Omnibus Pension Bill on Way to Governor

The bill contains measures that would place the Public Employees Retirement Plan Police and Fire Fund on firmer financial footing.
(Published May 20, 2013)

The conference committee report on the omnibus pension bill, SF 489 (Sen. Sandra Pappas, DFL-St. Paul, and Rep. Mary Murphy, DFL-Hermantown), was passed by the Senate on a vote of 38-27 on May 17. The measure was passed on May 18 by the full House on a vote of 77-53. The next stop for the package is Gov. Dayton’s desk.

The bill contains measures that would place the Public Employees Retirement Plan Police and Fire Fund (PERA-P&F) on firmer financial footing. It also repeals the Pre-Age 62 Supplemental pension option, and allows unmarried couples covered by a survivor option pension to rescind that decision upon mutual agreement.

The bill incorporates the following changes:

  • Increases 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, increases 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.
  • Caps 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.
  • Increases vesting for members enrolled in the plan after June 2014 to 50 percent after 10 years of service, and increases 5 percent each year thereafter to fully vested after 20 years of service.
  • Changes 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 (read more details and access an early retirement calculator).
  • Sets benefit recipients’ annual increases at 1 percent until the plan is back to 90 percent funded.
  • Delays the first retirement increase paid to new retirees for three years (two years beyond current law).

Legislation that would have implemented a $5 surcharge on auto and homeowner insurance policies to help fund public safety pension funds in the state stalled in the tax conference committee. As of May 18, the tax conference committee has included a $15.5 million general fund appropriation for this purpose.

The bill is expected to reach the governor’s desk in the coming days, and he is expected to sign the measure into law.

Background
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.

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