0901lm6m

TO:	Members of the Legislative Commission on Pensions and Retirement
FROM:	Lawrence A. Martin, Executive Director
RE:	Designated Commission Interim Project; Review of Various 2001 Regular Session Benefit Increase Proposals (First Consideration)
DATE:	October 4, 2001

Introduction

As an interim study topic, the Commission chair, Senator Dean E. Johnson, has designated a review by the Commission of the various benefit increase proposals remaining from the 2001 Regular Legislative Session. The benefit increase proposals remaining from the 2001 Regular Session are:

S.F. 1179 (Johnson, D.E.); H.F. 1352 (Murphy): TRA; Modification of the Retirement Annuity Formula
S.F. 1379 (Tomassoni); H.F. 1565 (Murphy): MSRS; Redefinition of Final Average Salary and Contribution Rate Increases
S.F. 1439 (Johnson, D.E.); H.F. 1482 (Murphy): Various Plans; Various Retirement Provision Modifications
S.F. 1445 (Solon); H.F. 1532 (Murphy): DTRFA; Retirement Benefit Modifications
S.F. 1705 (Pogemiller); H.F. 1692 (Murphy): First Class City Teacher Retirement Plans; Retirement Benefit Modifications
S.F. 2116 (Lessard); H.F. 1811 (Anderson, I.): Judges; Clarification of Retirement Benefit Increase Effective Date
S.F. 2223 (Pogemiller); H.F. 2071 (Murphy): MTRFA and StPTRFA; Retirement Benefit Modifications

This meeting is expected to be the first Commission interim consideration of the various benefit increase proposals. Subsequent consideration by the Commission during the interim will be dependent upon Commission reaction to the proposals and subsequent directives by the Commission chair or requests by Commission members.

This Commission staff issue memorandum will summarize the seven benefit increase proposals remaining from the 2001 Regular Session, will summarize any available actuarial cost estimates related to the proposals, and will identify and discuss the other pension and related public policy issues arising from proposed legislation. The content of subsequent Commission staff issue memoranda will depend on Commission member reactions, questions, and directions during and following this consideration.

Background on the Affected Minnesota Public Retirement Plans

In General. The Minnesota public retirement plans affected by the seven benefit increase proposals are the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General), the MSRS Correctional State Employees Retirement Plan (MSRS-Correctional), the State patrol Retirement Plan, the Legislators Retirement Plan, the Elected State Officers Retirement Plan, the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General), the Public Employees Police and Fire Retirement Plan (PERA-P&F), the Teachers Retirement Association (TRA), the Duluth Teachers Retirement Fund Association (DTRFA), the Minneapolis Teachers Retirement Fund Association (MTRFA), the St. Paul Teachers Retirement Fund Association (StPTRFA), and the Judges Retirement Plan.
General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General). Employees of the State of Minnesota, in both the classified and unclassified service, plus many quasi State agency employees, are covered by the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General) unless specifically excluded by law. The retirement system was established in 1929 and was then named the State Employees Retirement Association (SERA) prior to 1967. The 1967 Legislative Session changed the system’s name to MSRS, and also made several organizational and administrative changes. The governing statues for MSRS are found in Minnesota Statutes, Section s 352, 355, 356, and 356A. The system today furnishes pension coverage for about 48,000 State employees, all of whom are also covered by Social Security. This dual coverage for retirement and related benefits is referred to as "coordinated" program coverage.

MSRS-General has been entirely coordinated with the federal Social Security program since 1957. At that time, coordination was available on an "all or none" basis. The then SERA members, by a majority vote in a Social Security coverage referendum, chose coordination. At the same time, and on the same basis of all or none coverage, the other two statewide funds, the General Employees Retirement Plan of the Public Employees Retirement Association (PERA) and the Teachers Retirement Association (TRA), held similar referenda, which were rejected by the existing membership of those plans.

The benefit plan has changed considerably since 1929. Significant plan changes have occurred in 1967, when retirement coverage and contributions were extended to full salary (up from a limit of $4,800 before 1965 and a limit of $7,200 before 1967), in 1969, when the Minnesota Post Retirement Investment Fund was created, in 1973, when the calculation of retirement benefits shifted from a career average salary to the highest five successive years average salary and the benefit accrual rates were simplified and increased, in 1989, when the "rule of 90" benefit tier was created, in 1992, when the Minnesota Post Retirement Investment Fund adjustments were increased, and in 1997, when the benefit accrual rates were increased to achieve "uniformity" among the various general employee retirement plans.

Correctional State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-Correctional). The Correctional State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-Correctional) was established in 1973 as a result of collective bargaining by the State of Minnesota with the American Federation of State, County and Municipal Employees, Council 6, and the resulting implementing legislation. Up to that point, correctional guards and most other correctional system employees were covered by General State Employees Retirement Plan (MSRS-General). Some correctional system employees were covered by the Teachers Retirement Association (TRA). MSRS-Correctional was created as a separate plan, with the membership in 1973 largely limited to correctional guards and correctional counselors in adult correctional facilities. In subsequent years, by amendments to the coverage group of the plan, the coverage group was expanded to include additional correctional positions in both adult and juvenile correctional facilities. In 1996, the MSRS-Correctional Plan membership was increased by more than 400 State employees by virtue of the inclusion of 33 additional employment classifications who were certified by the Department of Corrections or the Department of Human Services as having at least 75 percent inmate or patient contact. In 1999, the MSRS-Correctional Plan membership was increased by an estimated 115 State employees employed in nine employment positions with the Minnesota Extended Treatment Option (METO) on-campus program at the Cambridge Regional Human Services Center

The attraction of the MSRS-Correctional Plan for groups seeking this coverage is that the plan pays higher benefits than a general employee plan and has an earlier normal retirement age. Because of the better benefits and earlier retirement age, the plan is more costly than a regular employee plan. The plan offers a hybrid of general employee plan and public safety plan features. MSRS-Correctional Plan members are coordinated members, unlike Public Employees Retirement Association Police and Fire Plan (PERA-P&F) members. Like a public safety plan, members can retire without a reduction for early retirement at age 55 or with a reduction at age 50. This annuity is computed using a 2.4 percent yearly service benefit accrual factor. Duty-related disability benefits are generous, typical of a public safety plan. The duty-related disabilitant receives 50 percent of high five average salary, plus 2.4 percent of high five average salary for each year in excess of 20 years of allowable service. Also like a public safety plan, the MSRS-Correctional Plan uses an occupational definition of disability rather than the total impairment disability definition used by the MSRS-General Plan.

The premise for coverage by the MSRS-Correctional Plan is that certain employment positions in correctional or analogous security hospital or psychopathic personality treatment center service are sufficiently hazardous and there is sufficient need for a particularly vigorous workforce in these specific positions to warrant a separate plan with larger retirement benefits payable at an earlier normal retirement age.

The State Patrol Retirement Plan. The State Patrol Retirement Plan was established in 1943, (Laws 1943, Chapter 637) and initially provided retirement coverage solely for state highway patrol troopers. Currently, the State Patrol Retirement Plan provides retirement coverage for four distinct groups of law enforcement officers, the State Patrol Division of the Department of Public Safety, the Bureau of Criminal Apprehension of the Department of Public Safety, the Enforcement (Game Wardens) Division of the Department of Natural Resources, and the Gambling Enforcement Division of the Department of Public Safety. Separate retirement plans were established for game wardens (the Game Wardens Retirement Plan) in 1955 and for Bureau of Criminal Apprehension agents and officers (the State Police Retirement Plan) in 1961. The State Police Retirement Plan absorbed the Game Wardens Retirement Plan when it was created in 1961. In 1969, the State Police Retirement Plan was merged into the State Patrol Retirement Plan. In 1990, law enforcement officers in the Gambling Enforcement Division of the Department of Public Safety were added to the State Patrol Retirement Plan. With the exception of a small number of date processing personnel in the Bureau of Criminal Apprehension who were grandparented into the plan in 1987-1988, all members of the State Patrol Retirement Plan are peace officers licensed by the Peace Officers Standards and Training Board.

As a public safety employer pension plan, the State Patrol Retirement Plan 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 typically has a greater actuarial cost and greater member and employer contributions than a general employee retirement plan. As law enforcement officers, members of the State Patrol Retirement Plan are not covered by Social Security under both state and federal law for their state 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 out-transitioning 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 out-transitioning function.

The Legislators Retirement Plan. The Legislators Retirement Plan, governed by Minnesota Statutes, Chapter 3A, was enacted in 1965. It is the successor to the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General) as the retirement coverage for members of the Legislature. At that time, PERA-General was a basic plan and no contributions were made into the federal Social Security program for the covered service. PERA-General in 1965 used a career average salary and had back-loaded accrual rates, heavily favoring long time employees.

In 1965, when the Legislature created a separate Legislative Plan, current members and new members with prior PERA-General coverage had an option to retain PERA-General coverage. The motivation for establishing a separate Legislator's Plan probably came from a growing recognition that the back-loaded PERA-General Plan was not well suited to provide legislative retirement coverage, since the typical legislator would not be providing many decades of service. Prior to 1977, the Legislator's Plan provided a retirement benefit of 40 percent of the average monthly salary received during the final term of office for the first eight years of service, and an additional 2.5 percent per year for each year beyond eight.

Beginning with the 1979 session, the maximum benefit accrual rate for any new legislative service was set at 2.5 percent. This lower accrual rate was adopted in recognition of the changing nature of legislative work. Until the early 1970's, legislative salaries were minimal. In order to provide any meaningful retirement benefit, a high benefit accrual rate was used. As legislative salaries increased in recognition that legislative work was becoming more like a full-time occupation, the Legislature recognized that it needed to revise the benefit accrual rates downward. The legislative salary for pension purposes was redefined to exclude an additional compensation for leadership positions. A twenty-year cap on creditable service was also imposed. The Legislator's Plan was revised in 1978 and 1979 to use the high-five average salary rather than the average salary in the final term in office and the normal retirement age was increased from age 60 to age 62, with age 60 becoming the earliest age for retirement with a reduced annuity. Vesting for a retirement annuity was reduced from eight years to six years. In 1989, the definition of salary was changed to include regular and special session per diem payments, the deferred annuity augmentation rates were revised to three percent per year up to the year in which the ex-legislator becomes age 55, and five percent per year thereafter, the reduction factors for early retirement were revised to require a more substantial penalty, and the twenty-year cap on service credit was removed. Members who were no longer accruing service credit because their service exceeded 20 years were authorized to again begin accruing service credit. The 1989 removal of the Legislative Plan service credit cap was made retroactive in 1992. Long-term legislators, including those in deferred status, with uncredited service prior to June 2, 1989, were authorized to purchase service credit for the uncredited period and the affected legislators were required to contribute nine percent of salary received during the uncredited period plus six percent interest from the midpoint of the period of uncredited service to the date of payment. Payment had to be received prior to retirement or by January 1, 1994, whichever was earlier.

Members who were no longer accruing service credit because their service exceeded 20 years were authorized to again begin accruing service credit. The 1989 removal of the Legislative Plan service credit cap was made retroactive in 1992. Long-term legislators, including those in deferred status, with uncredited service prior to June 2, 1989, were authorized to purchase service credit for the uncredited period and the affected legislators were required to contribute nine percent of salary received during the uncredited period plus six percent interest from the midpoint of the period of uncredited service to the date of payment. Payment had to be received prior to retirement or by January 1, 1994, whichever was earlier.

In 1997, the annual benefit accrual rates for the Legislators Retirement Plan were increased from 5.00 percent (pre-1997 service) or 2.5 percent (post-1978 service) to that annual individual benefit accrual rate that has the same actuarial value as the one percent annual post retirement adjustment benefit reduction imposed by the same legislation. For new legislators first serving in office after July 1, 1997, retirement coverage will be by the Unclassified Employees Retirement Program of the Minnesota State Retirement System (MSRS-Unclassified), a defined contribution pension plan. An individual Social Security coverage election referendum was held and an opportunity to elect MSRS Unclassified coverage by pre-July 1, 1997 legislators was made available on July 1, 1998.

Elected State Officers Retirement Plan. The Elective State Officers Retirement Plan, governed by Minnesota Statutes, Chapter 352C, was enacted in 1967. The Elective State Officers Retirement Plan is the successor, in part, to the Attorney General Retirement Plan, established in 1953, and to the State Auditor Retirement Plan, established in 1955. The Attorney General Retirement Plan (Laws 1953, Chapter 455, Section 1) was a defined benefit plan, providing an age and service retirement annuity of one-half of the 1949-1950 salary for the office at the normal retirement age of 70 and with more than 25 years of total elective state officer service, including as a member of the legislature, and with at least 15 continuous years of service as the attorney general. The State Auditor Retirement Plan (Laws 1955, Chapter 648, Section 1) was also a defined benefit plan, providing an age and service retirement annuity of the 1955 salary for the office at the normal retirement age of 65 and with at least 25 years of total elective state office and election for seven consecutive terms as State Auditor.

In 1967, the Legislature created a retirement plan for the various elective state officers, including the elected members of the public service commission. The plan largely duplicated the Legislator’s Retirement Plan and undoubtedly was motivated by the establishment of that plan. The Elective State Officers Retirement Plan, originally named the Constitutional Officers Retirement Plan, contained a policy and intent provision, which noted that service as a constitutional officer is a unique contribution to the State and is dissimilar to any other public employment and further indicated that constitutional officer service equal to or longer than the vesting period of the plan, disrupts any opportunity for a constitutional officer to follow a more usual vocational pursuit and gain the accompanying retirement benefits. The 1967 Elective State Officers Retirement Plan was a defined benefit plan, with a ten year vesting period and an age 65 normal retirement age for an age and service retirement annuity of one half of salary after ten years of service, plus one percent for each year of subsequent service, to a maximum of 75 percent of covered salary. The retirement or surviving widow benefit received from the Elected State Officers Retirement Plan was to be reduced by any annuity received from another Minnesota public plan. Benefits from the Elected State Officers Retirement Plan were exempt from state taxes. No optional annuities were provided by the Elective State Officers Retirement Plan.

In 1969, vesting for the age and service retirement annuity was reduced to eight years, the benefit formula was changed by basing the annuity on average salary since January 1, 1965, rather than upon final salary, the individual would receive 40 percent of this average salary for the first eight years, and an additional two percent per year for each additional year, and for elected state officers who also had legislative service, service in both plans could be used for vesting and benefit computation purposes. In 1971, post retirement survivor benefits were extended to dependent children similar to that for the Legislator’s Plan, with the eldest dependent child to receive 25 percent of the primary annuity amount, and each additional child to receive 12.5 percent, up to a family maximum of 100 percent when the surviving spouse benefit is included.

In 1978, the two part retirement annuity benefit accrual rate was eliminated and replaced by a flat 2.5 percent accrual rate for all years of constitutional officer service, computed on the five highest successive years average salary, and the normal retirement age was reduced from age 65 to age 62, with a reduced retirement annuity permitted at age 60. In 1978, deferred annuities augmentation also was added to the plan, the vesting for pre-retirement survivor benefits was made immediate, and the required reduction of Elective State Officers Retirement Plan benefits by any other Minnesota public pension plan benefits was eliminated. In 1983, the exemption of Elective State Officers Retirement Plan benefits from State taxation was eliminated. In 1986, the surviving widow benefits were converted to surviving spouse benefits. In 1990, the practice of discontinuing surviving spouse benefits upon remarriage was eliminated and the interest rate on member contribution refunds was increased to six percent. In 1992, the interest rate charged on a repayment of previously taken member contribution refunds was increased to 8.5 percent. In 1996, a designated beneficiary death refund was authorized for Elective State Officers Retirement Plan participants who die without a surviving spouse or surviving child.

In 1997, the annual benefit accrual rate was increased from 2.5 percent to that annual individually calculated benefit accrual rate that has the same actuarial value as the one percent annual post retirement adjustment benefit reduction imposed by Laws 1997, Chapter 233, Article 1, Section 5. For new constitutional officers first serving in office after July 1, 1997, retirement coverage will be by the Unclassified Employees Retirement Program of the Minnesota State Retirement System (MSRS-Unclassified), a defined contribution pension plan. An individual Social Security coverage election referendum was held and all incumbent constitutional officers on July 1, 1998 elected MSRS Unclassified coverage.

The General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General). The Public Employees Retirement Association (PERA) was established in 1931. The legislation governing the plan was modeled heavily on the 1929 law governing the State Employees Retirement Association (SERA), renamed in 1969 as the Minnesota State Retirement System (MSRS). PERA was the third major statewide public pension plan established by the Legislature, following the creation of the predecessor to the Teachers Retirement Association (TRA) in 1915 and the creation of SERA in 1929. PERA was the second public pension plan that was established by the Legislature for local government general (not specifically police or fire) employees, after the Minneapolis Municipal Employees Retirement Plan (now the Minneapolis Employees Retirement Fund (MERF)) in 1919. The 1931 PERA plan was the predecessor to the current PERA General Employee Retirement Plan.

Because PERA preceded the creation of the Social Security system (federal Old Age, Survivors, and Disability Insurance Program (OASDI)) and because Social Security initially did not extend to federal, state, or local government employees, PERA was a "basic" program. This means that the public employee’s entire retirement benefit comes from the public pension plan, without any Social Security benefit. PERA coordinated with Social Security for hospital employees in 1963 and for other local government employees in 1967.

The 1931 PERA plan membership was optional for governmental subdivisions and, if the governmental subdivision elected to be a participating employer, was optional for employees employed before April 24, 1931, and was mandatory for employees employed after April 23, 1931. All counties, all first (except Minneapolis), second, and third class cities, including home rule cities, all public schools (except the Minneapolis Public Schools), and all villages with a population of at least 7,000 were eligible to be participating employers. Employees of a participating employer who were not paid in whole or in part from public funds, or who were covered by another public pension plan, or who were temporary employees, or who had an average length of employment annually of less than six months were excluded from PERA membership.

In 1974, until 1977, the minimum salary threshold for PERA membership was increased to $150 in any month during a year, or $1,800 annually. The minimum salary threshold for PERA membership was increased in 1977 to $250 in any month during a year or $3,000 annually in 1977. In 1981, the minimum salary threshold for PERA membership increased to $325 in any month during the year, or $3,900 annually. The minimum salary threshold for PERA membership was set at $425 in any month during the year or $5,100 annually in 1988. In 2001, the exclusion from PERA membership was shifted from a minimum threshold salary to a minimum number of calendar days (185) per business year.

The 1931 PERA benefit plan provided a superannuation benefit at age 65 with 20 years of service credit or at any age with 35 years of service credit in an amount equal to 50 percent of the person‘s final five years of service, to a maximum of $150 per month, and subject to reduction if annual contributions to the pension plan were less than the total superannuation annuities payable. The superannuation annuity was not initially payable until July 1, 1935, and if the retiring member rendered or purchased PERA service credit was less than 20 years, the superannuation annuity would be prorated based on the relationship of total PERA service credit to 20 years. PERA initially also provided disability benefits, but did not provide survivor benefits. PERA repealed its disability benefit coverage in 1933.

In 1973, the salary base for calculating retirement annuities was shifted from a career average salary to a highest five successive years average salary. The benefit accrual formula rates were also reset from the prior four-part backloaded percentages to a two-part set of backloaded percentages:

	Basic Program	Coordinated Program
First ten years	2.0 percent	1.0 percent
Thereafter	2.5 percent	1.5 percent

An unreduced normal retirement annuity also was made payable at age 62 with 30 years of allowable service.

In 1980, the 1969 Minnesota Adjustable Fixed Benefit Fund was replaced by the Minnesota Post Retirement Adjustment Fund and the basis for the postretirement adjustment was shifted from a total rate of investment performance to investment yield.

In 1982, the "Rule of 90" early unreduced retirement annuity provision, when the sum of age and service credit total at least 90, was added. The actuarial equivalent early retirement reduction process was replaced by an early retirement reduction factor of one-quarter of one percent per month under age 65. In 1983, the 1982 early retirement reduction factor was extended to retirement before age 63 with 30 years of service. In 1984, the early retirement age was lowered to age 55 with 30 years of allowable service.

In 1987, vesting for a retirement annuity was reduced to five years of allowable service. In 1989, vesting for a retirement annuity was reduced to three years of allowable service. Two alternative benefit tiers were established, with the prior "Rule of 90" normal retirement age and a two-part backloaded benefit accrual rate provision constituting one benefit tier, and a later normal retirement age level benefit accrual rate provision constituting the other benefit tier. Normal retirement age for the level benefit formula tier is indexed to the Social Security full benefit receipt age. The early retirement reduction under the level benefit formula tier is set at the full actuarial equivalent amount.

In 1992, the Minnesota Post Retirement Investment Fund postretirement adjustment formula was modified, with a portion based on the increase in the federal Consumer Price Index and a portion based on a five-year average of total rate of investment performance.

In 1997, the benefit accrual rate percentages were increased from 2.0 percent and 2.5 percent to 2.2 percent and 2.7 percent for the Basic Program and 1.0 percent and 1.5 percent to 1.2 percent and 1.7 percent for the Coordinated Program. The postretirement adjustment formula under the Minnesota Post Retirement Investment Fund was also modified to reduce the Consumer Price Index portion.

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 Employees 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:

Police Employment. Employment must be as a police officer by a municipal police department or a county sheriff’s office.
Primary Law Enforcement Function. Primary employment function must be to enforce the law.
POST Board Licensure. Peace officer must be licensed by the Peace Officers Standards and Training Board (POST Board).
Property and Safety Protection. Peace officer must be engaged in the hazards of protecting the property and safety of others.
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.

Teachers Retirement Association (TRA). The Teachers Retirement Association (TRA) was created in 1935, to replace an earlier statewide teacher retirement program, the Teachers Insurance and Retirement Fund, that was created in 1915 and that went bankrupt. Initially, TRA provided a money purchase retirement annuity as its only retirement benefit. A money purchase benefit is a defined contribution benefit, meaning that the benefit is determined by the amount of contributions that were accumulated and the investment income earned on those amassed contributions. The other two statewide pension plans, the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General) and the Public Employees Retirement Association (PERA) were defined benefit plans from their inceptions, 1929 and 1931 respectively. Defined benefit plans provide a benefit based on a formula with each year of service producing an increment of the total benefit, typically based on a percentage of covered salary.

Initially, TRA was not coordinated with Social Security. Coordination with Social Security for TRA occurred on a "split group" election basis in 1959, with the group declining Social Security coverage constituting the TRA Basic Program. The TRA Basic Program has virtually been eliminated through the passage of time.

After the 1915 Law Teacher Insurance and Retirement Fund defaulted on benefit payments during the Great Depression, and when it was replaced in 1935 by TRA, optional memberships in the form of exemptions were enacted. Participants in the defunct 1915 Law Teacher Insurance and Retirement Fund were allowed to elect to be permanently exempt from TRA coverage. Newly hired teachers after 1931 who were under age 25 were also allowed to elect to be exempt from TRA coverage until reaching age 25. The permanent exempt status and the limited exempt status provisions of TRA were altered in 1957, with the elimination of the limited exempt status authority.

In 1969, in response to complaints from the teacher unions and others about the inadequacy of TRA retirement benefits, the Legislature created three alternative benefit programs. These alternative benefit programs were the Improved Money Purchase Program, to replace the prior money purchase program, the Career Average Salary Formula Program, to parallel the MSRS-General and PERA defined benefit plans, and the Variable Annuity Program, another defined contribution program that was invested wholly in equity (stock) investments. TRA members were provided an opportunity to elect between the three programs in 1969, with a deadline of 1973, and were placed in the Improved Money Purchase Program until they elected differently.

In 1973, the TRA Formula Program had the basis for its retirement annuity calculations changed form a career average salary to a highest five consecutive years average salary, with a simplification of its benefit accrual rates and a rate increase. In 1987, the TRA vesting requirement was reduced from 10 years to five years. In 1989, TRA was included in major benefit increases, primarily the creation of the "Rule of 90" benefit tier. In 1994, the TRA benefit accrual rate was increased, based wholly on an additional member contribution. In 1997, as part of "uniformity" legislation, similar benefit accrual rate increases and other benefit increases were extended to other general employee retirement plans.

The Duluth Teachers Retirement Fund Association (DTRFA). The Duluth Teachers Retirement Fund Association (DTRFA) was created in 1910, under Laws 1919, Chapter 343 (currently Minnesota Statutes, Chapter 354A). The plan covers teachers employed by Independent School District No. 709 (Duluth).

DTRFA coordinated with Social Security in 1957 on a total plan basis, meaning that all DTRFA members are coordinated program members.

Prior to May 1971, the Duluth TRA pension plan was essentially a money purchase scheme with the additional provisions of a guaranteed minimum, disability benefits, and certain augmentations to retired members. On May 10, 1971, a major revamping of the Duluth plan was adopted. The plan discarded the money purchase approach and adopted a five highest successive years average salary defined benefit plan, plus Social Security.

In 1981, DTRFA was granted a significant benefit increase, with the creation of two programs, the "old law" program and the "new law" program. The old law program was a continuation of the pre-July 1, 1978, benefit plan while the new law program is the Minnesota Statutes, Chapter 354A benefit plan.

DTRFA was included in the vesting requirement service length reduction in 1987, the 1989 benefit increases, which included the creation of the "Rule of 90" benefit tier, and the 1995-1997 benefit accrual rate increases. The 1997 legislation also included DTRFA in State aid.

The Minneapolis Teachers Retirement Fund Association (MTRFA). The Minneapolis Teachers Retirement Fund Association was created in 1909. The Legislature authorized the creation of a teachers retirement fund for Minneapolis by the teaching body with the consent of the City Council. The school authorities formulated the plan for the formation and incorporation of a retirement association, which was submitted to the City Council for approval. A majority of all teachers were required to approve the plan before the retirement association was created. The association was incorporated on September 17, 1909. The plan covers teachers employed by Special School District No. 1 (Minneapolis). Under the bylaws of the MTRFA, any amendments required the approval of the City Council of the City of Minneapolis. The law provided that up to 0.1 of a mill property tax could be levied in the City of Minneapolis to pay for the pension fund.

In 1924, the Minneapolis teachers pension plan was restructured to address major pension funding problems. Under the restructuring, the defined benefit plan for existing retirees remained unchanged. However, teachers with 20 or more years of service were able to elect between the old defined benefit plan or elect the new defined contribution plan, and teachers with less than 20 years were moved into a defined contribution plan for all future service. In addition, all senior teachers were now required to become members of the pension plan. The Legislature increased the property tax levy limit from .2 of one mill to 1.5 mills.

In 1952, the pension benefit formula changed from a defined contribution plan to a defined benefit plan. The defined benefit plan provided a formula annuity equal to 1.667% of average salary for the teacher’s high five consecutive salary, payable at any age with 30 years of service or at age 60. The funding for the pension plan continued through the property tax. The amount levied was based on a percentage of payroll plus an amount to cover administrative and a portion of unfunded annuity payments, as certified by the retirement fund board. The school district, as a legal entity separate from the City, was established in 1953. In 1967, state aid for teacher retirement plans was enacted. The Minneapolis teachers pension plan received state aid equivalent to the funding provided to the statewide TRA. The local property tax levy otherwise to be certified for the Minneapolis teachers pension plan was reduced by the amount of the state teacher retirement aid.

In 1975, the local property tax levy authority was eliminated and the employer contribution was based on a percentage of payroll. The MTRFA was funded by the State of Minnesota, with payment made directly to the retirement fund from the State’s general fund, initially based on the state aid provided to the statewide TRA and eventually based on a specified percentage of covered pay. The 1975 legislation also interrupted a pending benefit increase. The Legislative Commission on Pensions and Retirement was directed to study teacher retirement benefit levels. The 1975 benefit increase was approved by the Legislature in 1976.

The MTRFA coordinated plan for teachers with Social Security coverage was created for new members hired after July 1, 1978 and any existing members who elected the plan. The coordinated plan was patterned on the statewide TRA coordinated program. Before 1978, MTRFA was a "basic" program, meaning that its members had retirement coverage solely by the local retirement plan and without Social Security coverage by virtue of the Minneapolis teaching service. A Social Security referendum was conducted in 1978 for MTRFA basic program members who desired Social Security coverage to elect to have Social Security coverage, to be supplemented by the MTRFA "coordinated" program. The MTRFA coordinated program substantially replicated the coordinated program of the Teachers Retirement Association (TRA). All newly hired Minneapolis teachers after July 1, 1978 automatically were covered by Social Security and the MTRFA coordinated program. When a person was entitled to federal Social Security program coverage, the statute of limitations on correcting past omitted contributions is three years. The level of state funding for the MTRFA Basic Program was increased by approximately 1.1 percent of covered payroll in 1979.

In 1985, the state funding was converted to a categorical education aid to the school district. The direct payment of employer contributions by the State was replaced by employer contributions from the school district. In 1987, the categorical teacher retirement and Social Security aid was folded into the general education aid program.

MTRFA requested benefit increases were approved by the Legislature in 1979, 1985, 1986, 1987, 1989 and 1997. MTRFA requested and has received special State aid in 1993, 1996, and 1997.

The MTRFA has had a longstanding problem concerning the manner in which it determined eligibility for plan membership and credited service under its defined benefit plan, especially for part-time teachers, reserve teachers, and hourly teachers who were not eligible for tenure. Rather than rigorously monitoring the Minneapolis School District workforce to identify teachers for membership, MTRFA historically relied on the Minneapolis School District to report teachers who were eligible for MTRFA membership. For the period 1910-1979, MTRFA was governed virtually in whole by its own articles of incorporation and its own bylaws, with minimal statutory regulation. Membership was one of the provisions defined in the MTRFA articles of incorporation and bylaws. With the 1979 codification of the first class city teaches retirement fund coordinated program and related legislative changes, membership for part-time teachers was mandated. However, MTRFA did not implement that statutory mandate until 1988 and that noncompliance appears to have been ratified by the Legislature in whole or in part by Laws 1992, Chapter 598, Article 6, Section 19.

The St. Paul Teachers Retirement Fund Association (StPTRFA). The St. Paul Teachers Retirement Fund Association (StPTRFA) was created in 1909 under Laws `909, Chapter 343 (currently Minnesota Statutes, Chapter 354A). The plan covers teachers employed by Independent School District No. 625 (St. Paul).

StPTRFA coordinated with Social Security in 1978, effectively closing the StPTRFA Basic Plan to new members. Each existing teacher elected to either remain as a basic member or to begin Social Security coverage (which makes them coordinated members). The current StPTRFA Basic Plan covers the pre-1978 hirees who did not elect Social Security coverage. A StPTRFA Coordinated Program was created for all post-1978 hirees and for those pre-1978 hirees who elected Social Security coverage. Because there have been no new basic members added to the StPTRFA since 1978, not many remain as active members.

When the StPTRFA Coordinated Program was established, it was drafted to replicate the TRA Coordinated Program. Over the years, some differences in the coordinated teachers plans in the state occurred as laws were revised for one or more of these plans, but not all. Revisions made by the 1997 Legislature reestablished consistency in benefits at the time of retirement, at least for coordinated plans. Laws 1997, Chapter 233, Article 3 increased the benefit accrual rates used to compute benefits at the time of retirement and made those rates uniform. As a result, comparable individuals with the same age, service credit, and salary at the time of retirement would receive the same benefit whether they are covered by the TRA Coordinated Plan, the DTRFA New Law Coordinated Plan, the StPTRFA or MTRFA Coordinated Plans. Those same accrual rates were also used for public employees who are not teachers, in the Minnesota State Retirement System (MSRS) General Plan or the Public Employees Retirement Association (PERA) General Plan coordinated program. StPTRFA post-retirement provisions were also revised to use the same system for determining post-retirement adjustments as that adopted a few years earlier for the DTRFA and MTRFA plans. At this point, all three first class city teacher associations will provide an automatic two percent increase each year, plus a possible investment performance based increase based on a five year average of investment returns for the respective association’s investment fund in excess of 8.5 percent. This post-retirement adjustment system is similar, but not identical, to the system used to provide post retirement increases to TRA retirees.

Judges Retirement Plan. The Uniform Judicial Retirement Plan, Minnesota Statutes, Sections 490.121 to 490.133, was enacted in 1973. The Uniform Judicial Retirement Plan is the successor to several prior judicial retirement plans. The prior plans were applicable to the different levels of courts and judicial service and provided different levels of benefit coverage.

The Supreme Court Justices Retirement Plan was established by legislative enactment in 1943 and provided retirement annuity and disability benefit coverage for justices of the Minnesota Supreme Court who entered service prior to January 1, 1974. The District Court Judges Retirement Plan was established in 1925, also by legislative enactment, and provided retirement annuity and disability benefit coverage for the judges of the various district courts in Minnesota who entered service as a judge prior to January 1, 1974. The Probate and County Court Judges Retirement Plan was established by legislative enactment in 1931 and it provided retirement annuity and disability benefit coverage for the judges of the various probate courts or subsequent county courts who entered into service prior to January 1, 1974.

The Supreme Court Justices and District Court Judges Survivor Benefit Plan was established in 1959 to provide survivor benefit coverage to the surviving spouses of deceased active or retired Supreme Court justices or District Court judges. The Probate and County Court Judges Survivor Benefit Plan was established in 1967 to provide survivor benefit coverage to the surviving spouse of deceased active or retired Probate or County Court judges. The various justices and judges obtaining the survivor coverage were required to make a member contribution to fund the coverage, which was intended to be the sole financing of the coverage and was to be periodically revised based on the financial condition of the survivor funds.

In 1973, at the request of the Judicial Compensation Committee of the Minnesota State Bar Association, and in conjunction with the Committee on Retirement of the District Judges Association and the County Judges Association, the Legislature considered and enacted a uniform judicial retirement plan. The plan standardized benefits for the judges in the various levels of courts, allowed existing judges to retain their prior coverage if they so desired and extended Social Security coverage to existing judges on an individual election (referendum) basis and to newly appointed or elected judges on a mandatory basis. The uniform judicial retirement plan was apparently intended to provide better portability for individuals with varied judicial service, provide earlier vesting based on service credit only, improve deceased active member survivor benefit coverage, establish optional annuity forms for improved retired member survivor benefit flexibility, establish a pension fund for the plan with regular financing, and provide regular post retirement adjustments.

Since 1973, there have been a number of modifications in the uniform judicial retirement plan. In 1975, in addition to the settlement of the Sylvestre lawsuit (old law District and Supreme Court judges post retirement escalation) issue, a proportionate annuity based on accrued service credit at the mandatory retirement age was authorized by the Legislature. In 1978, the Legislature authorized fractional (portion of a year) service credit and authorized a refund to the survivor or estate of a deceased judge who is not eligible for survivor benefit coverage. In 1980, the retirement annuity benefit accrual rate was increased by legislation from 2.5 percent to 3.0 percent for each year of service rendered after June 30, 1980, and the member contribution rate was increased by one half of one percent of salary, with a 7.0 percent aggregate (inclusive of the Social Security employee contribution) contribution. The 1981 Legislature approved an extension of active member survivor coverage to deferred annuitants during the period of that deferral and eliminated the surviving spouse or estate death refund. In 1982, with the creation of the Court of Appeals, judicial service with that court was included in coverage by the judges plan. In 1983, the Legislature provided that the initial disability benefit coverage, which is a two-year continuation of salary, may not exceed the mandatory retirement age. In 1984, the reduction factor used to calculate a reduced early retirement annuity was reset from 6.67 percent per year under age 65 to 6.00 percent per year under age 65.

In 1988, the service credit requirement for vesting for a normal or early retirement was reduced from ten years to five years, an unsubsidized bounce-back joint and survivor optional retirement annuity form was authorized, the Social Security benefit offset from the Coordinated Program retirement annuity was reduced from 75 percent of the primary benefit amount to 50 percent, and the Coordinated Program member contribution rate was increased by 0.75 percent of salary. In 1989, the Combined Service Annuity portability mechanism was extended to the uniform judges retirement plan former judges who return to judicial service were authorized to repay any prior refunds of member contributions and interest.

In 1991, the terminal employer funding procedure for the fund was replaced with a regular concurrent employer contribution rate of 22 percent of salary, the Coordinated Program member contribution was revised to four percent of salary, and the continuation of full salary initial judicial disability benefit was reduced from two years to one year. Prior to 1991, the employer contributions to the fund occurred only when benefits became payable--when the fund was required to transfer the full actuarial reserves to the State Board of Investment (SBI) Post Retirement Fund. In 1992, the 30 day time limit on electing an optional retirement annuity form was eliminated, the Social Security benefit offset from the Coordinated Program retirement annuity was repealed, the Coordinated Program member contribution was increased from four percent to 6.27 percent of pay, judges covered by the Basic Program were provided a second chance opportunity to elect prospective Social Security coverage, and the interest rate payable on refund repayments was increased from six percent to 8.5 percent. In 1993, it was clarified that disabled judges earn a year of service credit for the year of full salary continuation, with the applicable salary rate credited in determining a final average salary for benefit computation, and with member contributions payable on that salary amount. In 1996, with respect to judges who die without a survivor benefit consequently payable, a death refund payable to the applicable estate was authorized. In 1997, the annual benefit accrual rates were increased to 2.7 percent from 2.5 percent for pre-7/1/1980 service, and to 3.2 percent from 3.0 percent for post-6/30/1980 service while future annual post-retirement adjustments were reduced by one percent.

In 1998, the most recent Judges Retirement Plan amendment, the member contribution rate was increased from 6.27 percent to 8.00 percent, the employer contribution rate was reduced from 22 percent to 20.5 percent, and the salaries of judges were increased by 1.5 percent.

In 2000, the previous percentage benefit maximum was converted to a service credit maximum, retirement coverage for judges serving beyond the service credit maximum was shifted to coverage by the MSRS-Unclassified Employees Retirement Program (MSRS-Unclassified), and the maximum benefit accrual rate for judges computing retirement annuities under the Combined Service Annuity portability provision was increased from 2.5 percent per year to 3.2 percent per year.

Summary of Various 2001 Session Benefit Increase Proposals

S.F. 1179 (Johnson, D.E.); H.F. 1352 (Murphy). S.F. 1179 (Johnson, D.E.); H.F. 1352 (Murphy) amends Minnesota Statutes, Sections 354.05, Subdivision 38, defining the Teachers Retirement Association (TRA) "normal retirement age," and 354.44, Subdivision 6, the TRA formula retirement benefit accrual rates, by reducing the normal retirement age for post-June 30, 1989 hirees from age 66 to age 65, by increasing the retirement benefit accrual rates for post-July 1, 2001, service by 0.3 percent per year of service and by increasing the retirement benefit accrual rates during the period July 1, 2001, to June 30, 2010, by 1.0 percent per year of service after "Rule of 90" eligibility.
S.F. 1379 (Tomassoni); H.F. 1565 (Murphy). S.F. 1379 (Tomassoni); H.F. 1565 (Murphy) amends various provisions of Minnesota Statutes, Chapters 352 and 352B, the laws governing the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General) and the State Patrol Retirement Plan, by making the following changes:

MSRS-General Member Contribution Increase. The MSRS-General member contribution rate is increased by 0.45 percent to 4.45 percent;
MSRS-General Employer Contribution Increase. The MSRS-General employer contribution rate is also increased by 0.45 percent to 4.45 percent;
MSRS-General High Three Years Average Salary. The final average salary base to which the benefit accrual rate formula will be applied for MSRS-General is reduced from a five-year averaging period to a three-year averaging period;
MSRS-Correctional Member Contribution Increase. The MSRS-Correctional member contribution rate is increased by 0.65 percent to 6.34 percent;
MSRS-Correctional Employer Contribution Increase. The MSRS-Correctional employer contribution rate is increased by 0.73 percent to 8.63 percent;
MSRS-Correctional High Three Years Average Salary. The final average salary base to which the benefit accrual rate formula will be applied for MSRS-Correctional is reduced form a five-year averaging period to a three-year averaging period;
State Patrol High Three Years Average Salary. The final average salary base to which the benefit accrual rate formula will be applied for the State Patrol Retirement Plan is reduced form a five-year averaging period to a three-year averaging period.

S.F. 1439 (Johnson, D.E.); H.F. 1482 (Murphy). Many provisions within S.F. 1439 (Johnson, D.E.); H.F. 1482 (Murphy) were included in the pension provisions that were passed during the 2001 First Special Session. Numerous provisions remain from those original bills, however. Those remaining provisions from S.F. 1439 (Johnson, D.E.); H.F. 1482 (Murphy) amend or suggest new provisions in Minnesota Statutes, Chapters 3A, 352, 352B, 352C, 352D, and 490 (provisions in the Legislators Plan, MSRS-General, State Patrol, Elected State Officers Plan, and Judges Plan, respectively), and in the Public Employees Retirement Association (PERA), and in the Teachers Retirement Association (TRA). A general summary of the proposed changes is as follows.

Removal of Dependency Requirements from Dependent Child Definitions; Increases in Maximum Eligible Ages. Dependent child definitions applicable to all MSRS plans, and to the PERA and TRA plans, are revised by removing requirements that the child be financially dependent upon the deceased member to qualify for benefits, removing other dependency criteria, and permitting benefits to age 22 or later rather than a lesser age.
MSRS-General: Creating a Trial Period Before Revising Disability Benefits to Those Returning to Partial Re-Employment. The MSRS-General disability partial re-employment provision would be revised to create a six-month trial period for returning partially re-employed disabilitants (presumably during which no reduction in disability benefits would occur).
TRA Disabilitant Partial Re-Employment Benefit Level Revision. For partially re-employed disabilitants, the total income (re-employment earnings plus disability benefits) will be compared to salary at the time of disability, indexed for wage inflation over time, rather than to that pre-disability salary with no indexing.
Elected State Officers Plan, Reduced Age for Early Retirement. The MSRS-Elected State Officers Plan minimum age for early retirement is reduced from age 60 to age 55.
Judges Plan, Reduced Early Retirement Age; Revised Reduction Procedure. The MSRS-Judges Plan minimum early retirement age is reduced from age 62 to age 55; and, rather than a reduction of one-half percent per month, the early retirement benefit will be computed using a reduction of one-half percent per month or a full actuarial reduction, whichever is less.
Phase-Out of MSRS-Unclassified Plan Right to Revert to MSRS-General. The option of MSRS-Unclassified members to transfer coverage to the MSRS-General Plan after acquiring at least ten years of service would no longer be offered to individuals first hired on or after July 1, 2001, (including legislators and constitutional officers first elected after that date).
Extending Current Refund Laws to Prior Terminated Employees. Refund provisions in all MSRS plans, and in PERA and TRA would be revised to allow current law refund policy (currently employee contributions plus six percent interest), not withstanding the law in effect at the date that previous employees terminated service.
MSRS-General Plan, TRA; Revised Surviving Spouse Benefits. In computing surviving spouse benefits in death-while active or deferred situations, rather than computing benefits using the ages of the deceased employee and the surviving spouse at the date of the member’s death, the benefit would be computed using the age of the surviving spouse when the benefit commences and the age the member would have been on that benefit commencement date.
MSRS-General Plan; Removal of Five Year Term-Certain Option. The MSRS-General five year term-certain annuity form would no longer be offered.
State Patrol Plan, Revised Child Benefits. Each child meeting age requirements to qualify as dependent would receive a benefit of 12.5 percent of the deceased former member’s salary, rather than 10 percent of that salary, but an additional benefit of $20 per month, divided by the dependent children in the family, is stricken.
MSRS-General Plan, Permitting 180-Day Accrual Retroactivity on Deferred Annuities. If an annuity is deferred, when request to commence benefits is received, the annuity can be retroactive to 180 days prior to the application date, rather than 60 days.
TRA, Part-Time Teacher Program Revision for Legislators Who Are Teachers. TRA’s part-time teacher program would be revised by creating separate procedures applicable if the teacher is also a legislator. If a teacher is also a legislator, agreements to enter the program must be executed before March 1 of the fiscal year for which the teacher seeks to make contributions, rather than executed and filed with TRA before October 1, and any penalties for late filing do not apply providing the agreement is filed before March 1.

