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A recently introduced bill would add surcharges to various insurance premiums in order to fund the existing policy and fire pension system.
(Published Feb 26, 2013)
On Monday, Rep. Joe Atkins (DFL-Inver Grove Heights) introduced HF 857, a bill that would impose a surcharge on various insurance premiums to provide additional funding for the existing police and fire pension state aid programs. The bill is co-authored by Representatives Greg Davids (R-Preston), Mary Murphy (DFL-Hermantown) and Tony Cornish (R-Good Thunder).
Other Pension Bills
This bill does not replace HF 618 and SF 447, the bills introduced to address the funding shortfall in the Public Employees Retirement Association’s Police & Fire (PERA P&F) Pension Plan. The P&F plan is projected to have a funding deficiency representing approximately 7.9 percent of active members’ salaries and these two bills would fund the current projected deficiency.
Since reaching its peak of $31.7 million in 2006, the revenues collected to fund the fire state aid program have declined by nearly 31 percent, or $10 million, due to reductions in the yield of the tax on fire, lightening, sprinkler leakage and extended coverage. Fire state aid must be used to cover firefighter pension costs. For municipalities that do not offer firefighter pensions, the funds must be used for maintenance of the fire department or for the purchase of fire equipment.
Police state aid, which is funded by a tax on automobile insurance premiums, has also dropped in recent years but not to the same degree. The police state aid pot reached its peak in 2009 at $63.3 million and declined to $59.9 million, or 5.4 percent, by 2012. Police state aid must be used to defray the costs of employer pension contributions.
Proposed Bill & Funding Mechanism
Under the bill, a $5 annual surcharge would be applied to each new or renewed homeowner insurance policy and a $5 surcharge would be applied to each automobile insurance policy.
The revenue from the surcharge on homeowner insurance coverage, estimated to raise roughly $7.5 million, would be deposited into a surcharge fire pension aid account and allocated by formula. Roughly 74 percent of the revenue is allocated to volunteer relief associations and the remaining 26 percent split between employers and PERA, with the PERA portion dedicated as a supplemental state pension funding aid. This supplemental aid would be used to address the existing funding deficiency in the PERA P&F plan and would reduce the need for future contribution increases to cover the funding deficiency.
The automobile surcharge revenue, estimated to raise approximately $15.5 million, would be deposited into the surcharge police pension aid account, with roughly one-third allocated to employers and the remaining two-thirds allocated directly to PERA as a supplemental state pension funding aid to address the existing funding deficiency in the PERA P&F plan.
The provisions in the bill are effective July 1, 2013. The bill was initially referred to the House Committee on Commerce and Consumer Protection Finance and Policy.
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