PERA Endorses Police and Fire Plan Fix

The plan includes employer and employee contribution increases as well as substantial benefit reductions to address a funding deficiency.
(Published Dec 6, 2012)

By unanimous vote, the Public Employees Retirement Association (PERA) Board of Trustees adopted the recommendations of a working coalition of law enforcement and firefighter representatives to address the funding shortfall faced by the Police and Fire (PERA-P&F) fund.

The PERA Board on Dec. 13 agreed to present the Minnesota Legislature with the package of plan modifications designed to turn around the plan’s declining funding levels—modifications that affect all plan members, retirees, and employers.

According to PERA’s actuaries, the plan currently has a funding deficiency representing approximately 7.9 percent of active members’ salaries. That means, absent any other changes to the plan, combined member and employer contributions would need to increase nearly 8 percent to fully fund the plan by 2038, the date mandated by law for full funding.

Nearly all agree increasing contributions alone to address the problem is financially impossible. Although the 2012 merger of the Minneapolis fire and police relief associations with the P&F Plan bolstered the number of plan retirees, it does not factor into the plan’s funding difficulties. The law providing for the merger mandates that any additional cost to the plan is the responsibility of the City of Minneapolis.

The recommendations adopted by the Board were first hammered out by the coalition on Nov. 27. They include the following:

  • Increase active members’ contributions by a total of 1.2 percent of salary, phased in over two years beginning in 2014. Thus, the current contribution rate of 9.6 percent would increase to 10.2 percent in 2014, and 10.8 percent in 2015.
  • Concurrently, increase employer contribution rates by 1.8 percent, phased in over the same two-year period. That would take employer contributions from the present 14.4 percent of salary to 16.2 percent.
  • Cap initial retirement benefits at 99 percent of average salary (equivalent to 33 years of service) for individuals first enrolling in the plan after June 30, 2014.
  • Increase vesting for members enrolled in the plan after June 2014 to 50 percent after 10 years of service, and increase 5 percent each year thereafter until fully vested after 20 years of service.
  • Change the early retirement reduction factor from 1.2 percent per year (2.4 percent for post-June 2007 members) to 5 percent per year. This would be phased in over five years starting July 1, 2014 (read more details about this).
  • Set benefit recipients’ annual increases at 1 percent until the plan is back to 90 percent funded.
  • Delay the first retirement increase paid to new retirees for three years (two years beyond current law).

The League has not weighed in on the proposal as of yet, in part because the recently adopted 2013 legislative policy pertaining to PERA (HR-9) does not anticipate a number of provisions in the proposal. Specifically, the League’s policy opposes contribution increases that are not shared equally between the employer and the employee. Current law distributes the contributions on a 60/40 basis between the employer and employee, respectively. The League’s policy also does not speak to specific benefit reductions that the stakeholder group has recommended.

Given the importance of stabilizing the PERA-P&F Plan and the strong likelihood that the 2013 Legislature will consider at least some version of the stakeholder proposal, League staff will brief the Board of Directors on the latest developments. The Board has the authority to adopt interim policies once the regular policy development has concluded, which it did on Nov. 8.

PERA’s Board of Trustees continues to seek input on the issue and is open to any and all suggestions and comments from members and retirees on ways to address the funding problem. Comments can be directed to Mary Vanek, PERA’s executive director, at webP&FFeedback@mnpera.org.

Note: Some information in this article was originally published on the PERA website. Used with permission.

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