S.F. 1445 (Solon); H.F. 1532 (Murphy). S.F. 1445 (Solon); H.F. 1532 (Murphy) amends various provisions of Minnesota Statutes, Chapter 354A, the law governing the first class city retirement fund associations, including the Duluth Teachers Retirement Fund Association (DTRFA), by making the following changes:

DTRFA Age 65 Normal Retirement Age. The normal retirement age for post-June 30, 1989, hirees who are members of the DTRFA New Law Program is reduced from age 66 to age 65;
Partial DTRFA Post-Retirement Adjustments. DTRFA retirees who have been retired for less than one year would be eligible for a proportional partial post-retirement adjustment;
Increased DTRFA New Law Program Benefit Accrual Rate. For service occurring after June 30, 2001, the benefit accrual rate is increased by 0.2 percent;
Extension of "Rule of 90" to Post-June 30, 1989, DTRFA Hirees. DTRFA New Law Program members who were hired after June 30, 1989, are included in the "Rule of 90" benefit tier; and
DTRFA Old Law Program Benefit Accrual Rate Increases. A 0.1 percent increase in the DTRFA Old Law Program benefit accrual rate is authorized.

S.F. 1705 (Pogemiller); H.F. 1692 (Murphy), Remaining Provisions. The two remaining benefit-related proposals in S.F. 1705 (Pogemiller); H.F. 1692 (Murphy) seek to revise Minneapolis Teachers Retirement Fund Association (MTRFA) basic plan provisions. The first proposed change would authorize the MTRFA to revise its basic plan to provide disability benefits equal to the normal retirement annuity computed according to the applicable articles of incorporation without any reduction due to commencement of a benefit prior to normal retirement age or 30 years of service. The second proposed change would authorize the MTRFA to revise its basic plan to use the same salary base for determining the payment amount for medical leave of absence payments as is used for similar situations in the MTRFA Coordinated Plan.
S.F. 2116 (Lessard); H.F. 1811 (Anderson, I.). S.F. 2116 (Lessard); H.F. 1811 (Anderson, I.) amends Laws 2000, Chapter 461, Article 18, Section 10, the effective date for the 2000 Session Judges Retirement Plan benefit increase, by extending the effective date of that benefit increase retroactively to May 16, 2000.
S.F. 2223 (Pogemiller); H.F. 2071 (Murphy). S.F. 2223 (Pogemiller); H.F. 2071 (Murphy) amends Minnesota Statutes, Sections 354A.011, Subdivision 15a, defining the normal retirement age for the three first class city teacher fund association coordinated plans, by specifying an age 65 normal retirement age for all coordinated plan members rather than just those hired prior to July 1, 1989. The proposed legislation also would add a new subdivision in Minnesota Statutes, Section 354A.29, the Saint Paul Teachers Retirement Fund Association post-retirement adjustment provision, to permit payment of a prorated portion of the annual two percent automatic increase to those with less than 12 full months in retirement.

Actuarial Condition of the Affected Retirement Plans and Actuarial Cost Estimates

In General. The following sections present the actuarial valuation results as of July 1, 20002, for each retirement plan affected by the seven benefit increase proposals and, when available, an actuarial cost estimate prepared by Milliman USA, the consulting actuarial firm retained by the Commission, or an actuarial cost estimate prepared by the consulting actuary retained by the retirement plan where the retirement plan administration elected not to have Milliman USA prepare the actuarial cost estimate. The July 1, 2000, actuarial valuation results will be updated within the next two months and neither the actuarial liabilities nor the assets reflect current conditions. The actuarial cost estimates of the benefit increase proposals, where the requested estimate was provided, are broadly indicative of the magnitude of the impact of the proposed benefit increase, but, where not prepared by Milliman USA, will require extra scrutiny as to the underlying assumptions and formulation procedures, and where more than one benefit increase may apply, may not indicate the cumulative effect of the proposed increases.
MSRS-General. The following presents the July 1, 2000, actuarial condition of the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General) and summarize the available actuarial cost estimates for the proposed benefit increases:

	July 1, 2000		Impact of S.F. 1379; H.F. 1565				Impact of S.F. 1439; H.F. 1482
Membership	Actuarial Valuation Results		Change: Increase (Decrease)		Resulting Condition		Change: Increase (Decrease)		Resulting Condition
Active Members		47,920		--		47,920
Service Retirees		16,276		--		16,276
Disabilitants		1,070		--		1,070
Survivors		1,955		--		1,955		No actuarial
Deferred Retirees		11,125		--		11,125		cost estimate
Nonvested Former Members		7,772		--		7,772		provided.
Total Membership		86,118		--		86,118		Plan
								administration
Funded Status								provided
Accrued Liability		$6,105,703,000		N/A		N/A		unspecific
Current Assets		$6,744,165,000		--		$6,744,165,000		comments
Unfunded Accrued Liability		($638,462,000)		N/A		N/A		(attached)
Funding Ratio	110.46%		N/A		N/A			suggesting
								that the
Financing Requirements								provisions
Covered Payroll		$1,900,124,000		--		$1,900,124,000		are cost
Benefits Payable		$237,825,000		--		$237,825,000		neutral.

Normal Cost	8.72%	$165,591,000	0.40%	$7,600,000	9.12%	$173,191,000
Administrative Expenses	0.21%	$3,990,000	--	--	0.21%	$3,990,000
Normal Cost & Expense	8.93%	$169,581,000	0.40%	$7,600,000	9.33%	$177,181,000

Normal Cost & Expense	8.93%	$169,581,000	0.40%	$7,600,000	9.33%	$177,181,000
Amortization	(1.81%)	($34,392,000)	(0.50%)	$(9,501,000)	(1.31%)	($24,891,000)
Total Requirements	7.12%	$135,189,000	0.90%	$17,101,000	8.02%	$152,290,000

Employee Contributions	4.00%	$76,005,000	0.45%	$8,550,000	4.45%	$84,555,000
Employer Contributions	4.00%	$76,005,000	0.45%	$8,551,000	4.45%	$84,556,000
Employer Add'l Cont.	0.00%	$0	--	--	--	$0
Direct State Funding	0.00%	$0	--	--	--	$0
Other Govt. Funding	0.00%	$0	--	--	--	$0
Administrative Assessment	0.00%	$0	--	--	--	$0
Total Contributions	8.00%	$152,010,000	0.90%	$17,101,000	8.90%	$169,111,000

Total Requirements	7.12%	$135,189,000	0.90%	$17,101,000	8.02%	$152,290,000
Total Contributions	8.00%	$152,010,000	0.90%	$17,101,000	8.90%	$169,111,000
Deficiency (Surplus)	(0.88%)	($16,821,000)	(0.00%)	$0	(0.88%)	($16,821,000)

Cautionary Note: The Minnesota State Retirement System (MSRS) plan administration provided an actuarial cost estimate for S.F. 1379; H.F. 1565, but indicated that no actuarial cost estimate was prepared for S.F. 1439; H.F. 1482 by the consulting actuary for the Commission, Milliman USA, or the MSRS consulting actuary, William Mercer, Inc. (Minneapolis office). The actuarial cost estimate for S.F. 1379; H.F. 1565 was prepared by William Mercer, Inc. Apparently, MSRS has not requested an actuarial cost estimate from Milliman USA. The MSRS plan administration indicated that it was its view that S.F. 1439; H.F. 1482 was cost neutral, with two cost savings provisions and five "negligible’ or "minimal" cost provisions. The Mercer actuarial cost estimate did not explicitly provide an actuarial accrued liability increase attributable to the proposed benefit increase, although the estimate included a supplemental (amortization) contribution increase based on an actuarial accrued liability increase.

MSRS-Correctional. The following presents the July 1, 2000, actuarial condition of the Correctional State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-Correctional) and summarizes the available cost estimates for the proposed benefit increases:

	July 1, 2000		Impact of S.F. 1379; H.F. 1565				Impact of S.F. 1439; H.F. 1482
	Actuarial Valuation Results		Change: Increase (Decrease)		Resulting Condition		Change: Increase (Decrease)		Resulting Condition
Membership								No actuarial
Active Members		3,098		--		3,098		cost estimate
Service Retirees		616		--		616		provided.
Disabilitants		75		--		75		Plan
Survivors		56		--		56		administrator
Deferred Retirees		419		--		419		provided
Nonvested Former Members		163		--		163		unspecific
Total Membership		4,427		--		4,427		comments
								(attached)
Funded Status
Accrued Liability		$359,885,000		N/A		N/A		suggesting
Current Assets		$386,964,000		--		$386,964,000		that the
Unfunded Accrued Liability		($27,079,000)		N/A		N/A		provisions
Funding Ratio	107.52%		N/A		N/A			are cost
								neutral.
Financing Requirements
Covered Payroll		$127,557,000		--		$127,557,000
Benefits Payable		$12,414,000		--		$12,414,000

Normal Cost	14.64%	$18,670,000	0.80%	$1,020,000	15.44%	$19,690,000
Administrative Expenses	0.22%	$281,000	--	--	0.22%	$281,000
Normal Cost & Expense	14.86%	$18,951,000	0.80%	$1,020,000	15.66%	$19,971,000

Normal Cost & Expense	14.86%	$18,951,000	0.80%	$1,020,000	15.66%	$19,971,000
Amortization	(1.14%)	($1,454,000)	0.50%	$638,000	(0.64%)	($816,000)
Total Requirements	13.72%	$17,497,000	1.30%	$1,658,000	15.02%	$19,155,000

Employee Contributions	5.69%	$7,258,000	0.65%	$829,000	6.34%	$8,087,000
Employer Contributions	7.98%	$10,179,000	0.73%	$931,000	8.71%	$11,110,000
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	13.67%	$17,437,000	1.48%	$1,760,000	15.15%	$19,197,000

Total Requirements	13.72%	$17,497,000	1.30%	$1,658,000	15.02%	$19,155,000
Total Contributions	13.67%	$17,437,000	1.48%	1,760,000	15.15%	$19,197,000
Deficiency (Surplus)	0.05%	$60,000	(0.18%)	($102,000)	(0.13%)	($42,000)

State Patrol. The following presents the July 1, 2000, actuarial condition of the State Patrol Retirement Plan and summarizes the available cost estimates for the proposed benefit increases:

	July 1, 2000		Impact of S.F. 1379; H.F. 1565				Impact of S.F. 1439; H.F. 1482
	Actuarial Valuation Results		Change: Increase (Decrease)		Resulting Condition		Change: Increase (Decrease)		Resulting Condition
Membership
Active Members		830		--		830		No actuarial
Service Retirees		531		--		531		cost estimate
Disabilitants		22		--		22		provided.
Survivors		457		--		457		Plan
Deferred Retirees		24		--		24		administrator
Nonvested Former Members		10		--		10		provided
Total Membership		1,874		--		1,874		unspecific
								comments
Funded Status								(attached)
Accrued Liability		$458,384,000		N/A		N/A		suggesting
Current Assets		$528,573,000		--		$528,573,000		that the
Unfunded Accrued Liability		($70,189,000)		N/A		N/A		provisions
Funding Ratio	115.31%		N/A		N/A			are cost
								neutral.
Financing Requirements
Covered Payroll		$51,980,000		--		$51,980,000
Benefits Payable		$25,789,000		--		$25,789,000

Normal Cost	22.55%	$11,725,000	1.10%	$572,000	23.65%	$12,297,000
Administrative Expenses	0.20%	$104,000	--	--	0.20%	$104,000
Normal Cost & Expense	22.75%	$11,829,000	1.10%	$572,000	23.85%	$12,401,000

Normal Cost & Expense	22.75%	$11,829,000	1.10%	$572,000	23.65%	$12,297,000
Amortization	(7.27%)	($3,779,000)	(1.00%)	($520,000)	(6.27%)	($3,259,000)
Total Requirements	15.48%	$8,050,000	2.10%	$1,092,000	17.38%	$9,142,000

Employee Contributions	8.40%	$4,366,000	--	--	8.40%	$4,366,000
Employer Contributions	12.60%	$6,550,000	--	--	12.60%	$6,550,000
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	21.00%	$10,916,000	--	--	21.00%	$10,916,000
Total Requirements	15.48%	$8,050,000	2.10%	$1,092,000	17.38%	$9,142,000
Total Contributions	21.00%	$10,916,000	--	--	21.00%	$10,916,000
Deficiency (Surplus)	(5.52%)	($2,866,000)	2.10%	$1,092,000	(3.42%)	($1,774,000)

Cautionary Note: The Minnesota State Retirement System (MSRS) plan administration provided an actuarial cost estimate for S.F. 1379; H.F. 1565, but indicated that no actuarial cost estimate was prepared for S.F. 1439; H.F. 1482 by the consulting actuary for the Commission, Milliman USA, or the MSRS consulting actuary, William Mercer, Inc. (Minneapolis office). The actuarial cost estimate for S.F. 1379; H.F. 1565 was prepared by William Mercer, Inc. Apparently, MSSRS has not requested an actuarial cost estimate from Milliman USA. The MSRS plan administration indicated that it was its view that S.F. 1439; H.F. 1482 was cost neutral, with two cost savings provisions and five "negligible’ or "minimal" cost provisions. The Mercer actuarial cost estimate did not explicitly provide an actuarial accrued liability increase attributable to the proposed benefit increase, although the estimate included a supplemental (amortization) contribution increase based on an actuarial accrued liability increase.

