TO: Members of the Legislative Commission on Pensions and Retirement
FROM: Susan Lenczewski, Executive Director
RE: H.F. 3606 (Erhardt); S.F. xxxx: MSRS; Individual Legislation Permitting Service Credit Transfer from MSRS-General to MSRS-Correctional
DATE: March 28, 2016
H.F. 3606 (Erhardt); S.F. xxxx provides for the transfer of service credit from the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General) to the MSRS Correctional State Employees Retirement Plan (MSRS-Correctional) for the 3 years and 3 months period of June 1, 1986, through August 31, 1989, for Daniel Ahlness, a retiree and former security case worker in the Department of Corrections (DOC). Commission staff understands Mr. Ahlness is currently a resident of Wisconsin.
Paragraph (a) of the bill states that an "eligible person" will receive an employer payment on his behalf to MSRS and transfer of service for the period June 1, 1986, through August 31, 1989, if he makes the required payment to MSRS-Correctional.
Paragraph (b) defines an "eligible person" with specificity so that only Mr. Ahlness will be eligible.
Paragraphs (c) and (d) set forth the two conditions that must be satisfied in order for an asset transfer and service credit transfer between MSRS-General and MSRS-Correctional to occur:
Paragraph (e) requires, within 15 days of the DOC payment, that assets will be transferred from MSRS-General to MSRS-Correctional in an amount equal to the value of the pension benefit earned under MSRS-General, reduced by the value of payments already made to Mr. Ahlness.
Paragraph (f) provides that the pension increase is to be retroactively effective to the date of the first payment of his current pension, January 28, 2015. Commission staff understands that MSRS intends to pay the monthly increase for the period since January, 2015, in a lump sum along with the first increased payment after passage of the proposed bill.
Mr. Ahlness served as a security case worker and was a member of MSRS-General from May 1986 to September 1989. When he became a Correctional Lieutenant in September 1989, he became covered by MSRS-Correctional. He is currently receiving two monthly pensions: (i) from MSRS-Correctional in the amount of $4,327 and (ii) from MSRS-General in the amount of $190.95. If his MSRS-General service was covered by MSRS-Correctional, his pension would be paid entirely from MSRS-Correctional and would be $288.55 higher each month than the sum of his two pensions.
1996 law applied 75% inmate contact threshold and offered service credit purchase and transfer. In 1996, a law was passed to expand membership in MSRS-Correctional to include security case workers who had at least 75% inmate contact. Employees who had past service as a security case worker were able to "purchase" the right to have the MSRS-General service transferred to MSRS-Correctional if the employee paid the difference between the employee contribution amount paid under MSRS-General and the amount the employee would have paid under MSRS-Correctional. To qualify for the purchase, the DOC had to certify that the employee met the 75% inmate contact threshold.
Members had until June 30, 1999, to pay the difference in employee contributions under the two plans.
For the period at issue, the employee contribution rate under MSRS-Correctional was 4.9%. Under MSRS-General, the employee contribution rate was 3.73% in 1986 through 1988, and increased to 4.34% starting in 1989.
Commission staff understands that the DOC has verified to MSRS that Mr. Ahlness met the 75% inmate contact threshold from June 1, 1986, through August 31, 1989, and should have been eligible for the service transfer and purchase. Allegedly, the Department did not provide the necessary certification for Mr. Ahlness and MSRS did not receive notice that Mr. Ahlness was eligible to purchase past service credit.
Retirement and appeal. When Mr. Ahlness retired on January 27, 2015, he asked if he could convert his MSRS-General service to Correctional Plan service. The Executive Director of MSRS informed him that he could not have the service transferred, because the service purchase was required to have been made prior to June 30, 1999. Mr. Ahlness has appealed the MSRS Executive Director's decision to deny his request. Since there was no dispute that he should have had an opportunity to transfer the past service, the decision to deny his request was based solely on the fact that the June 30, 1999, statutory deadline for payment of the employee contribution had expired.
The next stage in the appeals process is to the MSRS board of directors for a hearing and determination. The appeal hearing has been postponed to give MSRS time to seek a legislative remedy to resolve the issue.
Dollar amounts to be paid by Mr. Ahlness and the DOC. The actuarial present value of increasing Mr. Ahlness' monthly benefit by $288.55 is $43,701. The value of the difference in employee contributions between MSRS-General and MSRS-Correctional for the period at issue plus interest to date is approximately $11,100; this is the amount that Mr. Ahlness would be required to pay. The difference between the actuarial present value and the employee contributions plus interest to date is approximately $32,601; this is the portion that the DOC would be required to pay. (The foregoing amounts are approximations because there will be additional interest to the effective date of this legislation, if it is enacted.)
H.F. 3606 (Erhardt); S.F. xxxx raises the following constitutional, pension, and public policy issues: