As an interim topic, the Commission chair, Senator Dean E. Johnson, has designated the development of draft proposed legislation revising, clarifying and updating the laws governing local police and paid firefighter relief associations.

The topic is not an outgrowth of any specific 2001 Session proposed legislation, but is part of a long term function and responsibility of the Commission and the Commission staff to update, clarify, and revise obsolete or disorganized pension laws.

This meeting is expected to be the only Commission interim consideration of the draft proposed revision and clarification legislation resulting from the Commission staff work on the topic.

This Commission staff issue memorandum is the only issue memorandum expected on the topic. The memorandum will summarize the development of the various statutes governing the local police and paid firefighter relief associations, will summarize the phasing-out of local relief associations (1970-1980), will summarize the post-1987 consolidation of local relief associations into the Public Employees Police and Fire Retirement Plan (PERA-P&F), will summarize the 1999 merger of the consolidation accounts into PERA-P&F, will summarize the draft proposed legislation LCPR01-246, and will discuss the policy issues that arise in connection with the draft proposed legislation.

In Minnesota, the first statewide retirement plan for local government public safety employees, the Public Employees Police and Fire Retirement Plan (PERA-P&F), was not established until 1959 (Laws 1959, Chapter 650). For police officers and paid firefighters employed before the creation of PERA-P&F in 1959 either had retirement coverage by a local police or paid firefighter relief association, typically in larger cities, or had retirement coverage by the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General).

In total, 59 local police and paid firefighter relief associations were established in 35 municipalities. Of the 59, one provided supplemental retirement coverage and the balance provided primary retirement coverage. Of the total, 27 relief associations were established before World War II, while 32 relief associations were created during or after World War II. The following compares the establishment decades of the 23 paid firefighters relief associations and the 36 police relief associations:

Appendix A sets forth the specific establishment dates for the 59 local police and paid firefighter relief associations.

The 59 local police and paid firefighter relief associations differed in the manner in which their governing law or laws were enacted, with some relief associations governed almost entirely by general statute, some relief associations governed primarily by local or special laws, and some relief associations governed almost entirely by local or special laws. The following compares the extent of general statute on local law involvement in specifying the benefit plan of the relief association:

The role and function of local police and paid firefighter relief associations began to change in the late 1960’s. In 1958, the Legislative Commission on Pensions and Retirement collected actuarial work from the various local police and paid firefighter relief associations, but did not again collect actuarial work form those plans until 1965. Those 1965 actuarial valuations showed continuing actuarial problems among those public safety pension plans, as follows:

The funding problems of the local police and paid firefighter relief associations revealed in the 1958 and 1965 actuarial valuations prompted the Commission to make the structure and funding of public safety employee pension coverage a major issue for the next decade and a half. In 1959, a statewide public safety employee retirement plan was created within PERA for police officers and paid firefighters employed by cities that did not have local relief associations. In 1969, after much debate, the Commission developed the Local Police and Paid Firefighters Relief Association Financing Guidelines Act, coded as Minnesota Statutes, Section 69.71, which imposed actuarial funding requirements on relief associations and the applicable municipalities to replace the prior current disbursements (or "pay-as-you-go") funding arrangement. The Guidelines Act phased-in a funding requirement of normal cost and interest on the unfunded actuarial accrued liability ("frozen" unfunded accrued liability rather than amortized unfunded accrued liability) over a ten-year period (1970-1980, except for Minneapolis, which interpreted the phase-in period as 1971-1981).

The initial phase-out of a local police or paid firefighter relief association occurred in 1969, with the phase-out of the Nashwauk Police Relief Association, and in 1971, with the phase-out of the Mankato Police Relief Association and of the Mankato Fire Department Relief Association. A relief association phased out by closing its benefit plan to new active members (i.e. newly employed personnel) after a specified date. The following summarizes the various special law local relief association phase-outs:

In 1975, a general prohibition on the creation of local pension plans, other than volunteer firefighter relief associations, was enacted (Minnesota Statutes, Section 356.25). In 1980, a general police and paid fire relief association phase-out was enacted, with an option for each city to elect to retain its local relief association or associations. Beyond the 26 relief associations that were phased out (or consolidated) by local law before 1981, 29 relief associations were phased out by the 1980 law, coded as Minnesota Statutes, Section 423A.01. Two municipalities elected to continue three relief associations, which were the Crookston Fire Department Relief Association, the Faribault Fire Department Relief Association, and the Faribault Police Relief Association. The Faribault relief associations eventually were phased out by subsequent local action that was ratified by 1985 special legislation.