Legislators. The following presents the July 1, 2000, actuarial condition of the Legislators Retirement Plan and summarizes the available cost estimates for the proposed benefit increases:

	July 1, 2000		Impact of S.F. 1439; H.F. 1482
	Actuarial Valuation Results		Change: Increase (Decrease)		Resulting Condition
Membership
Active Members		173		No actuarial
Service Retirees		210		cost estimate
Disabilitants		0		provided.
Survivors		70		Plan
Deferred Retirees		90		administrator
Nonvested Former Members		3		provided
Total Membership		546		unspecific
				comments
Funded Status				(attached)
Accrued Liability		$69,364,000		suggesting
Current Assets		$37,265,000		that the
Unfunded Accrued Liability		$32,099,000		provisions
Funding Ratio	53.72%			are cost
				neutral.
Financing Requirements
Covered Payroll		$6,043,000
Benefits Payable		$4,213,000

Normal Cost	18.15%	$1,097,000
Administrative Expenses	0.51%	$31,000
Normal Cost & Expense	18.67%	$1,128,000

Normal Cost & Expense	18.67%	$1,128,000
Amortization	37.22%	$2,249,000
Total Requirements	55.88%	$3,377,000

Employee Contributions	9.00%	$544,000
Employer Contributions	0.00%	$0
Employer Add'l Cont.	0.00%	$0
Direct State Funding	0.00%	$0
Other Govt. Funding	0.00%	$0
Administrative Assessment	0.00%	$0
Total Contributions	9.00%	$544,000

Total Requirements	55.88%	$3,377,000
Total Contributions	9.00%	$544,000
Deficiency (Surplus)	46.88%	$2,833,000

Constitutional Officers. The following presents the July 1, 2000, actuarial condition of the Elected State Officers Retirement Plan and summarizes the available cost estimates for the proposed benefit increases:

	July 1, 2000		Impact of S.F. 1439; H.F. 1482
	Actuarial Valuation Results		Change: Increase (Decrease)		Resulting Condition
Membership				No actuarial
Active Members		0		cost estimate
Service Retirees		8		provided.
Disabilitants		0		Plan
Survivors		5		administrator
Deferred Retirees		4		provided
Nonvested Former Members		0		unspecific
Total Membership		17		comments
Funded Status				(attached)
Accrued Liability		$3,535,000		suggesting
Current Assets		$199,000		that the
Unfunded Accrued Liability		$3,336,000		provisions
Funding Ratio	5.63%			are cost
				neutral.
Financing Requirements
Covered Payroll		$0
Benefits Payable		$303,000

Normal Cost		$0
Administrative Expenses		$2,000
Normal Cost & Expense		$2,000

Normal Cost & Expense		$2,000
Amortization		$338,000
Total Requirements		$340,000

Employee Contributions		$0
Employer Contributions		$0
Employer Add'l Cont.		$0
Direct State Funding		$0
Other Govt. Funding		$0
Administrative Assessment		$0
Total Contributions		$0

Total Requirements		$340,000
Total Contributions		$0
Deficiency (Surplus)		$340,000

PERA-General. The following presents the July 1, 2000, actuarial condition of the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General) and summarizes the available cost estimates for the proposed benefit increases:

	July 1, 2000		Impact of S.F. 1439; H.F. 1482
	Actuarial Valuation Results		Change: Increase (Decrease)		Resulting Condition
Membership
Active Members		135,560		No actuarial
Service Retirees		39,940		cost estimate
Disabilitants		1,397		was requested
Survivors		6,010		by the PERA
Deferred Retirees		21,495		plan admini-
Nonvested Former Members		79,362		stration,
Total Membership		283,764		but the
				increase in the
Funded Status				maximum
Accrued Liability		$11,133,682,000		dependent
Current Assets		$9,609,367,000		child age
Unfunded Accrued Liability		$1,524,315,000		would have
Funding Ratio	86.31%			an annual
				benefit cost
Financing Requirements				of $158,000
Covered Payroll		$3,602,750,000		if the 32
Benefits Payable		$527,119,000		current
				dependent
Normal Cost	9.33%	$336,088,000		children had
Administrative Expenses	0.23%	$8,286,000		their benefits
Normal Cost & Expense	9.56%	$344,374,000		immediately
				increased by
Normal Cost & Expense	9.56%	$344,374,000		two years
Amortization	2.38%	$85,745,000		duration.
Total Requirements	11.94%	$430,119,000

Employee Contributions	4.77%	$171,898,000
Employer Contributions	5.21%	$187,823,000
Employer Add'l Cont.	0.00%	$0
Direct State Funding	0.00%	$0
Other Govt. Funding	0.00%	$0
Administrative Assessment	0.00%	$0
Total Contributions	9.98%	$359,721,000

Total Requirements	11.94%	$430,119,000
Total Contributions	9.98%	$359,721,000
Deficiency (Surplus)	1.96%	$70,398,000

PERA-P&F. The following presents the July 1, 2000, actuarial condition of the Public Employees Police and Fire Retirement Plan (PERA-P&F) and summarizes the available cost estimates for the proposed benefit increases:

	July 1, 2000		Impact of S.F. 1439; H.F. 1482
	Actuarial Valuation Results		Change: Increase (Decrease)		Resulting Condition
Membership
Active Members		9,627		No actuarial
Service Retirees		3,991		cost estimate
Disabilitants		482		was provided
Survivors		1,205		by the PERA
Deferred Retirees		470		plan admini-
Nonvested Former Members		626		stration.
Total Membership		16,401

Funded Status
Accrued Liability		$3,383,187,000
Current Assets		$4,145,351,000
Unfunded Accrued Liability		($762,164,000)
Funding Ratio	122.53%

Financing Requirements
Covered Payroll		$494,134,000
Benefits Payable		$165,719,000

Normal Cost	19.93%	$98,462,000
Administrative Expenses	0.14%	$692,000
Normal Cost & Expense	20.07%	$99,154,000

Normal Cost & Expense	20.07%	$99,154,000
Amortization	(7.38%)	($36,467,000)
Total Requirements	12.68%	$62,687,000

Employee Contributions	6.20%	$30,636,000
Employer Contributions	9.30%	$45,954,000
Employer Add'l Cont.	0.00%	$0
Direct State Funding	0.00%	$0
Other Govt. Funding	0.00%	$0
Administrative Assessment	0.00%	$0
Total Contributions	15.50%	$76,590,000

Total Requirements	12.68%	$62,687,000
Total Contributions	15.50%	$76,590,000
Deficiency (Surplus)	(2.82%)	($13,903,000)

TRA. The following presents the July 1, 2000, actuarial condition of the Teachers Retirement Association (TRA) and summarizes the available cost estimates for the proposed benefit increases:

	July 1, 2000		Impact of S.F. 1179; H.F. 1352 (Buck)				Impact of S.F. 1179; H.F. 1352 (Milliman)
	Actuarial Valuation Results		Change: Increase (Decrease)		Resulting Condition		Change: Increase (Decrease)		Resulting Condition
Membership
Active Members		70,508		--		70,508		--		70,508
Service Retirees		29,525		--		29,525		--		29,525
Disabilitants		509		--		509		--		509
Survivors		1,912		--		1,912		--		1,912
Deferred Retirees		7,375		--		7,375		--		7,375
Nonvested Former Members		17,833		--		17,833		--		17,833
Total Membership		127,662		--		127,662		--		127,662

Funded Status
Accrued Liability		$14,802,441,000		$629,959,000		$15,420,659,000		$296,335,000		$15,100,249,000
Current Assets		$15,573,151,000		--		$15,573,151,000		--		$15,573,151,000
Unfunded Accrued Liability		($770,710,000)		$629,959,000		($152,493,000)		($296,335,000)		($474,375,000)
Funding Ratio	105.21%		(4.22%)		100.99%		(2.08%)		103.13%

Financing Requirements
Covered Payroll		$2,813,696,000		--		2,813,696,000		--		$2,813,696,000
Benefits Payable		$755,036,000		--		755,036,000		--		$755,036,000

Normal Cost	9.09%	$255,746,000	0.89%	$25,041,000	9.98%	$280,807,000	1.91%	$53,742,000	11.00%	$309,507,000
Administrative Expenses	0.30%	$8,441,000	--	--	0.30%	$8,441,000	--	--	0.30%	$8,441,000
Normal Cost & Expense	9.39%	$264,187,000	0.89%	25,041,000	10.28%	$289,248,000	1.91%	$53,742,000	11.30%	$317,948,000

Normal Cost & Expense	9.39%	$264,187,000	0.89%	$25,041,000	10.28%	$289,248,000	1.91%	$53,742,000	11.30%	$317,948,000
Amortization	(1.47%)	($41,361,000)	(1.19%)	$33,483,000	(0.28%)	($7,878,000)	(0.57%)	($16,038,000)	(0.90%)	($25,323,000)
Total Requirements	7.92%	$222,826,000	2.08%	$58,524,000	10.00%	$281,370,000	2.48%	$69,794,000	10.40%	$292,620,000

Employee Contributions	5.00%	$140,710,000	--	--	5.00%	$140,710,000	--	--	5.00%	$140,710,000
Employer Contributions	5.00%	$140,710,000	--	--	5.00%	$140,710,000	--	--	5.00%	$140,710,000
Employer Add'l Cont.	0.00%	$0	--	--	0.00%	$0	--	--	0.00%	$0
Direct State Funding	0.00%	$0	--	--	0.00%	$0	--	--	0.00%	$0
Other Govt. Funding	0.00%	$0	--	--	0.00%	$0	--	--	0.00%	$0
Administrative Assessment	0.00%	$0	--	--	0.00%	$0	--	--	0.00%	$0
Total Contributions	10.00%	$281,420,000	--	--	10.00%	$281,420,000	--	--	10.00%	$281,420,000

Total Requirements	7.92%	$222,826,000	2.08%	$58,524,000	10.00%	$281,370,000	2.48%	$69,794,000	10.40%	$292,620,000
Total Contributions	10.00%	$281,420,000	--	--	10.00%	$281,420,000	--	--	10.00%	$281,420,000
Deficiency (Surplus)	(2.08%)	($58,594,000)	2.08%	$58,524,000	0.00%	($50,000)	2.48%	$69,794,000	0.40%	$1,200,000

	July 1, 2000		Impact of S.F. 1439; H.F. 1482
	Actuarial Valuation Results		Change: Increase (Decrease)		Resulting Condition
Membership
Active Members		70,508		No actuarial
Service Retirees		29,525		cost estimate
Disabilitants		509		provided by
Survivors		1,912		the plan
Deferred Retirees		7,375		administration.
Nonvested Former Members		17,833
Total Membership		127,662

Funded Status
Accrued Liability		$14,802,441,000
Current Assets		$15,573,151,000
Unfunded Accrued Liability		($770,710,000)
Funding Ratio	105.21%

Financing Requirements
Covered Payroll		$2,813,696,000
Benefits Payable		$755,036,000

Normal Cost	9.09%	$255,746,000
Administrative Expenses	0.30%	$8,441,000
Normal Cost & Expense	9.39%	$264,187,000

Normal Cost & Expense	9.39%	$264,187,000
Amortization	(1.47%)	($41,361,000)
Total Requirements	7.92%	$222,826,000

Employee Contributions	5.00%	$140,710,000
Employer Contributions	5.00%	$140,710,000
Employer Add'l Cont.	0.00%	$0
Direct State Funding	0.00%	$0
Other Govt. Funding	0.00%	$0
Administrative Assessment	0.00%	$0
Total Contributions	10.00%	$281,420,000

Total Requirements	7.92%	$222,826,000
Total Contributions	10.00%	$281,420,000
Deficiency (Surplus)	(2.08%)	($58,594,000)

Cautionary Note: The Teachers Retirement Association (TRA) plan administration provided an actuarial cost estimate for S.F. 1179; H.F. 1352 and did not provide an actuarial cost estimate for S.F. 1439; H.F. 1482. The March 14, 2001, actuarial cost estimate provided by TRA covered 14 potential combinations of benefit increase proposals and was prepared by the consulting actuarial firm retained by the plan, Buck Consultants (San Francisco office). A March 30, 2001, actuarial cost estimate by Milliman USA, the consulting actuarial firm retained by the Commission, was provided to the Commission staff by Milliman USA as required under contract. The two actuarial cost estimates differ, based on different procedures between Milliman USA and Buck Consultants for calculating normal cost when different benefit accrual rates apply to different time periods. In comparing the accrued liability and normal cost increase results from Buck and Milliman, there is a difference in whether the benefit accrual rate increases are allocated to past service (accrued liability) in the Buck estimate or are allocated to future service (normal cost) in the Milliman estimate. The Buck estimate does not indicate the underlying assumptions or techniques used in preparing the estimate. The Milliman estimate includes results both under the current TRA actuarial assumptions and with proposed actuarial assumption changes resulting from the recent experience study, which indicated no net result. The TRA plan administrator indicated that TRA had not attempted to resolve the differences between the Buck and Milliman estimates.

