Pension Commission Considers Several PERA Issues

The commission is preparing legislation for the 2014 legislative session.
(Published Feb 3, 2014)

The Legislative Commission on Pensions and Retirement (Pension Commission) considered several pension initiatives last week that would affect the Public Employees Retirement Association (PERA). These changes will likely be considered when the Legislature convenes on Feb. 25.

PERA eligibility threshold
Included in the discussions was an initiative by Rep. Tim O’Driscoll (R-Sartell) that would modify and update the current eligibility threshold for participation in the PERA General Plan, which is the retirement plan available for most non-public safety city personnel.

Under current law, employees that earn more than $425 in a single month are required to be included in the PERA system, unless the employee is excluded under one of the other exclusions such as being a full-time student under age 23 or filling a temporary position.

Under the O’Driscoll bill, the earnings threshold would be increased to $773 per month, which is the inflation-adjusted amount had the threshold been increased annually since 1988. In subsequent years, the threshold would be adjusted based on the consumer price index.

The Pension Commission directed the PERA staff to study the issue to develop recommendations on how to best modify the eligibility threshold. In their report, they reviewed four alternatives, including the O’Driscoll bill, a more modest initial monthly salary threshold increase, an annual earnings threshold, and an hours-worked system.

The report recommends using an annual earnings threshold because it would likely be the easiest to administer for all cities and counties and it would reduce the possibility that a one-month spike on earnings would include an individual in the PERA system.

The League’s Human Resources policies include a general position supporting an adjustment to the earnings threshold, although the policy does not outline a specific modification to the statute. The League testified that any of the four PERA-identified alternatives would be an improvement over the current $425/month standard.

Two labor groups testified in opposition to the proposal, indicating that any increase would prevent the lowest paid public employees from participating in the retirement system. The commission members discussed whether the earnings threshold should be eliminated altogether, but PERA Executive Director Mary Vanek indicated that the PERA statutes do not include a pro-ration adjustment for part-time employees and such a change could allow a lower-paid worker that retires in a full-time, higher paying job to receive a pension based on the final years of salary.

At this point, it is not clear if the commission will include any recommendation on adjustments to the eligibility threshold in the yet-to-be-introduced 2014 omnibus pension bill.

Contribution increase recommendation
The commission also discussed the recommendation by the PERA Board of Trustees for an increase in the employee and employer contributions to the PERA General Plan. Under current law, the PERA Board must make a recommendation on a contribution increase if the total required actuarial contributions are deficient by at least 0.5 percent of salary for two consecutive years. The deficiency measured on July 1, 2012, was 0.96 percent and on July 1, 2013, was 1.65 percent.

Based on these deficiencies, the PERA Board is recommending that the employer and the employee contributions each be increased by 0.25 percent of salary. If the Legislature takes no action, this increase would go into effect on July 1, 2014. The League urged the PERA Board to also recommend that the increase be delayed until Jan. 1, 2015, in order to avoid a mid-year change that cannot be fully incorporated into an employer’s budget. The Board accepted that proposal and included the six-month delay in their recommendation to the Pension Commission.

If the Legislature agrees with the PERA Board’s recommendations, the contribution rate for employees will increase to 6.5 percent of salary from the current 6.25 percent of salary. The employer contribution would increase to 7.5 percent of salary from the current 7.25 percent of salary. The commission took no official action on the recommendation but will likely include the recommendations in the yet-to-be-introduced 2014 omnibus pension bill.

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