Appropriateness of the Inclusion in the PERA-General Privatized Employee Chapter. The policy issue is the appropriateness of treating the Government Training Service employees in an alternative manner consistent with recent privatizations. The alternative, in draft amendment LCPR04-110, attached, would be to include Government Training Services employees in Minnesota Statutes, Chapter 353F, the PERA privatized public employee law. Minnesota Statutes, Chapter 353F, which represents the current Commission policy on privatizations, provides the following special coverage provisions to the privatized employees:

   1. Vested Benefit with Any Service Length. The normal three-year PERA vesting period is waived, so a privatized employee with less than three years of PERA-covered service would be entitled to receive a PERA retirement annuity, notwithstanding general law.

   2. Increased Deferred Annuity Augmentation Rate. For the period between the date of privatization and the date of eventual retirement, the privatized employee’s deferred PERA retirement annuity will increase at the rate of 5.5 percent rather than three percent until age 55 and at the rate of 7.5 percent rather than five percent after age 54.

   3. "Rule of 90" Eligibility with Post-Privatization Service. For privatized employees with actual or potential long service who could have retired early with an unreduced retirement annuity from PERA under the "Rule of 90" (combination of age and total service credit totals 90), the employee will be able to count future privatized service with the hospital for eligibility purposes, but not for benefit computation purposes.

   Inclusion in Minnesota Statutes, Chapter 353F, has required that the PERA-General actuarial gain resulting from the privatization must equal or exceed the actuarial cost of the special coverage, based on special actuarial work done by the consulting actuary retained by the Commission and paid for by the affected employing unit.

3. Precedent. The policy issue is the existing precedent for the draft privatization amendment and the potential for the draft privatization amendment to become a precedent for additional future legislation. The past precedents are Laws 1986, Chapter 462 (St. Paul-Ramsey Hospital privatization), Laws 1988, Chapter 599 (Gillette Children’s Hospital), and Laws 1993, Chapter 307, Article 1 (University of Minnesota steam plant). The past precedents have all occurred before 1999, when the General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General) privatization chapter, Minnesota Statutes, Chapter 353F, was created. If a change in Commission policy occurs in this instance, other privatizations may cite the Government Training Service privatization as a precedent for similar treatment. Unless there is a clear legislative record on which to distinguish the Government Training Service privatization and its pension treatment, the draft amendment could complicate Commission deliberations on future privatizations.