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Based on a preliminary actuarial estimate of the funding status of the plan, an automatic contribution increase could be triggered beginning on July 1, 2014.
(Published Sep 3, 2013)
The Public Employees Retirement Association (PERA) last week released estimated information on the actuarial status of the PERA General Employees Retirement Plan—the plan that includes most non-public safety municipal personnel. Based on the estimates prepared by PERA’s actuarial firm, the general plan has a funding deficiency, when valued on an actuarial basis, equal to 1.4 percent of covered salary.
Although at this time the deficiency is an estimated amount, it would be sufficient to trigger a provision in current state law that requires a 0.25 percent employer contribution increase and a 0.25 percent employee contribution increase that would, according to PERA, be effective on July 1, 2014—mid-year in the budgets cities are currently preparing for 2014.
The actuarial valuation for the PERA General Employees Retirement Plan will be finalized in December but, at this time, it does not appear likely that the deficiency will drop below 0.5 percent, the threshold that triggers the contribution increase requirement.
The Legislative Commission on Pensions and Retirement (LCPR) and the Legislature have the power to modify or delay the contribution increase, but action to override the automatic employer and employee increases would not likely occur until after the Legislature convenes on Feb. 25, 2014.
There is a possibility that the PERA Board will recommend a modification (either a delay or a reduction) to the contribution increase, in part, due to the fact that the plan actually has a small sufficiency when the plan’s funding level is measured on a market value basis. The PERA Board will be discussing the issue at its September meeting.
The League will argue that the increase, if truly necessary, should not be effective until Jan. 1, 2015, to allow cities sufficient time to budget for the cost increase. The League will also work with PERA to identify other cost savings measures that might reduce or eliminate the need for a contribution increase.
Absent LCPR overruling the increase or a change in statute by the Legislature, the contribution increases would go into effect July 1, 2014.
Please note that the automatic contribution increase provision does not apply to the PERA Police and Fire Plan. However, the employer contribution to that plan is scheduled to increase by 0.9 percent of salary, while the employee contribution will increase by 0.6 percent. These increases will be effective with the first paycheck after Jan. 1. 2014.
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