LM030404-3

TO:	Members of the Legislative Commission on Pensions and Retirement
FROM:	Lawrence A. Martin, Executive Director
RE:	H.F. ____ ( ); S.F. 2280 (Pogemiller): PERA Plans; Exemption from Reemployed Annuitant Earnings Limitation for Metropolitan Airports Commission Police
DATE:	March 4, 2004

Summary of H.F. ____ ( ); S.F. 2280 (Pogemiller)

H.F. ____ ( ); S.F. 2280 (Pogemiller) would exempt retired members of 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 Local Government Correctional Employees Retirement Plan of the Public Employees Retirement Association (PERA-Correctional) who are employed by the police department of the Metropolitan Airports Commission (MAC) as peace officers from the PERA reemployed annuitant earnings limitation for a three-year period, July 1, 2004, to June 30, 2007.

Background Information on Reemployed Earnings Limitations

In Minnesota public pension plans, the public employee must terminate from active public employment with the employing unit in order to initially qualify to receive the public employee retirement annuity. If the individual’s public pension plan has a reemployed annuitant earnings limit provision, the individual often (but not always) will be subject to that reemployed earnings law if the individual returns to public employment with pension coverage in the same public pension system.

These reemployed annuitant provisions in Minnesota public pension plans bear similarity to the Social Security Administration (SSA) system but are far less global in scope. Under the SSA system, the benefit reductions would be applied to any SSA benefit recipient under age 70 who exceeded the maximum permissible exempt salary earnings, regardless of the employer, applicable for the individual’s age. In contrast, if a Minnesota public pension plan has a reemployed annuitant earnings provision, reductions or suspension of the annuity by the plan will occur for those with salary income in excess of exempt amounts from employment covered by the same pension plan. A Public Employees Retirement Association (PERA) annuitant who becomes reemployed in a position covered by the Minnesota State Retirement System (MSRS), the Teachers Retirement Association (TRA), or any other public pension system, would not be subject to the reemployed annuitant provisions in PERA law. Also, no Minnesota public pension plan benefit reductions would occur if the annuitant subsequently becomes employed in the private sector.

Even within the same public pension system, reemployed annuitant reductions may not apply if the individual becomes employed in a position covered by another plan within the system. Typically, laws have been constructed or interpreted in a way that applies reemployed annuitant earnings provisions if an annuitant from one plan in a system becomes employed by another plan in that same system providing that both plans were originally created within that system. A Public Employees Police and Fire Retirement Plan (PERA-P&F) annuitant who becomes reemployed in PERA-General covered employment will be subject to PERA’s reemployed annuitant provision. However, a retiree from the State Patrol Plan who becomes reemployed in an MSRS-General covered position faces no penalties. The State Patrol Plan was originally not administered by MSRS. It was moved into MSRS for administrative purposes in 1969. The State Patrol Plan has no reemployed annuitant earnings provision in the plan, and the provision in MSRS-General law has been interpreted as not applying to State Patrol annuitants.

Reemployed annuitant earnings limitations in Minnesota law support the requirement that a public employee must terminate the employment relationship in order to receive a retirement benefit. The limitations ensure that politically connected public employees cannot manipulate the personnel system and also maximize their income by drawing a full retirement benefit along with a full salary. In doing this, the reemployed annuitant earnings limitations follow one of the traditional purposes for a retirement plan, which is to assist the personnel system in producing an orderly and systematic out-transitioning of senior employees who have reached the end of their normal working lifetime.

However, when reemployed annuitant earnings limitations do not apply uniformly, when some plans have no limits, when the limitations impact differently when applicable, or when no limitations apply to most reemployed annuitant situations (i.e., a public plan annuitant employed by a private sector employer or by a public sector employer of a different level or branch of government), the basic fairness of the limitations can be questioned.

