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The House Ways and Means Committee met April 26 to consider and pass two omnibus pension bills. The bills, known as omnibus retirement bill I and omnibus retirement bill II, were combined by the Ways and Means Committee and sent to the House floor.
(Published Apr 26, 2013)
The Legislative Commission on Pensions and Retirement, also known as the Pension Commission, produced two omnibus bills in 2013: omnibus retirement bill I covers system-wide noncontroversial provisions, and omnibus retirement bill II contains provisions that required more consideration, such as legislation affecting the Public Employees Retirement Association Police and Fire Plan (PERA-P&F).
Included in omnibus retirement bill I (SF 489, Sen. Sandy Pappas, DFL-St. Paul/HF 629, Rep. Mary Murphy, DFL-Hermantown) is a provision that repeals PERA's little-used pre-age 62 supplement pension option. Another would allow unmarried couples covered by a survivor option pension to rescind that decision by joint agreement. Most of the other provisions of the bill that impact PERA are minor administrative and language changes.
The Pension Commission released the omnibus retirement bill II (SF 1191, Sen. Sandra Pappas, DFL-St. Paul /HF 1152, Rep. Mary Murphy, DFL-Hermantown) on April 2. It contains the PERA-P&F stabilization bill originally introduced as SF 447 (Sen. Sandra Pappas, DFL-St. Paul)/HF 618 (Rep. Michael Nelson, DFL-Brooklyn Park). The provision is intended to address the funding shortfall faced by the PERA-P&F fund. If enacted, the modifications will affect all plan members, retirees, and employers.
The bill incorporates the following changes:
• Increasing 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, increasing 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;
• Capping 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;
• Increasing vesting for members enrolled in the plan after June 2014 to 50 percent after 10 years of service, and increasing 5 percent each year thereafter to fully vested after 20 years of service;
• Changing 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 5 years starting July 1, 2014.
(click here for more detailed information and an early retirement calculator);
• Setting benefit recipients’ annual increases at 1 percent until the plan is back to 90 percent funded; and
• Delaying the first retirement increase paid to new retirees for three years (two years beyond current law).
Senate Keeps Bills Separate
In the Senate, the omnibus retirement bill I has been approved by the full Senate, and the omnibus retirement bill II is awaiting action by the Finance Committee. It is expected that the bills will be merged during conference committee.
Funding Provision Moved to Tax Bills
Legislation that would implement a $5 surcharge on auto and homeowner insurance policies to help fund public safety pension funds in the state has been moved out of the omnibus pension bills in both bodies and will be addressed in the omnibus tax bills in the House and Senate. Those bills are HF 857 (Rep. Joe Atkins, DFL-Inver Grove Heights) and SF 935 (Sen. Sandra Pappas, DFL-St. Paul). The Senate version of the surcharge bill has been converted into a general fund appropriation, based on an amendment offered by Sen. Roger Reinert (DFL-Duluth). Sen. Reinert was concerned about the regressive nature of the surcharge and, although his amendment converts the bill into a general fund appropriation, he is still seeking a modified surcharge that will be less regressive than the proposed surcharge.
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.
Questions? Contact Anne Finn at firstname.lastname@example.org or at (651) 281-1263.
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