Minnesota Statutes, Chapter 353A, enacted in 1987, authorized a local police or paid fire relief association to undertake an administrative consolidation of the relief association with the Public Employees Police and Fire Fund (PERA-P&F) and authorized the membership of a consolidated local relief association to elect between the benefit plan coverage of the local relief association and of PERA-P&F.

A local relief association consolidation with PERA-P&F was a voluntary action on the part of the relief association membership and the applicable municipality. The consolidation action was initiated by a petition signed by a minimum proportion of the relief association membership. If the petition was sufficient in the number of signatures and verified, the consolidation question was subject to a membership referendum requiring a majority vote. If the referendum prevailed, the governing body of the applicable city was required to act twice upon the proposed consolidation, with preliminary approval of the consolidation as a policy matter leading to the preparation of an actuarial assessment of the possible liability impact of the benefit plan coverage option and with final approval of the consolidation after receipt of that actuarial work and a review of relief association investments by the State Board of Investment.

If the consolidation was given final municipal approval, the local relief association ceased to exist as a pension fund and all administrative duties relating to the local plan shift to PERA-P&F. Following consolidation, individual members were given an opportunity to elect to retain their current benefit coverage or elect the PERA-P&F benefit plan. For retired members, the election was limited to the manner in which post retirement adjustments are calculated. For active members, the election was a choice between all aspects of the respective plan. The benefit coverage election could have been exercised by retired members in the period following consolidation, and by active members within six months of consolidation, between ages 49 and 1/2 and 50, or upon employment termination.

As of March 1, 1999, when the Commission considered the 1999 merger legislation, 44 of the 48 local police or paid fire relief associations still in existence in 1987 had consolidated with PERA-P&F. The various relief associations which have completed consolidations with PERA-P&F, leaving the Fairmont Police Relief Association, the Minneapolis Firefighters Relief Association, the Minneapolis Police Relief Association, and the Virginia Fire Department Relief Association as the only remaining local police and paid fire relief associations. The consolidated local police and paid firefighter relief associations and the year of the consolidation are as follows:

Local police and paid fire relief association consolidations occurred on a relatively regular basis, as follows:

Laws 1999, Chapter 222, Article 4, amending Minnesota Statutes, Chapter 353, provided for the merger of 44 local police and paid fire consolidation accounts into the Public Employees Police and Fire Retirement Plan and Fund (PERA-P&F). Additionally, that legislation provided for a distribution of a portion of surplus assets (assets in excess of liabilities) in the current consolidation accounts back to the municipalities and provided benefit enhancements to PERA P&F and consolidation account members.

Unless the municipality declined to participate, all PERA-P&F consolidation accounts in existence as of March 1, 1999, were merged into the PERA-P&F fund on July 1, 1999. Municipalities chose to be excluded from the merger by filing a resolution before June 15, 1999, but no municipality did so. For the consolidation accounts merging into PERA-P&F, consolidation account liabilities transfer to PERA-P&F and consolidation accounts merging into PERA P&F, consolidation account assets (except for amounts to be distributed back to the municipality) were transferred to PERA-P&F or the Post-Retirement Investment Fund, as applicable. For accounts where additional municipal contributions were necessary to cover existing liabilities (accounts where there is a positive amortizable base) the amortizable base amount was added to PERA P&F assets as a receivable. Active members of consolidation accounts were allowed to elect PERA-P&F coverage in an election conducted before September 1, 1999. If no election was made, the individual retained the right to elect that coverage, in lieu of local plan benefit provisions, within 90 days of termination of service. Consolidation account service pensioners, disabilitants, and survivors who previously had chosen to retain local plan post retirement adjustments, were authorized to rescind that irrevocable election and to elect PERA-P&F post retirement adjustments. Deferred consolidation account members were authorized to elect PERA-P&F post retirement adjustments in an election conducted before September 1, 1999. The actuary retained by the Legislative Commission on Pensions and Retirement was required to compute the final funded status of each consolidation account which merged into the PERA P&F fund. If an account was more than fully-funded, half of the assets reflecting amounts above full funding up to the June 30, 1999, PERA-P&F funding ratio and all assets reflecting amounts in excess of that PERA P&F funding ratio were remitted to the municipality with interest. These amounts were required to be used by the municipality for fire or police related expenditures, as applicable. Before the municipality can receive any of these amounts, the municipality must have held a public hearing and adopted a plan for the expenditure of these assets. If a municipality had more than one consolidation account and one was over-funded while the other had an unfunded accrued liability, 75 percent of the amounts that would otherwise be refunded to the municipality must be credited to the consolidation account which has unfunded actuarial accrued liabilities. If the account had unfunded actuarial liability at the time of merger, the amount must be amortized on a level-dollar basis by December 31, 2009. Annual payments are due by each December 31 and late payment requires 8.5 percent interest. Unless a consolidation account member revised their benefit election, any prior election remained in effect. Upon transfer of liabilities and assets, the merging consolidation accounts were terminated.