DTRFA. The following presents the July 1, 2000, actuarial condition of the Duluth Teachers Retirement Fund Association (DTRFA) and summarizes the available cost estimates for the proposed benefit increases:

	July 1, 2000		Impact of S.F. 1445; H.F. 1532				Impact of S.F. 2223; H.F. 2071
	Actuarial Valuation Results		Change: Increase (Decrease)		Resulting Condition		Change: Increase (Decrease)		Resulting Condition
Membership
Active Members		1,441		--		1,441		--		1,441
Service Retirees		937		--		937		--		937
Disabilitants		6		--		6		--		6
Survivors		53		--		53		--		53
Deferred Retirees		172		--		172		--		172
Nonvested Former Members		575		--		575		--		575
Total Membership		3,184		--		3,184		--		3,184
Funded Status
Accrued Liability		$241,899,000		N/A		N/A		N/A		N/A
Current Assets		$251,007,000		N/A		N/A		N/A		N/A
Unfunded Accrued Liability		($9,108,000)		N/A		N/A		N/A		N/A
Funding Ratio	103.77%		N/A		N/A		N/A		N/A

Financing Requirements
Covered Payroll		$53,102,000		--		$53,102,000		--		$53,102,000
Benefits Payable		$12,360,000		N/A		$12,360,000		N/A		$12,360,000

Normal Cost	8.68%	$4,609,000		N/A		N/A		N/A		N/A
Administrative Expenses	0.75%	$398,000		N/A		N/A		N/A		N/A
Normal Cost & Expense	9.43%	$5,007,000		N/A		N/A		N/A		N/A

Normal Cost & Expense	9.43%	$5,007,000		N/A		N/A		N/A		N/A
Amortization	(0.92%)	($489,000)		N/A		N/A		N/A		N/A
Total Requirements	8.51%	$4,518,000	2.02%	$1,073,000	10.53%	$5,591,000	0.18%	$96,000	8.6%	$4,614,000

Employee Contributions	5.50%	$2,921,000	--	--	5.50%	$2,921,000	--	--	5.50%	$2,921,000
Employer Contributions	5.79%	$3,075,000	--	--	5.79%	$3,075,000	--	--	5.79%	$3,075,000
Employer Add'l Cont.	0.00%	$0	--	--	0.00%	$0	--	--	0.00%	$0
Direct State Funding	0.92%	$486,000	--	--	0.92%	$486,000	--	--	0.92%	$486,000
Other Govt. Funding	0.00%	$0	--	--	0.00%	$0	--	--	0.00%	$0
Administrative Assessment	0.00%	$0	--	--	0.00%	$0	--	--	0.00%	$0
Total Contributions	12.21%	$6,482,000	--	--	12.21%	$6,482,000	--	--	12.21%	$6,482,000

Total Requirements	8.51%	$4,518,000	2.02%	$1,073,000	10.53%	$5,591,000	0.18%	$96,000	8.69%	$4,614,000
Total Contributions	12.21%	$6,482,000	--	--	12.21%	$6,482,000	--	--	12.21%	$6,482,000
Deficiency (Surplus)	(3.70%)	($1,964,000)	2.02%	$1,073,000	(1.68%)	$891,000	0.18%	$96,000	(3.52%)	($1,869,000)

Cautionary Note: The Duluth Teachers Retirement Fund Association (DTRFA) plan administrator provided a summary of two actuarial cost estimates, but did not provide the requested copy of the actual actuarial cost estimate in either case. The actuarial cost estimates were indicated to have been prepared by the actuarial consulting firm of Hewitt Associates (Minneapolis office), rather than by Milliman USA. Without a copy of the actual actuarial cost estimate, it is impossible to ascertain the credentials of the person preparing the estimate, to ascertain whether or not that person is an approved actuary under Minnesota Statutes, Section 356.215, and to ascertain what underlying actuarial assumptions or techniques were utilized in preparing the estimate and their reasonableness. The actuarial cost estimate for S.F. 1445; H.F. 1532 was indicated to have not included the partial post retirement adjustment provision, for which the plan administrator provided a two-year summary of plan experience had the benefit change been in effect during the 1999 and 2000 fiscal years. The average 1999-2000 fiscal year plan experience cost has been added to the other summarized cost items in the summary of the estimate.

MTRFA. The following presents the July 1, 2000, actuarial condition of the Minneapolis Teachers Retirement Fund Association (MTRFA) and summarizes the available cost estimates for the proposed benefit increases:

	July 1, 2000		Impact of S.F. 1439; H.F. 1482			Impact of S.F. 2223; H.F. 2071
	Actuarial Valuation Results		Change: Increase (Decrease)		Resulting Condition	Change: Increase (Decrease)		Resulting Condition
Membership
Active Members		5,777		No actuarial			--		1,441
Service Retirees		3,033		cost estimate			--		937
Disabilitants		20		was requested			--		6
Survivors		254		by the			--		53
Deferred Retirees		756		MTRFA plan			--		172
Nonvested Former Members		1,815		administra-			--		575
Total Membership		11,655		tion. The plan			--		3,184
				administration
Funded Status				suggests that
Accrued Liability		$1,554,358,000		there will be			N/A		N/A
Current Assets		$1,027,633,000		a small			N/A		$1,027,633,000
Unfunded Accrued Liability		$526,725,000		associated			N/A		N/A
Funding Ratio	66.54%			cost increase		N/A		N/A
				or no actuarial
Financing Requirements				cost increase
Covered Payroll		$255,488,000		at all.			--		$255,488,000
Benefits Payable		$86,440,000					--		$86,440,000

Normal Cost	10.76%	$27,485,000					N/A		N/A
Administrative Expenses	0.24%	$616,000					N/A	0.24%	$616,000
Normal Cost & Expense	11.00%	$28,101,000					N/A		N/A

Normal Cost & Expense	11.00%	$28,101,000					N/A		N/A
Amortization	14.25%	$36,400,000					N/A		N/A
Total Requirements	25.25%	$64,501,000				0.99%	$2,529,000	26.24%	$67,030,000
Employee Contributions	6.10%	$15,595,000				--	--	6.10%	$15,595,000
Employer Contributions	8.95%	$22,854,000				--	--	8.95%	$22,854,000
Employer Add'l Cont.	0.00%	$0				--	--	0.00%	$0
Direct State Funding	7.22%	$18,444,000				--	--	7.22%	$18,444,000
Other Govt. Funding	0.98%	$2,500,000				--	--	0.98%	$2,500,000
Administrative Assessment	0.00%	$0				--	--	0.00%	$0
Total Contributions	23.25%	$59,393,000				--	--	23.25%	$59,393,000

Total Requirements	25.25%	$64,501,000				0.99%	$2,529,000	26.24%	$67,030,000
Total Contributions	23.25%	$59,393,000				--	--	23.25%	$59,393,000
Deficiency (Surplus)	2.00%	$5,108,000				0.99%	$2,529,000	(2.99%)	($7,637,000)

Cautionary Note: The MTRFA plan administration did not request an actuarial cost estimate for S.F. 1705; H.F. 1692 and requested a cost estimate from the consulting actuarial firm that it retains, undisclosed, for S.F. 2223; H.F. 2071. The plan did not apparently request an actuarial cost estimate from the consulting actuarial firm retained by the Commission, Milliman USA. The actuarial cost estimate by the MTRFA actuary was summarized by the MTRFA plan administration, but the consulting actuary was not indicated and the actual actuarial cost estimate was not provided. Thus, it is not possible to ascertain what the credentials of the MTRFA actuary are, whether the actuary is an approved actuary under Minnesota Statutes, Section 356.215, what actuarial assumptions or techniques underlie the estimate, and what the allocation of the cost increase between past service (the actuarial accrued liability) and future service (the normal cost) was.

StPTRFA. The following presents the July 1, 2000, actuarial condition of the St. Paul Teachers Retirement Fund Association (StPTRFA) and summarizes the available cost estimates for the proposed benefit increases:

	July 1, 2000		Impact of S.F. 2223; H.F. 2071
	Actuarial Valuation Results		Change: Increase (Decrease)		Resulting Condition
Membership
Active Members		4,445		--		4,445
Service Retirees		1,728		--		1,728
Disabilitants		23		--		23
Survivors		213		--		213
Deferred Retirees		243		--		243
Nonvested Former Members		1,697		--		1,697
Total Membership		8,349		--		8,349

Funded Status
Accrued Liability		$998,253,000		N/A		N/A
Current Assets		$801,823,000		N/A		$801,823,000
Unfunded Accrued Liability		$196,430,000		N/A		N/A
Funding Ratio	80.32%		N/A		N/A

Financing Requirements
Covered Payroll		$198,974,000		--		$198,974,000
Benefits Payable		$47,168,000		--		$47,168,000

Normal Cost	9.36%	$18,628,000		N/A		N/A
Administrative Expenses	0.24%	$469,000		N/A	0.24%	$469,000
Normal Cost & Expense	9.60%	$19,097,000		N/A		N/A

Normal Cost & Expense	9.60%	$19,097,000		N/A		N/A
Amortization	6.98%	$13,880,000		N/A		N/A
Total Requirements	16.57%	$32,977,000	0.34%	$677,000	16.91%	$33,654,000

Employee Contributions	6.05%	$12,036,000	--	--	6.05%	$12,036,000
Employer Contributions	9.07%	$18,037,000	--	--	9.07%	$18,037,000
Employer Add'l Cont.	0.00%	$0	--	--	0.00%	$0
Direct State Funding	2.17%	$4,317,000	--	--	2.17%	$4,317,000
Other Govt. Funding	0.00%	$0	--	--	0.00%	$0
Administrative Assessment	0.00%	$0	--	--	0.00%	$0
Total Contributions	17.29%	$34,390,000			17.29%	$34,390,000

Total Requirements	16.57%	$32,977,000	0.34%	$677,000	16.91%	$33,654.000
Total Contributions	17.29%	$34,390,000	--	--	17.29%	$34,390,000
Deficiency (Surplus)	(0.72%)	($1,413,000)	0.34%	$677,000	(0.38%)	($736,000)

Cautionary Note: The StPTRFA plan administration requested and received an actuarial cost estimate for S.F. 2223; H.F. 2071 from its consulting actuarial firm Gabriel, Roeder, Smith and Company (Southfield, Michigan office), but did not request a cost estimate from the actuarial consulting firm retained by the Commission, Milliman USA. The actuarial cost estimate, dated September 27, 2001, was prepared by a person who indicates no actuarial credentials and may not be an approved actuary under Minnesota Statutes, Section 356.215. The actuarial cost estimate did not explicitly set forth the expected increase in the actuarial accrued liability for the proposed retirement age change, but did indicate an amortization requirement increase for that change, but provided only a vague indication of the cost of the partial post-retirement adjustment, suggesting that the actuarial cost will depend on the manner that the actuary retained by the Commission handles the proposed benefit increase.

Judges. The following presents the July 1, 2000, actuarial condition of the Judges Retirement Plan and summarizes the available cost estimates for the proposed benefit increases:

	July 1, 2000		Impact of S.F. 1439; H.F. 1482			Impact of S.F. 2116; H.F. 1811
	Actuarial Valuation Results		Change: Increase (Decrease)		Resulting Condition	Change: Increase (Decrease)		Resulting Condition
Membership
Active Members		282					--		282
Service Retirees		153					--		153
Disabilitants		4		No actuarial			--		4
Survivors		82		cost estimate			--		82
Deferred Retirees		9		provided.			--		9
Nonvested Former Members		2		Plan			--		2
Total Membership		532		administrator			--		532
				provided
Funded Status				unspecific
Accrued Liability		$153,660,000		comments			$119,000		$153,779,000
Current Assets		$111,113,000		(attached)			--		$111,113,000
Unfunded Accrued Liability		$42,547,000		suggesting			$$119,000		$42,666,000
Funding Ratio	72.31%			that the		(0.06%)		72.25%
				provisions
Financing Requirements				are cost
Covered Payroll		$28,186,000		neutral.			--		$28,186,000
Benefits Payable		$11,082,000					--		$11,082,000

Normal Cost	16.30%	$4,593,000				--	--	16.30%	$4,593,000
Administrative Expenses	0.15%	$42,000				--	--	0.15%	$42,000
Normal Cost & Expense	16.44%	$4,635,000				--	--	16.44%	$4,635,000

Normal Cost & Expense	16.44%	$4,635,000				--	--	16.44%	$4,635,000
Amortization	10.58%	$2,982,000				0.03%	$8,000	10.61%	$2,990,000
Total Requirements	27.03%	$7,617,000				0.03%	$8,000	27.05%	$7,625,000

Employee Contributions	8.00%	$2,255,000				--	--	8.00%	$2,255,000
Employer Contributions	20.50%	$5,778,000				--	--	20.50%	$5,778,000
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	28.50%	$8,033,000				--	--	28.50%	$8,033,000

Total Requirements	27.03%	$7,617,000				0.03%	$8,000	27.05%	$7,625,000
Total Contributions	28.50%	$8,033,000				--	--	28.50%	$8,033,000
Deficiency (Surplus)	(1.47%)	($416,000)				0.03%	$8,000	(1.44%)	($408,000)

Cautionary Note: The actuarial cost estimate for S.F. 2116; H.F. 1811 was prepared by the MSRS plan administration rather than an approved actuary, appropriately, since the bill as drafted affects one required judge and the actuarial cost is equal to the required reserve transfer to the Minnesota Post Retirement Investment Fund for the affected retiree.

Other Pension and Related Public Policy Consideration

In General. In addition to the estimated actuarial cost of the proposed benefit increase, with the available information summarized in the preceding section, there are a number of other pension and related public policy considerations. These considerations are briefly discussed below, grouped into those considerations that apply to many or all of the benefit increase proposals and those considerations that apply to a specific benefit increase proposal or a limited number of benefit increase proposals.
Generally Applicable Policy Considerations.