The chart below provides information on the reemployed annuitant laws in Minnesota’s public plans. The chart indicates that many plans have these provisions, but many others do not. For those plans that have the limitation provisions, all base the maximum exempt salary on those used by SSA. However, the actions that follow once the exempt salary is exceeded vary between retirement plans. Reduction procedures often do not match the reduction amounts used by SSA, which is a $1 reduction in benefits for every $2 of excess income if the individual is less than age 65, and a $1 reduction for every $3 in excess income of the individual is age 65 through 69. The following chart indicates the considerable lack of uniformity that currently exists in the various reemployed annuitant earnings limitation statutes:

Retirement Plan	Applicable Compensation	Limit Threshold	Effect After Threshold Exceeded	Reemployment Period Retirement Coverage	Exceptions
General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General)	Salary or wages from State of from employer of MSRS-General members	Social Security maximums ($9,600 annually if under age 65; $15,500 annually if age 66-69 (1999))	Suspension of annuity for the balance of the calendar year or until reemployment termination	No retirement coverage	No application to service as temporary legislative employee. Suspension lifted during any sick leave
State Correctional Employees Retirement Plan of the MSRS (MSRS-Correctional)	Same as MSRS-General	Same as MSRS-General	Same as MSRS-General	Same as MSRS-General	Same as MSRS-General
State Patrol Retirement Plan	No provision	No provision	No provision	No provision	No provision
Legislators Retirement Plan	No provision	No provision	No provision	No provision	No provision
Elective State Officers Retirement Plan	No provision	No provision	No provision	No provision	No provision
Judges Retirement Plan	No provision	No provision	No provision	No provision	No provision
MSRS Unclassified State Employees Retirement Program	No provision	No provision	No provision	No provision	No provision
Public Employees Retirement Association (PERA)	Salary from governmental subdivision employment or public employee labor union employment	Social Security maximums ($9,600 annually if under age 65; $15,500 annually if age 66-69 (1999))	Suspension or reduction, whichever produces higher annual amount. Suspension of amount is for the balance of the calendar year or until re-employment termination. Reduction is one-half of the excess over the maximum if under age 65 and one-third of the excess over the maximum if age 66-69	No retirement coverage	No application to service as a local government elected official
Public Employees Police & Fire Fund (PERA-P&F)	Same as PERA	Same as PERA	Same as PERA	Same as PERA	Same as PERA
Teachers Retirement Association (TRA)	Income from teaching for employing unit covered by TRA, income from consultant or independent contractor teaching services for employing unit covered by TRA, or income received by comparable position if greater than actual income received	Social Security maximums ($9,600 annually if under age 65; $15,500 annually if age 66-69 (1999))	Reduction in following calendar year annuity of one-half of the excess over the maximum	No retirement coverage	No application to interim superintendents during a lifetime limit of three 90-day exemption periods or to reemployed retired Minnesota State Colleges and Universities faculty working between 33.3 and 66.7 percent of full time with salary under $46,000 or application to higher education salary over $46,000 if total higher education salary is greater than $46,000.
First Class City Teacher Retirement Fund Associations	Same as TRA, except for applicable employers	Same as TRA	Same as TRA, except reduction is one-third of excess over the maximum	Same as TRA	Same as TRA
Minneapolis Employees Retirement Fund (MERF)	No provision	No provision	No provision	No provision	No provision
Local Police and Salaried Firefighter Relief Association	Typically no provision	Typically no provision	Typically no provision	Typically no provision	Typically no provision

The Minnesota public retirement plan reemployed annuitant earnings provisions are tied to the maximum exempt reemployment salary amounts used by the Social Security Administration (SSA). The SSA maximum salary earnings limitations for continued receipt of full benefit amounts under the federal Old Age, Survivors and Disability Insurance Program (i.e., Social Security) are used by the SSA to determine whether Social Security benefits must be reduced because the individual has salary or self-employment income in excess of the maximums permitted under federal law for continued full receipt of those benefits. The following summarizes the maximum Social Security earnings amounts, both at age 65 and under age 65:

Year	Age 65 and Under Age 70	Under Age 65	Consumer Price Index Percent Increase	Age 65 and Under Age 70, Inflation Adjusted 1985 Amounts	Under Age 65 Inflation Adjusted 1985 Amounts
1985	$7,320	$5,400	3.7%	$7,320	$5,400
1986	7,800	5,760	1.7	7,590	5,599
1987	8,160	6,000	3.7	7,720	5,695
1988	8,400	6,120	3.9	8,005	5,906
1989	8,880	6,480	5.2	8,317	6,136
1990	9,360	6,840	4.7	9,092	6,455
1991	9,720	7,080	4.7	9,519	6,758
1992	10,200	7,440	3.1	9,966	7,076
1993	10,560	7,680	2.8	10,275	7,296
1994	11,160	8,040	2.8	10,562	7,499
1995	11,280	8,160	2.6	10,859	7,709
1996	12,500	8,280	3.0	11,141	7,910
1997	13,500	8,640	2.3	11,475	8,147
1998	14,500	9,120	1.5	11,739	8,334
1999	15,500	9,600	1.96	11,915	8,459
2000	17,000	10,080	3.73	12,153	8,629
2001	25,000	10,680	3.25	12,606	8,951
2002	30,000	11,280	1.58	12,805	9,092
2003	31,080	11,640	2.27	13,096	9,298