The additional amortization aid provision was revised to specify that municipalities with a continuing amortization requirement due to their previous consolidation account will continue to be eligible for additional amortization aid, by revising plans that are eligible for that aid, and by specifying the post October 1, 2000, allocation among participants. Of the total, 64.5 percent will go to prior consolidation accounts with remaining liabilities, 34.2 percent is directed to Minneapolis relief associations, and 1.3 percent for Virginia Fire. If aid is released or unallocated because there is no unfunded liabilities in Minneapolis relief associations or Virginia Fire, any released aid is redirected to Minneapolis Teachers Retirement Fund Association (MTRFA) (49 percent) and St. Paul Teachers Retirement Fund Association (StPTRFA) (21 percent), and the remaining 30 percent of any released aid is allocated to the minimum fire state aid floor. To be eligible for this reallocation, the Minneapolis and St. Paul teacher funds must have five-year average investment returns, beginning on July 1, 2005, which equal or exceed the return on a 10 percent cash/60 percent bond/30 percent stock indexed portfolio.

Municipalities with prior consolidation accounts with unfunded accrued liability remain eligible for additional amortization aid for the duration of the required additional contributions (December 31, 2009). The total of amortization and supplemental amortization aid, and additional amortization aid to municipalities with ex-consolidation accounts with remaining accrued liability amounts to amortize is capped at an amount equal to their level dollar amortization requirement. Any excess is redirected back to remaining eligible consolidation accounts and if any excess continues to exist, that excess is redirected to other eligible pension funds. The amortization, supplemental amortization, and additional amortization state aid programs terminate when the MTRFA and StPTRFA become fully funded.

Draft Proposed Legislation LCPR01-246 amends or repeals various local police and paid firefighter relief association laws to clarify the law applicable to the four remaining local relief associations, by making the following changes:

1. Restructures the 1969 Police and Paid Fire Relief Association Financing Guidelines Act. Minnesota Statutes, Section 69.77, is restructured, with the various subdivisions redesignated numerically to replace the more confusing current number and letter designation and with the contents of Minnesota Statutes, Section 69.78, currently separated from the 1969 Guidelines Act by the 1971 Volunteer Firefighters Relief Associations financing Guidelines Act incorporated, thus reintegrating into the 1969 Guidelines Act (Section 1);

2. Restructures the Authorized Relief Association Administrative Expense Provision. Minnesota Statutes, 69.80, is divided into paragraphs and its various clauses redesignated numerically in conformity with the current legislative drafting style (Section 2);

3. Citations to Proposed Repealed Provisions Corrected. Cross-references to statutory provisions proposed for repeal in the draft proposed legislation are corrected or eliminated (Sections 3, 4, 5, 6, and 8);

4. Retention of Minnesota Statutes, Chapter 424 for the Bloomington Fire Department Relief Association. The Bloomington Fire Department Relief Association, a volunteer firefighter relief association that bases its service pension on the pay of top grade Bloomington patrol officers and consequently has been treated under Minnesota law as a paid firefighter relief association, retains Minnesota Statutes 2000, Chapter 424, as its governing law to the extent that the general statutory provision actually governed the relief association before the repeal proposed in this draft (Section 7); and

5. Repeal of 501 Obsolete General and Special Local Relief Association Laws. The draft proposed legislation would repeal 87 general statute provisions relating to local police and paid firefighter relief associations that have merged into the Public Employees Police and Fire Retirement Plan (PERA-P&F) (27 first class city fire department relief association statutory provisions, 23 second class city fire department relief association statutory provisions, 13 second class city police relief association statutory provisions, and three general police and paid fire statutory provisions) and 414 special law provisions relating to the various local police and paid firefighter relief associations that have merged into PERA-P&F.

Draft Proposed Legislation LCPR01-246, while drafted by the Commission staff to eliminate those general and special law local police and paid firefighter relief association provisions which were made obsolete by the 1999 merger into the Public Employees Police and Fire Retirement Plan (PERA-P&F) of the local police and paid firefighter relief associations, following consolidation into the Public Employees Retirement Association (PERA) during the period 1987-1998, does raise several pension and related public policy issues that may merit Commission consideration and discussion, as follows:

1. Accuracy of the Identification of Obsolete Laws. The primary policy issue is the accuracy of the identification by the Commission staff of the various repealed general and special laws as obsolete. The initial compilation of special and local laws governing local police and paid firefighter relief associations was assembled and maintained by the Office of the State Auditor for use in preparing their periodic local relief association audits. The maintenance of the local police and paid firefighter relief association special and local law compilation was assumed by the Commission staff in the mid-1970s and continued to this date. The compilation was augmented and corrected by a 1980s project sponsored by the Revisor of Statutes that indexed pre-1957 special and local laws. By providing the draft proposed legislation to interested parties at this meeting and by circulating the draft to the affected municipalities in the near-term future, the Commission staff will be able to identify any errors, omissions, or unintended results of the proposed repealers.