Pending Actuarial Valuation Updates. The policy issue is the need to consider pending updated actuarial valuation reports before reaching a final decision on the various proposed benefit increases. Actuarial valuation reports as of July 1, 2001, for all of the affected retirement plans are due between November 1, 2001, and December 31, 2001. Since July 1, 2000, the date of the actuarial valuations summarized in the previous section, assets have likely suffered some general erosion through June 30, 2001, while actuarial accrued liabilities would likely have risen. While many of the Minnesota public pension plans made striking funded status gains over the past four years, based on unprecedented asset gains from investment performance, that progress over the July 1, 2000, to June 30, 2001, period has been likely reversed to some degree.
Impact of Pending Actuarial Assumption Changes. The policy issue is the need to assess the various proposed benefit increases in light of pending actuarial assumption changes for six of the affected retirement plans, the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General), the General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General), the Teachers Retirement Association (TRA), the Duluth Teachers Retirement Fund Association (DTRFA), the Minneapolis Teachers Retirement Fund Association (MTRFA), and the St. Paul Teachers Retirement Fund Association (StPTRFA). Quadrennial experience studies required by Minnesota Statutes, Section 356.215, were performed in May 2001 for MSRS-General, PERA-General, and TRA by the actuarial firm retained by the Commission, Milliman USA. Six-year period experience studies were also performed this spring by Milliman USA under contract with DTRFA, MTRFA, and StPTRFA. A study of the actuarial cost of the Combined Service Annuity and related provisions, Minnesota Statutes, Sections 356.30, 356.302, and 356.303, also was conducted by Milliman USA under contract with the various retirement plans. The Commission reviewed these experience study reports and the Combined Service Annuity study during the August 2001 meeting, which included an indication of the direction of likely actuarial assumption changes as a result, actuarial assumption changes are likely to be submitted for Commission approval early in the 2001 Legislative Session. These assumption changes will affect the actuarial accrued liabilities of the six retirement plans and will go into effect for the July 1, 2002, actuarial valuations.
Impact of Post-July 1, 2001, Valuation Asset Losses. The policy issue is the need to include in the consideration of any benefit increase legislation proposals the impact of the severe downturn in the financial markets that has occurred since the July 1, 2001, valuation date. The July 1, 2001, valuations will be based significantly on the market value of retirement plan assets as of June 30, 2001. While those asset values will reflect a general softening of the United States economy that was already in effect, there has been a further significant decline in market values generally based on events following June 30, 2001, which will not be reflected in the valuation reports. If the Commission wishes to gain a sense of the June 30, 2001, asset value softening and the impact of post-June 30, 2001, events on Minnesota retirement plan values, the State Board of Investment would be available to provide the requested information.
Affordability of Various Benefit Increases. The policy issue is the affordability of the various proposed benefit increases. The policy issue is a corollary to the issue of the actuarial cost of the proposed benefit increases. Some of the benefit increases depend on employer contribution increases by the State for their future financing, but anecdotal information suggests that the State budget may be unable to absorb any contribution increases. Other benefit increases depend upon drawing down past funding gains for their financing, but those past funding gains may have been temporary or illusory. Other benefit increases depend on current position imbalances between contribution and actuarial costs, where an alternative approach to benefit increases could be contribution reductions. Finally, other benefit increases, principally related to the Minneapolis Teachers Retirement Fund Association (MTRFA), wholly ignore the current financial difficulties of the retirement plan and the current negative imbalance between contribution rates and actuarial costs.
Adequacy of Contribution Rate Increases. The policy issue is the adequacy of the contribution rate increases that accompany some benefit increase proposals, where provided, and the appropriateness of omitting any contribution rate increase from other benefit increase proposals. Generally, the proposed benefit increase proposals do not include any contribution rate increases. The benefit increase proposals largely appear to be designed to take advantage of 2000 actuarial valuation contribution sufficiency margins before the Legislature is able to consider any other alternatives, from restructuring retirement plan coverage to considering retirement contribution rate reductions. To insure the future financial health and security of Minnesota’s retirement plans, which has been the primary goal and function of the Legislative Commission on Pensions and Retirement since its creation in 1955, the Commission will need to evaluate the balance between actuarial cost and total contribution rates as well as to assess the magnitude of contribution rates in light of retirement plan normal costs.
Desirability of Gubernatorial Input. The policy issue is the potential desirability of receiving input from the Governor, the Department of Finance, and other relevant Executive Branch sources on the proposed benefit increase. While in Minnesota, historically, public pension policy has largely become the purview of the Legislative Branch by default or design, most public policy issues reflect a considerable interplay between the Executive Branch and the Legislative Branch. When considering public pension policy proposals as significant as some of the proposed benefit increases, it may be advisable to provide the Governor and the Executive Branch with an opportunity to weigh in on these proposals and to consider any input provided. To this end, the Commission Chair, Senator Dean E. Johnson, has invited by letter Governor Jesse Ventura to provide any reactions and policy advice on the benefit increase proposals.
Lack of Uniformity in the Various Benefit Increase Proposals. The policy issue is the impact of the various benefit increase proposals on the alleged or actual growing uniformity of the benefit coverage between various types of Minnesota public pension plans. In 1997, the year of the last major retirement increases, the package of benefit increases was argued by its proponents as being necessary to achieve uniformity among the various Minnesota public retirement plans. Benefit uniformity became the stated goal of the 1997 legislation to such an extent that it functioned as the shorthand title for the legislation as it progressed. Little of this total package of proposed benefit increases promotes uniformity between the various affected plans, even within the same type of plan. For instance, if all of the proposed benefit increases were enacted, the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General) would base retirement annuities on a highest three years average salary with a 1.7 percent benefit accrual (level benefit tier) rate, while the Teachers Retirement Association (TRA) would base retirement annuities on a highest five years average salary with a 2.0 percent benefit accrual (level benefit tier) rate for prospective service, plus an additional 1.0 percent benefit rate if the member is eligible for a "Rule of 90" early normal retirement, and while the Public Employees Retirement Association (PERA) would base retirement annuities on a highest five years average salary with a 1.7 percent benefit accrual (level benefit tier) rate.
Potential Extensions of Specific Benefit Increases. The policy issue is the appropriateness of pursuing a specific pension benefit increase proposal without considering likely or probable demands for their extension to similar circumstances or other plans. Limitations on benefit increases that are imposed when the increase is enacted frequently evaporate over time, even if the limitation was a key factor to the enactment of the benefit increase. For instance, although S.F. 1179 (Johnson, D.E.); H.F. 1352 (Murphy) limits the Teachers Retirement Association (TRA) benefit accrual rate increase to prospective service (post-July 1, 2001), that arbitrary start date may likely be extended back for a variety of potential reasons. Similarly, if S.F. 1445 (Solon); H.F. 1532 (Murphy) was enacted, the prospective and retroactive service benefit accrual rate increase for the Duluth Teachers Retirement Fund Association (DTRFA) Old Law Program and the prospective service only benefit accrual rate increase for the DTRFA New Law Program could coincide for only a limited period before the DTRFA New Law Program members would demand retroactive service benefit accrual rate increases also.
Precedent for Other Benefit Increases. The policy issue is related to the immediately previous consideration and is the potential for any retirement plan change to become the precedent that argues significantly or conclusively for the same change to another plan. If the Commission is to seriously consider increasing the Teachers Retirement Association (TRA) benefit accrual rate while reducing the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General) salary averaging period from five years to three years and while making no benefit change in PERA, the Commission should obtain actuarial cost estimates for that total package of benefit increases for all retirement plans prior to making any final recommendation, because it is unlikely that the Legislature could successfully argue that an MSRS-General high three years average salary or a TRA enhanced benefit accrual rate are not precedents for similar benefit increases to all other general employee retirement plans.
Alternative Practice of Delayed Effective Dates or Conditional Benefit Increases. The policy issue is the advisability of the Commission establishing an alternative practice of utilizing a delayed effective date for benefit increase legislation or of conditioning a benefit increase on actuarial or other developments rather than immediate implementation. As indicated in other policy considerations above, there is considerable uncertainty about the future magnitude of actuarial accrued liabilities of retirement plans affected by pending actuarial assumption changes or by the current State employee strike and about the financial condition of various retirement plans at the brink of what may become a prolonged period of economic disruption. If delaying legislative consideration or approval of these benefit increase proposals until there is more clarity in these matters is not possible or desirable, the Commission should consider beginning the practice of delaying the effective date of any benefit increase to allow for legislative reconsideration of the actuarial impact of the increase before the increase actually takes hold. Alternatively, the Commission could extend the practice it has used in benefit increase legislation for the Minneapolis Firefighters Relief Association and the Minneapolis Police Relief Association of conditioning benefit increases on the achievement (and perhaps maintenance) of certain actuarial goals or benchmarks.
Alternative Supplemental Defined Contribution Plan Creation/Increase Instead of Defined Benefit Plan Increase. The policy issue is the advisability of the Commission establishing an alternative practice to further defined benefit plan increases by creating or augmenting a supplemental defined contribution plan. At some moment in time, the combination of Social Security coverage and the applicable defined benefit retirement plan coverage will provide a sufficient retirement base for a majority of public employees and the provision of supplemental defined contribution coverage will provide an enhancement and a flexibility to those public employees that is impossible in the blunt policy instrument that is the State’s current defined benefit plans. Additionally, redirecting benefit increase demands into defined contribution retirement coverage avoids the uncertain future actuarial accrued liabilities always present in defined benefit plan benefit increases.
Appropriateness of Retirement Plan Administrators or Retirement Plan Administrative Boards in Proposing Benefit Increases. The policy issue is the appropriateness of retirement plan administrators or of retirement plan administrative boards in formulating proposed benefit increases. Retirement administrators and retirement boards are obligated by both common law and Minnesota Statutes, Chapter 356A, with the fiduciary obligation of the faithful administration of the current retirement plans. Picking winners and losers among plan members in selecting between potential retirement benefit increases by retirement plan administrators or by retirement plan governing boards is difficult or impossible to square with the faithful, non-prejudicial, implementation of the retirement plan once those potential benefit increases are enacted. The legislative process does not lack for potential sponsors or proponents of benefit increases, including active and/or retired plan member organizations and labor unions. Clearly, retirement plan administrators and retirement plan administrative boards have a role to play in the legislative process of evaluating benefit increase proposals, including providing information on the administrative and related considerations or obstacles in proposals, but as specific benefit increase proposal sponsors and proponents, they blur or deviate from their proper role as fiduciaries.

Bill-Specific Policy Considerations.

S.F. 1179 (Johnson, D.E.); H.F. 1352 (Murphy): TRA; Modification of the Retirement Annuity Formula.

Lack of Any TRA Contribution Sufficiency Margin After Benefit Increase. The policy issue is the appropriateness of the Teachers Retirement Association (TRA) proposal of seeking a net of benefit increases with an actuarial cost that exactly equals, according to the TRA actuary, the current (July 1, 2000) contribution sufficiency, without any remaining margin. The actuary retained by the Legislative Commission on Pensions and Retirement assesses the actuarial cost of the proposed benefit increase differently, with an actual contribution deficiency. That practice differs from the practice proposed by the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General) and the Correctional Employees Retirement Plan of the Minnesota State Retirement System (MSRS-Correctional) of retaining all or most of the current contribution sufficiency model.
Appropriateness of Encouraging Early or Earlier Normal Retirement. The policy issue is the appropriateness of increasing the "Rule of 90" benefit tier benefit accrual rate percentage, thereby encouraging early or earlier normal retirements. A shortage of teachers in Minnesota has either already occurred or is projected for the near future, largely because of the early retirement of teachers. In the face of that teacher shortage, proposed legislation that would encourage more early retirements by teachers would be ill advised.
Appropriateness of Attempting to Counter Early Normal Retirements While Encouraging Early Retirements. The policy issue is the appropriateness of attempting to design a benefit increase to induce non-utilization of early normal retirement provisions while also augmenting those early retirement provisions. The proposed benefit increase would be an additional benefit accrual rate percentage for every year of unused "Rule of 90" eligibility, while also increasing the "Rule of 90" benefit accrual rate. To encourage early normal retirement or to discourage early normal retirement would be logical, but to do both indicates a failure of sound policy making.
Appropriateness of Limiting Benefit Accrual Rate Increases to Prospective Service. The policy issue is the appropriateness of increasing the benefit accrual rate percentages for prospective service credit only. Historically, benefit accrual rate increases generally have been for all prior service credit as well as prospective service credit. This practice of "retroactive" benefit accrual rate increases is obviously favored by long service plan members, who will likely argue that they are being omitted or discriminated against by this proposed benefit increase practice.

S.F. 1379 (Tomassoni); H.F. 1565 (Murphy): MSRS; Redefinition of Final Average Salary and Contribution Rate Increases.

Appropriateness of High Three Average Salary as the Indicator of the Pre-Retirement Standard of Living. The policy issue is the appropriateness of using a three highest successive years salary period as the averaging period in determining the final average salary base to which benefit accrual rate percentages is applied, rather than the current five highest years salary averaging period. Final average salary benefit plans do so in order to reflect a person’s final standard of living before retirement, thereby better attempting to provide an adequate post-retirement income amount. While a high three average salary will generally provide a larger initial retirement benefit, but that increase does not necessarily provide a better measure of the pre-retirement standard of living and the reduction in the averaging period will allow for more end-of-career salary manipulations. In the late 1970’s, when the issue of end-of-career salary manipulations last arose, there was evidence that some manipulations do occur, although no corrective legislation was ever actually implemented.
Appropriateness of Omitting Legislators, Constitutional Officers, and Judges Plans from Average Salary Base Change. The policy issue is the appropriateness of omitting some MSRS administered retirement plans from the change to a highest three average years average salary. If the current highest five successive years average period is argued by the proponents of this proposed legislation as being an inappropriate or inaccurate measure of a prospective retiree’s final standard of living, the same argument presumably should apply to legislators, constitutional officers, and judges. Their omission may suggest that "political" rather than policy considerations led to the formulation to the proposed legislation.
Future Functioning of the Combined Service Annuity Without a Common Benefit Calculation Salary Base. The policy issue is whether or not the functioning of the Combined Service Annuity portability provision will be harmed by having different benefit calculation salary bases utilized by included retirement plans. The Combined Service Annuity portability provision was enacted in 1975, shortly after the movement to the highest five successive years average salary in 1973 by the remaining statewide Minnesota pension plans.

S.F. 1439 (Johnson, D.E.); H.F. 1482 (Murphy): Various Plans; Various Retirement Provision Modifications.