Discussion of H.F. ____ ( ); S.F. 2280 (Pogemiller)

H.F. ____ ( ); S.F. 2280 (Pogemiller) would provide relief from the Public Employees Retirement Association (PERA) reemployed annuitant earnings limitations for three years for retired members of the General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General), the Public Employees Police and Fire Retirement Plan (PERA-P&F), or the Local Government Correctional Employees Retirement Plan of the Public Employees Retirement Association (PERA-Correctional) who employed as peace officers by the Metropolitan Airports Commission (MAC).

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

Need for Change to Accommodate National Security Concerns. The policy issue is whether the proposed legislation is needed to accommodate activities at the Minneapolis-St. Paul Metropolitan Airport that are prompted by national security concerns. Information provided by David R. Erbel of Chaska, Minnesota, a former Carver County sheriff’s deputy who has retired from the Public Employees Police and Fire Retirement Plan (PERA-P&F) and who has been employed as a part-time police officer for the Metropolitan Airports Commission (MAC) Airport Police Department since November 2001, indicates that there are 17 part-time police officers employed by the MAC Airport Police Department, including three retired Minneapolis police officers. Mr. Erbel further notes that retired Minneapolis police officers who are retired members of the Minneapolis Police Relief Association and that retired police officers who are retired members of the State Patrol Retirement Plan are not subject to any reemployed annuitant earnings limitations, although PERA-P&F retirees are subject to reemployed annuitant earnings limitations. Mr. Erbel indicates that the Metropolitan Airports Commission (MAC) Airport Police Department has a greater need for retired police officers to serve as part-time peace officers under federal requirements since September 11, 2001, and that part-time MAC peace officers are requested to be employed for 122 shifts per year, or 1,037 hours, which would bring compensation of $23,851, and cause the part-time peace officers to exceed the PERA-P&F reemployed annuitant earnings limitation. Mr. Erbel further supports that reduced hours under the reemployed annuitant earnings limitations by retired part-time MAC peace officers receiving benefits from PERA-P&F will cause the MAC to incur unnecessary additional expenses from employing additional replacement part-time peace officers. The proposed legislation is argued by Mr. Erbel as assisting the MAC in broadening the pool of potential part-time peace officers. The proposed legislation, however, has not apparently been promoted by the MAC, the intended recipient of the benefits of the bill, but by one or more retired police officers. Testimony from the MAC may be necessary to determine its needs for part-time police officers and the availability of a pool of potential hirees.

Appropriateness of Including PERA-General and PERA-Correctional Retirees in the Exemption. The policy issue is the appropriateness of including in the proposed exemption from the PERA reemployed annuitant earnings limitation retirees who are not law enforcement officers in their pre-retirement employment. Although some PERA-General or PERA-Correctional retirees may currently be licensed police officers, it is likely to be uncommon. Unless there is some quantity of potential part-time police officers in the MAC pool of potential hirees, the inclusion of PERA-General or PERA-Correctional retirees is either unnecessary or is potentially open to misinterpretation. Testimony should be considered from the MAC to gain a sense of the potential retirees who are appropriate for inclusion in the proposed legislation.

Reemployed Annuitant Earnings Limitations Not Punitive. The policy issue is the potential that the adverse or punitive impact of the current the Public Employees Police and Fire Retirement Plan (PERA-P&F) reemployed annuitant earnings limitations is overstated or misinterpreted. The 2000 revisions of the limitations substantially eased the regulatory aspects of the provision, eliminating any benefit forfeiture and creating an interest-bearing account for the delayed payment of any benefit offset amount. As an example of how the reemployed annuitant earnings limitation provision operates, a hypothetical retiree of the Public Employees Police and Fire Retirement Plan (PERA-P&F) may be helpful. If the Social Security level of exempt earnings limitations are exceeded, the current Public Employees Retirement Association (PERA) provision, Minnesota Statutes, Section 353.37, requires PERA to either suspend the annuity or reduce the annuity (presumably in the subsequent year), by $1 for every two dollars earned in excess of the Social Security limitation (half the excess) if the individual is under age 65, or by $1 for every $3 earned in excess of the Social Security limitation (one-third of the excess) if the individual is age 65 to 69. Individuals age 70 or above are exempt from the reemployed annuitant provision. The first situation below shows the individual’s income, without reference to Social Security benefits, if the individual, with the pre-retirement salaries assumed in the example, is not reemployed. The second situation assumes the annuitant has $23,851 in reemployment income from PERA-P&F-covered reemployment under existing law.

PERA-P&F Annuitant Age 55
(2002 Annuitant Limits)

Final Five Years Salary
Year 1	50,104
Year 2	52,609
Year 3	55,240
Year 4	58,002
Year 5	60,902

Highest Five Successive Years Average Salary	$55,371.40
30 Years Service (first ten years with 1.2 % accrual rate per year; remaining years at 1.7% accrual rate)	x 0.46
PERA Annuity	$37,376 ($3,114.64/month)

	Situation 1:		Situation 2:		Situation 3:		Situation 4:
	PERA-P&F Annuitant With No Reemployment		PERA-P&F Annuitant With $23,851 Reemployment Income, Current Law		PERA-P&F Annuitant With No Earnings Limit		PERA-P&F Annuitant With Doubled Earnings Limit
Year	PERA-P&F Annuity	$37,376	PERA-P&F Annuity	$37,376	PERA-P&F Annuity	$37,376	PERA-P&F Annuity	$37,376
1			Reemployed Earnings	$23,851	Reemployed Earnings	$23,851	Reemployed Earnings	$23,851
	Total	$37,376	Total	$61,227	Total	$61,227	Total	$61,227

Year	PERA-P&F Annuity	$37,376	PERA-P&F Annuity:		PERA-P&F Annuity	$37,376	PERA-P&F Annuity:
2¹			Year 1 Earnings	$23,851	Reemployed Earnings	$23,851	Year 1 Earnings	$23,851
			Earnings Limit	$11,280			Earnings Limit	$22,560
			Excess Amount	$12,571			Excess Amount	$1,291
			$1 for $2 Reduction	$6,286			$1 for $2 Reduction	$646
			PERA-P&F Base Annuity	$37,376			PERA-P&F Base Annuity	$37,376
			Reduction	$6,286			Reduction	$646
			Remaining Annuity	$31,090			Remaining Annuity	$36,730
			Reemployed Earnings	$23,851			Reemployed Earnings	$23,851
	Total	$37,376	Total	$54,941	Total	$61,227	Total	$60,581

^{1 Year 2 annuity amount assumes no Minnesota Post Retirement Investment Fund post-retirement adjustments.}

The reduction amount under Situation 2 or 4 is not forfeited, but is deferred, earns six percent annual compound interest, and is payable at age 65 or one year after the termination of reemployment. Under the hypothetical, the $6,286 reduction amount under Situation 2 would grow to $6,663.16 after one year and the $646 reduction amount under Situation 4 would grow to $684.76 after one year.

Two-Year Exemption or Three-Year Exemption. The policy issue is the question of whether or not the proposed exemption should be for two years, as indicated in the title and the headnote, or for three years, as indicated in the language of the bill. The proposed exemption is argued as being necessary to assist the MAC in meeting law enforcement needs resulting from the September 11, 2001, terrorist attacks. The duration should be a function of the MAC’s perception of its need for an expanded pool of potential hirees for part-time law enforcement positions. Testimony from the MAC should be sought about the likely duration of its need for additional part-time police officers.

Precedent. The policy issue is the existence of current precedents for this requested change and the potential for the requested change to become a precedent for future special or general law requests. The Commission staff is not aware of any current precedent for the request. The proposed legislation, if enacted, would become a precedent for a considerable relaxation of the current limits or their total elimination. The reemployed annuitant earnings limitation represents the sole regulatory element dissuading employees to stage bogus retirements from public employment solely in order to collect a retirement annuity and a full public employment salary at the same time.

Need for Policy Consistency. The policy issue is the need for policy consistency in setting reemployed annuitant earnings limitations for all public pension plans. The State Patrol Retirement Plan, for instance, has no current reemployment limit and policy consistency would demand that a limitation be added to its law.