Legislative Commission on Pensions and Retirement Staff Memo

HF 3145 (Newberger)

The Public Employees Defined Contribution Plan (PERA DCP) is a defined contribution plan established and governed by Chapter 353D and administered by PERA. A defined contribution plan provides a retirement benefit that is equal to the amounts contributed to an account plus investment earnings, in contrast to a defined benefit plan (also known as a pension plan), which provides a retirement benefit that is based on a formula that takes into account years of service, final average pay, and age at benefit commencement. The size of the benefit in a defined contribution plan depends on how the investments perform, whereas the size of the benefit in a defined benefit plan has nothing to do with investment performance.

The PERA DCP covers categories of employees that are not covered by one of the PERA pension plans. Employees eligible to participant in the PERA DCP include elected local government officials, physicians employed by a public employer, emergency medical service personnel employed by a public ambulance service, city managers, and volunteer or on-call firefighters.

If an employee elects to participate, the election is irrevocable. Mandatory employee contributions are deducted from the employee's pay at the applicable contribution rate specified in Minnesota Statutes section 353D.03 and the employer is required to make a matching contribution. Contributions are deposited in an account in the employee's name and the employee directs the investment of the account in an array of mutual funds made available by the State Board of Investment.

Under Minnesota Statutes section 353D.07, a participant may receive a distribution of his or her account in the Plan upon leaving public employment, disability, or death. Distribution is made in the form of a lump sum, which may be paid directly to the participant or transferred to an insurance company for the purchase of an annuity. If an employee becomes permanently and totally disabled, the employee may elect to receive distribution of his or her account in the form of equal monthly installments.

An employee who has attained at least age 65 is seeking a distribution of funds in his account in the Plan. Since the statutes governing the Plan do not currently provide for distributions while still employed by a public employer, the statute needs to be amended to allow for distribution while employed.

After consultation with PERA, the DCP administrator, it was determined that there was no administrative or legal impediment to allowing distributions while employed, as long as the employee was at least age 65. A new distribution provision could allow an employee to take all or a portion of his or her account in the Plan, no more frequently than once each calendar year and in an amount that is no less than $5,000.

H.F. 3145 (Newberger) amends Minnesota Statutes, Section 353D.07, to add this new distribution option, which is set forth as new subdivision 6.

In addition to adding this new distribution option, a number of clarifying changes are being made to this section. Clarifying changes include:

• adding language permitting a participant or surviving spouse to elect that a lump sum distribution be made in a direct rollover to an IRA or another retirement plan, as required by federal law;
• removing references to "retirement" that may be confusing since a distribution is permitted upon termination of employment at any age, making the concept of retirement irrelevant;
• replacing "withdrawal" with "distribution" since both are used in this statute, they have the same meaning, and using consistent terminology may avoid confusion; and
• removing the limit on the amount that may be distributed to a participant upon disability and allowing a disabled participant to elect a lump sum of his or her entire account and to defer taking a distribution to any date elected by the participant.


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