Appropriateness of Proposed Removal of Financial Dependency Requirement. The proposed legislation removes the requirements that the child be financially dependent upon the member for at least half support prior to the death of the member, and that the child be unmarried. Remaining is a less definite indicator of dependency, which is age. The step away from dependency as a requirement raises the issue of whether the changes are consistent with the purpose of the pension plan, and whether this extension is appropriate for a pension plan. Alternatively, the matter can be thought of as a determination of the proper dividing line between public pension plan coverage and insurance policies. Current law suggests that children of deceased members should receive financial support from the deceased employee’s pension plan providing there is a clear demonstration of dependence (based on age and financial need). If not, and the employee wishes to provide income to these individuals in the event of the member’s death, that income should be provided by life insurance policies. The proposal removes the financial dependency requirement, making benefits from the pension plan to the child an entitlement providing the maximum age has not been exceeded. In its most basic form, a defined benefit pension plan provides coverage for the employee, providing an inducement to remain in service and providing an income in retirement. It has become customary to provide coverage, or at least the option of coverage, beyond the employee to the family unit. In death while active situations, the surviving spouse is generally entitled to benefits; typically, an annuity based on the annuity to which the member would have been entitled at the time of death. The Legislature has also followed a policy of authorizing benefits to dependent children of the deceased employee, based of notions of compassion and public purpose. Current law reflects an intention that financially dependent children should be provided with monetary support from the pension plan that covered the deceased employee.
Appropriateness of the Proposed Removal of Marriage and Continuing Education as Surviving Child Benefit Entitlement Requirements. The benefit increase proposal removes, where they exist, any requirement that that a child of the member be unmarried to retain eligibility to dependent child benefits, and language which permitted benefits to continue after age 18 only if the child was enrolled in an accredited school or college. These can be viewed as indicators of financial need. The policy question is whether these requirements should be retained rather than moving toward a concept of paying benefits to children of deceased active or deferred members as an unrestricted right. Removing these requirements will mean that more individuals will be entitled to benefits, adding to plan cost.
Appropriateness of Proposed Change in Partial Disability Reemployment Practice. The proposed benefit increase legislation revises MSRS-General partial reemployed disabilitant policy by specifying that any adjustment in the disability benefit due to the partial reemployment shall not occur until after a six month trial period, while it also revises the provision indicating how an annuity will be recomputed if the annuitant returns to fulltime service before reaching retirement age. The true scope of the intended change in reemployed disabilitant policy is not apparent from the draft language. The extent of the proposed change in statutory language is to add the phrase "after a six month trial period" to two provisions of disability law. The law would be transformed to a statement (although vague) about what is to happen after the six month trial period is over. The immediate question is what is to happen during the six-month trial period.
Appropriateness of Proposed TRA Disabilitant Partial Reemployment Benefit Level Revision. The proposed benefit increase legislation would change the limit against which disability benefits and partial reemployment earnings in TRA would be measured. The provision may be intended to encourage TRA disabilitants to attempt partial reemployment by providing them larger disability benefits (less of a potential reduction). However, reliance on this incentive may become a justification for TRA not to rigorously monitor the continuing eligibility of TRA disability benefit recipients for those benefits.
Appropriateness of elected State Office Plan Early Retirement Revision. This provision would permit retirement as early as age 55, rather than age 60. No change is proposed in current law benefit reduction language, which requires the benefit be reduced by one-half of one percent per month (six percent per year) from the age at retirement until age 62. The issue is whether there is any reason to change the provision or take legislative time considering a change. The Elected State Officers Plan has always been small, since it applies only to the Constitutional officers. The plan was closed to new members in 1997, and existing members were authorized to transfer prospective coverage. It is unclear at this time whether the change now being proposed in the Elected State Officers Plan would apply to anyone.
Appropriateness of Judges Retirement Plan Early Retirement Revision. The provision revises the Judges Plan law by clarifying that allowable service can be based on monthly increments, and by permitting retirement as early as age 55 rather than age 62. Permitting early retirement at age 55 would make this Judges Plan feature consistent with early retirement policy in general employee plans covering state workers, teachers, and local and county public employees. However, the issue is whether judges are sufficiently similar to teachers and other general employee plan covered employees to warrant a similar minimum early retirement age. Judges may not face stresses, particularly physical stresses, similar to those found in some other general employee plan employment positions. Judges may also tend to have much older entry ages than other plans. If that is the case, and if the plan is appropriately structured, there is less justification for an age 55 early retirement age in the Judges Plan. The stresses of the work may not warrant it. The late entry age, if the plan accrual rate is set at a reasonable level, may not permit a typical judge to accrue a sufficient pension benefit by his mid-50s to make retirement financially feasible. The push for an age 55 early retirement age for the plan also may reflect a problem with plan structure. The accrual rate might be excessive for an individual who becomes a judge at a relatively young age. Those individuals can create a sizable pension benefit by their mid-50s, and may be most interested in revising the plan to permit then to draw a benefit as early as age 55. In any of the teacher plans, in PERA General, and in MSRS-General, an individual who works to the normal retirement age, approximately age 65, will have an accrual rate of 1.7 percent of the high-five average salary for each year of covered service. The accrual rate in the Judges Plan is 3.2 percent of the high-five average salary for each year of service, which is nearly twice the accrual rate in the general employee plans. That accrual rate may be justified as necessary to attract older, more experienced individuals into judicial service, but the Judges Plan accrual rate may create a lucrative windfall for individuals who enter judicial service at a relatively young age. Permitting an age 55 early retirement in the Judges Plan also may lead to relatively young judges terminating and drawing the benefit, only to have them return to judicial service, and whether that situation can be viewed as good public policy. It is unlikely that a Judge who begins drawing a retirement annuity from the plan at age 55 or shortly thereafter will withdraw from the labor market. The Judges Plan does not have any reemployed annuitant provision that applies if a retired judge returns to employment as a judge.
Appropriateness of Closing MSRS-Unclassified Program Transfer Rights for New Members. The proposed legislation eliminates the right to transfer from MSRS-Unclassified Plan coverage to MSRS-General Plan coverage after an individual has ten years of covered service by employees hired on or after July 1, 2001. The policy issue is the implication of closing transfer rights by newly hired covered employees. Individuals who seek to transfer coverage from the Unclassified Plan to the General Plan presumably do so because the value of their annuity under the General Plan, given the individual’s service credit and high-five salary, is higher than the annuity that can be created by the value of the Unclassified Plan account. When this occurs, the General Plan suffers a loss. The assets that transfer are not sufficient to fully fund the individual’s MSRS-General annuity. The proposal is an attempt to eliminate this adverse selection against the General Plan. This will impact on incentives to seek legislative and other Unclassified Plan covered employment. The Commission and the Legislature may also wish to consider that the proposal will impact their future colleagues. Under existing law, newly elected legislators since 1997 have Unclassified Plan coverage rather than coverage by the MSRS-Legislators Plan, and some previously elected legislators may have transferred coverage to the Unclassified Plan. Any legislator first elected after July 1, 2001, and any other Unclassified Plan member first hired after that date will not have a transfer right.
Appropriateness of Extending Current Refund Laws to Prior Terminated Employees. The proposed legislation allows plan members who terminated service at any time in the past are entitled to a refund with six percent interest, rather than the interest specified in the law at the time of the individual’s termination from public service, if any. The proposed revisions are a step away from a presumption against retroactivity in retirement law. That is a significant change, one which warrants careful consideration of the implications. Refunds are part of the package of benefits provided by Minnesota defined benefit plans, along with retirement annuities, disability benefits, survivor benefits, and other miscellaneous benefits. Changes in Minnesota retirement plan laws are presumed to not have retroactive application. This is consistent with the notion that the retirement plan with the specific benefits offered are part of the package of salary and benefits offered to active employees to induce the individuals to become public employees, to retain the employees, and to out-transition the employees at the end of their productive working careers. Retirement plan laws are revised many times during the career of a longterm employee, and for all employees who terminate, the presumption is that the law that applies to the terminated individuals, whether it be refund laws or any other benefit offered by the plan, are the laws in effect on the date of termination from covered service. Those laws reflect the final agreement or legal promise between the employer and the now-terminated employees. The proposed change likely can not be implemented with any degree of consistency, fairness, or efficiency. Under law, a refund terminates all further rights in the given plan. Clearly, to date, none of the applicable plans have made any effort to keep current addresses for individuals who were presumed to have terminated all rights in the plan. In the past, some of these plans paid no interest on a refund. Then, over time, laws were revised to pay two percent interest, then three percent interest, then five percent interest until, at the current time, laws in most of the statewide plans specify that six percent interest is to be paid on a refund. Under this proposal, it will now be necessary to try to locate any individual who accepted a refund with less than six percent interest, or who has an inactive account with any of these plans. Many of the individuals to which these changes would apply terminated service many years ago, indeed decades ago, and many took refunds with whatever interest, if any, was applicable at the time. Given the passage of time, it will be difficult, expensive, and time-consuming to locate these individuals to inform them of their new right under law and to pay them whatever additional interest is payable. Many will be missed. For those who are located, the added payment will be a windfall.
Appropriateness of Survivor Benefit Improvement. The proposed legislation revises surviving spouse death-while-active-or-deferred benefits by basing the benefit on the age the employee would have been when the surviving spouse benefit commences, rather than upon the member’s age at death. This change will increase the benefit somewhat in any case where the surviving spouse delays receipt of the benefit. The policy issue is the amount of the benefit improvement and the need for that improvement.
Appropriateness of the State Patrol Plan Surviving Child Benefit Improvement. The proposed legislation would change the State Patrol Plan surviving child benefit from ten percent of average salary plus a prorated share of $20 per month, distributed among the deceased member’s eligible children, to a benefit of 12 percent of average salary. This is may be a benefit improvement in some cases, and creates differences between this plan and the comparable Public Employees Police and Fire Plan (PERA-P&F). That plan pays a child benefit of ten percent of salary, similar to the process now in law for MSRS-State Patrol, although for this specific benefit the PERA-P&F plan uses salary in the last six months prior to death, rather than a high-five average salary. Issues raised are the need for the proposed benefit increase or revision, and issues of fairness and consistency across similar plans.
Appropriateness of Extending the Retroactivity on Deferred Annuities. The proposed legislation would increase the retroactive date for the commencement of a deferred annuity from 60 days to 180 days. The policy issue is the lack of any demonstrated need for the change and the inappropriateness of providing benefit increases to former plan members.
Appropriateness of Creating Special Rules for Legislator-Teachers Within the TRA Part-Time Teaching/Full-Time Service Credit Program. The proposed legislation authorizes teachers who are legislators to enter into part-time teaching agreements under this provision by March 1 of the applicable school fiscal year for which the agreement applies, rather than by October 1 of the applicable school year, and by waiving any penalties that would have otherwise applied ($5 per day) for failure by the school district to file before the prior October 1. In 1999 (Laws 1999, Chapter 222, Article 8, Sections 1 and 11) the Legislature revised TRA’s part-time teacher program law, Minnesota Statutes, Section 354.66, by revising Subdivision 5, to permit teachers who are also legislators to take part in the part-time teacher program. That subdivision, as amended, permitted them to receive a full year of service credit in TRA for part-time teaching if they have an agreement with the school district under this provision, although they are covered for legislative employment in either the Legislator’s Plan or the Unclassified Plan. The effective date of the revised provision was January 2, 2001. Teachers can participate in the TRA part-time teacher program under agreements between the teacher and the applicable school district. Under existing law, whether or not the teacher is also a legislator, those agreements must be entered into before October 1 of the applicable school year. To avoid a $5 per day penalty, the school district must file that agreement with TRA by October 1. In no event may TRA accept an agreement that is filed more than 15 months late. The policy issue is the need for the proposed legislation. The program in law does work without the creation of special rules for legislator-teachers. The changes may represent a benefit enhancement for teacher-legislators not intended or evident from the 1999 legislation.

S.F. 1445 (Solon); H.F. 1532 (Murphy): DTRFA; Retirement Benefit Modifications.

Appropriateness of Encouraging Early Retirement. The proposed legislation reduces the normal retirement age for post-June 30, 1989, hirees from age 66 to age 65 and extends the "Rule of 90" normal retirement age to post-June 30, 1989, hirees. The proposed legislation raises the same issues of the appropriateness of encouraging early retirement by teachers as discussed in S.F. 1179; H.F. 1352.
Appropriateness of Revising "Rule of 90" Phase-Out. The phase-out of the "Rule of 90" was part of the 1989 benefit increases and was a significant compromise in the passage of that benefit program. The proposed legislation would revise that phase-out. If this portion of the 1989 benefit compromise is reversed, perhaps other portions of the 1989 package should be revised to affect the impact of this change.

S.F. 1705 (Pogemiller); H.F. 1692 (Murphy): First Class City Teacher Retirement Plans; Retirement Benefit Modifications.

Appropriateness of MTRFA Basic Program Disability Benefit Increase. The proposed legislation would authorize the MTRFA to revise its bylaws to have the basic member disability benefits computed like basic member retirement annuities, but without any reduction due to commencement of the benefit before normal retirement age. The proposal is a benefit increase. The MTRFA basic member disability benefit is an annuity based on the continued accumulation of employee and city contributions ‘at the current rate’ for a period of 15 years, plus an additional benefit equal to the smaller of 100 percent of the annuity provided by the city contributions or $150 per month, plus (for teachers with 20 or more years of service) an additional $7.50 per month. The proposal is to instead provide a benefit computed like a retirement annuity, but without any reduction due to early receipt. The change is allegedly to promote more consistency between the basic and coordinated plan. The justification for the benefit change is unclear.
Appropriateness of MTRFA Basic Program Medical Leave Salary Base Usage. The proposed legislation would authorize MTRFA to amend its bylaws to change the basic member contribution requirements on medical leaves to correspond to the procedure used for MTRFA Coordinated Plan members. The policy issue is whether a change is needed, and how this revised procedure differs from that in current use. Given the MTRFA’s current funding situation, the proposal should be carefully scrutinized so that it does not amount to a reduction in the contributions required for service credit under these leaves. Teachers Retirement Association (TRA) and first class city teacher fund association leave of absence contribution payment procedures explicitly subsidize many forms of leave due to the timing of the contribution payments. Rather than requiring payment during the leave, contributions are permitted many months later, and in some cases more than a year after the leave has terminated, without any interest. The delay in the receipt of the contributions creates an interest-free loan. These arrangements, like any form of subsidy, increase the total contribution requirement of the plan. The proposal also does not require any interest with the contributions providing contributions are received before the end of the fiscal year in which the leave terminates. If contributions are further delayed, interest is only charged from the end of the fiscal year during which the leave terminated until paid. Given the MTRFA’s actuarial condition and contribution deficiency, it would be reasonable for the MTRFA to consider proposing changes in many leave of absence provisions to revise contribution procedures in an effort to keep their pension fund whole.

S.F. 2116 (Lessard); H.F. 1811 (Anderson, I.): Judges; Clarification of Retirement Benefit Increase Effective Date.

Appropriateness of Extending a Benefit Increase to One Retiree. The proposed legislation would extend the 2000 Judges Retirement Plan benefit increase to include one judge who retired after the 2000 bill was in progress but before it became effective. The policy issues are whether or not there is any equitable justification for accommodating the situation of one retired judge and whether that equitable justification is sufficiently clear to validate the extension for the applicable judge, but preclude an extension to the estimated 100 retired judges who are similarly situated.

S.F. 2223 (Pogemiller); H.F. 2071 (Murphy): MTRFA and StPTRFA; Retirement Benefit Modifications.

Appropriateness of Encouraging Earlier Normal Retirement Ages for Teachers. (See similar discussion for S.F. 1445; H.F. 1532.)