H.F. 1975 (Dempsey); S.F. 1756 (Murphy) amends Minnesota Statutes, Section 353.651, Subdivisions 1 and 4, the Public Employees Police and Fire Retirement Plan (PERA-P&F) provisions that govern normal and early retirement age and service requirements, by replacing the word "separation" with "termination" and by limiting the required employment termination to employment covered by PERA-P&F. The proposed legislation is intended to allow a police officer who is also a Goodhue county commissioner to be able to retire from the Public Employees Police and Fire Retirement Plan (PERA-P&F) while continuing county elective service and retirement coverage by the General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General).

Amendment LCPR04-145 allows a current Red Wing police officer, covered for that employment by the Public Employees Police and Fire Retirement Plan (PERA-P&F), who is also a Goodhue county commissioner, covered for that employment by the General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General), to be able to retire from PERA-P&F, continue in the county commissioner service, and elect either to take a refund of past PERA-General member contributions or to have the past PERA-General member and employer contributions transferred to an account established on his behalf in the Public Employees Defined Contribution Retirement Plan.

Background Information on the Public Employees Police and Fire Retirement Plan (PERA-P&F). The Public Employees Police and Fire Retirement Plan (PERA-P&F) was established in 1959 (Laws 1959, Chapter 650), to assist police officers and firefighters employed by local government. Prior to 1959, local government public safety employees were covered by the General Employee Retirement Plan of the Public Employee Retirement Association (PERA-General). Initially, PERA-P&F coverage applied to any public employee in law enforcement or fire suppression, but the membership qualifications were refined as the licensing of police officers began in the 1970’s. Currently, PERA-P&F membership requires that the employee meet the following:

1. Police Employment. Employment must be as a police officer by a municipal police department or a county sheriff’s office.

2. Primary Law Enforcement Function. Primary employment function must be to enforce the law.

3. POST Board Licensure. Peace officer must be licensed by the Peace Officers Standards and Training Board (POST Board).

4. Property and Safety Protection. Peace officer must be engaged in the hazards of protecting the property and safety of others.

5. Arrest With a Warrant. Peace officer must be empowered to arrest with a warrant.

Since 1959, all newly employed county deputy sheriffs have pension coverage by PERA-P&F and since 1980, all newly employed municipal police officers have pension coverage by PERA-P&F.

As a public safety employer pension plan, PERA-P&F pays larger retirement annuities, disability benefits, and survivor benefits than a general employee retirement plan and has an earlier normal retirement age for the retirement annuity. Because of these benefit plan differences, the plan has a greater actuarial cost and greater member and employer contributions than a general employee retirement plan. As law enforcement officers, members of the PERA-P&F are not covered by Social Security under both state and federal law for their law enforcement employment.

The policy reason for having a more lucrative benefit program for public safety employee retirement plans is that public safety employment (police officer or firefighter service) is particularly hazardous, that it requires the maintenance of a particularly vigorous and robust workforce to meet the strenuous requirements of the employment position, and that the normally expected working career of a public safety employee will be significantly curtailed as a consequence of the hazards and strenuous requirements of that type of employment when compared to a general public employee. Public employee pension plans are intended to assist the governmental personnel system by encouraging the recruitment of qualified and motivated new employers, the retention of able and valued existing employees, and the orderly and predictable outtransitioning of employees at the expected end or normal conclusion of their working career. For public safety employees, public safety employee retirement plans provide more lucrative benefits to assist in the recruitment and retention of new and existing personnel, but most clearly emphasize the outtransitioning function.

The General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General) is governed by Minnesota Statutes, Chapter 353, and various other provisions of law. It is a defined benefit retirement plan that provides disability coverage, survivor benefits, and retirement coverage to over 137,000 non-public safety employees throughout the state. PERA-General provides coverage to public employees (other than public safety employees) who work for the counties, cities, and in non-teaching positions in school districts. PERA currently has over 43,000 retirees and 29,000 deferred retirees. PERA-General assets exceed $11 billion, but liabilities exceed $12.9 billion, creating a funding ratio of 85 percent.

PERA-General is a defined benefit plan, meaning that the retirement benefit the plan provides is determined by formulas in law, which are based on the average of salary close to retirement (the average of the five consecutive years that provides the highest average salary), the percentage of that high-five salary that the individual receives per year of service (called an accrual rate), and the number of years of service. For an individual who started local government employment after 1989, the normal retirement age is 66. That is the age at which an individual, following termination of covered service, can receive an annuity without any penalty due to early commencement of the benefit. Under law, a terminated employee may begin drawing annuity as early as age 55, but with a reduction due to early retirement.