2. Appropriateness of Restructuring Minnesota Statutes, Section 69.77. The policy issue is the appropriateness of restructuring the 1969 Local Police and Paid Firefighters Relief Association Financing Guidelines Act, Minnesota Statutes, Section 69.77. The provision now has limited application, since only four local relief associations remain (i.e., the Fairmont Police Relief Association, the Minneapolis Firefighters Relief Association, the Minneapolis Police Relief Association, and the Virginia Fire Department Relief Association). However, local police and paid firefighter relief association funding problems still exist. Of the four, the Virginia Fire Department Relief Association and the Minneapolis Police Relief Association have significant funding problems, as follows:

	Fairmont Police				Minneapolis Fire
	1999		2000		1999		2000
Active Members	0		0		153		104
Deferred Retirees	0		0		1		1
Retirees	12		12		420		453
Survivors	4		3		202		200
Total Membership	16		15		776		758
Accrued Liability	$7,174,075		$7,245,193		$291,167,696		$293,801,923
Assets	$7,113,030		$7,169,851		$318,042,643		$315,900,478
Unfunded Accrued Liability	$61,045		$75,342		($26,874,947)		($22,098,554)
Funding Ratio	99.1%		99.0%		109.2%		107.5%
Covered Payroll	$0		$0		$10,039,101		$7,054,115
Annual Benefits Payable	$450,528		$456,130		$18,001,012		$19,610,997
Normal Cost	$0	--%	$0	--%	$2,323,102	24.00%	$1,540,141	22.71%
Amortization	$7,529	--%	$10,095	--%	$ 0	0.00%	$ 0	--%
Financial Requirements	$7,529	--%	$10,095	--%	$2,323,102	24.00%	$1,540,141	22.71%
Member Contributions	$0	--%	$0	--%	$803,128	8.00%	$564,329	8.00%
Municipal Contributions	$7,529	--%	$10,095	--%	$1,519,974	16.07%	$975,812	14.71%
Total Support	$7,529	--%	$10,095	--%	$2,323,102	24.07%	$1,540,141	22.71%

	Minneapolis Police				Virginia Fire
	1999		2000		1999		2000
Active Members	123		97		0		0
Deferred Retirees	8		3		0		0
Retirees	668		677		16		16
Survivors	249		247		4		3
Total Membership	1048		1024		20		19
Accrued Liability	$447,595,629		$447,086,382		$3,712,188		$3,620,892
Assets	$427,122,128		$391,083,455		$2,640,478		$2,732,942
Unfunded Accrued Liability	$20,473,501		$56,002,927		$1,071,710		$887,950
Funding Ratio	95.4%		87.5%		71.1%		75.5%
Covered Payroll	$7,804,036		$6,583,342		--		--
Annual Benefits Payable	$26,701,339		$28,043,660		$368,244		$373,464
Normal Cost	$1,988,341	26.50%	$1,581,906	24.03%	$0	--%	$0	--%
Amortization	$2,624,238	33.62%	$7,767,618	117.99%	$135,433	--%	$121,903	--%
Financial Req.	$4,612,579	60.13%	$9,349,524	142.02%	$135,433	--%	$121,903	--%
Member Contributions	$624,323	8.00%	$526,667	8.00%	$0	--%	$0	--%
Municipal Contributions	$3,988,256	52.13%	$8,822,857	134.02%	$135,433	--%	$121,903	--%
Total Support	$4,612,579	60.13%	$9,349,524	142.02%	$135,433	--%	$121,903	--%

 

3. Appropriateness of the Timing of the Clarification Legislation. The policy issue is whether or not undertaking a clarification of the local police and paid firefighter relief association general and special laws at this time is appropriate. Since the 1999 legislation providing for the merger of the consolidation accounts had a municipal elect-out option, it was not appropriate to include clarification provisions at that time, when the various affected laws became obsolete. However, now that sufficient time has passed since the merger and no municipality opted out of the merger legislation and the Commission staff has time to carefully prepare the draft proposed legislation, the clarification becomes possible at this time.