In PERA-General or in any other of our defined benefit plans for paid public employees, the individual must terminate from the covered public employment prior to drawing the annuity. An individual cannot be an active member of a plan (in other words, an individual who continues to provide service covered by the plan and who makes contributions due to that service) and draw an annuity. This reflects the basic idea that retirement benefits are for retirees.

The PERA Defined Contribution Retirement Plan, governed under Minnesota Statutes, Chapter 353D, and various other law, is an entirely different type of plan than PERA-General. Under a defined contribution plan, the benefit is not specified; rather, the contribution rates to the plan are specified or defined in law. The eventual benefit is determined by the accumulated value of the contributions made to the individual’s account over time, plus the investment earnings on those contributions. The account’s value at the time of retirement or disability is referred to as the "terminal value." The monthly benefit that can be paid is the monthly value that can be supported given the terminal value and the individual’s expected remaining lifetime. Under the Defined Contribution Retirement Plan, the terminal value is payable in a lump sum at the withdrawal date, or the individual may specify that the amount be transferred to an insurance company or other annuity provider, with the proceeds used to purchase an annuity.

The Defined Contribution Retirement Plan began in 1987, with the enactment by the Legislature of a defined contribution plan (the Ambulance Service Retirement Fund) for certain basic and advanced life support emergency medical service personnel. In 1990, the plan was renamed the Public Employees Defined Contribution Retirement Plan and membership was expanded to include elected and appointed local government officials other than county sheriffs (county sheriffs are members of the Public Employees Police and Fire Retirement Plan). Because of the change in possible coverage, local government officials who were PERA-General members were given a chance to elect, prior to July 1, 1990, to terminate PERA-General coverage and to become members of the defined contribution plan, retaining a right in PERA-General to a refund or deferred annuity. If a local elected official did not have PERA-General coverage or coverage by some other plan for the prior elected service, the participating elected local government official was authorized to make prior service contributions to the defined contribution plan equal to the contributions that would have occurred if the plan had been in effect, plus six percent interest. Defined Contribution Retirement Plan coverage was again expanded in 1996 to allow certain physicians who are local government employees to elect Defined Contribution Retirement Plan coverage rather than PERA-General.

H.F. 1975 (Dempsey); S.F. 1756 (Murphy), as amended by Amendment LCPR04-145, would permit a Red Wing city police officer who is also a Goodhue county commissioner to retire from the Public Employees Police and Fire Plan (PERA-P&F), continue being a Goodhue county commissioner without affecting the PERA-P&F annuity receipt, and to choose either a lump sum refund of the prior General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General) member contributions or a transfer of prior PERA-General contributions to the Public Employees Defined Contribution Retirement Plan.

The proposed legislation, as amended, raises several pension and related public policy issues that may merit Commission consideration, as follows:

1. Sufficient Need for Legislative Action. The policy issue is whether this situation warrants legislative attention given the other matters before the Commission and the Legislature during this session. The Red Wing city police officer/Goodhue county commissioner apparently is not scheduled to retire from the Public Employees Police and Fire Plan (PERA-P&F) in the near future, so there would be an opportunity to deal with this issue in the next legislative session.

2. Personal Responsibility; Equity Issues. The policy issue is whether or not equitable considerations weigh in favor of or against the Red Wing city police officer/Goodhue county commissioner. Unless it can be documented that the person was somehow misled, the Commission may conclude that no legislative action is warranted. The person made a decision to be covered by the General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General) rather than the Public Employees Defined Contribution Retirement Plan for the county commissioner service in 1998. It is unclear why the person elected the PERA-General coverage over the Public Employees Defined Contributions Retirement Plan in 1998, but the decision has turned out not to be an optimal one. While the Legislature can reverse the bad decision, it may need some compelling reason why it should do so in this instance.

3. Prior Legislative Actions, Proper Model for Legislation. The policy issue is one of past precedents for the proposed legislation and the potential that the proposed legislation will become a precedent for additional future legislative requests. The amended proposed legislation is patterned after Laws 1998, Chapter 390, Article 3, Section 19, relating to a Suburban Hennepin County Regional Park District employee who also was a Minneapolis Park and Recreation Board elected member, and after First Special Session Laws 2003, Chapter 12, Article 15, Section 5, relating to a Beltrami County employee who was also a Bemidji city council member. The proposed legislation will be a precedent for future proposed legislation in similar circumstances.