Omnibus Pension Bill Contains Changes to PERA Plans

The bill includes modifications designed to correct current funding deficiencies in several pension plans.
(Published May 15, 2017)

The Legislative Commission on Pensions and Retirement completed its work last week on the omnibus pension bill, which includes changes to the Public Employees Retirement Association (PERA) Police and Fire (P&F) Plan and General Plan.

The commission spent most of the past four months developing a bill designed to correct current funding deficiencies not only in the PERA plans, but also in the Minnesota State Retirement System, Teachers Retirement Association, and St. Paul Teachers Retirement Fund Association.

PERA P&F modifications
The bill, SF 545/HF 565, contains modifications to the PERA P&F Plan recommended by the PERA Board of Trustees, including:

  • Reducing the assumed rate of return from 8 percent to 7.5 percent.
  • Resetting the amortization date to 2047 (the date by which the plan is projected to be fully funded).
  • Eliminating the current law cost-of-living adjustment (COLA) trigger. The current COLA trigger is problematic because financial changes, including contribution increases, would first serve to accelerate the increase in the payment of the COLA rather than improving the plan’s financial status.
  • Eliminating deferred augmentation, which increases the benefit for individuals that leave covered public service.
  • Providing direct state aid to the fund of $4.5 million per year beginning in 2017 and increasing to $9 million in 2019. The direct state aid will reduce the need for contribution increases.
  • Increasing the employee contribution rate from 10.8 percent to 11.3 percent on Jan. 1, 2018, and then to 11.8 percent on Jan. 1, 2019.
  • Increasing the employer contribution rate from 16.2 percent to 16.95 percent on Jan. 1, 2018, and then 17.7 percent on Jan. 1, 2019.

PERA General Plan modifications
The PERA Board did not recommend changes to the PERA General Plan because the plan is projected to move slowly toward full funding. However, the plan has a funding deficiency equal to 3.5 percent of salary that will prevent it from reaching full funding by the current amortization date.

The bill includes changes to the PERA General Plan to address this deficiency, including:

  • Reducing the assumed rate of return from 8 percent to 7.5 percent.
  • Resetting the amortization date to 2047 (the date by which the plan is projected to be fully funded).
  • Eliminating the current law cost-of-living adjustment trigger.
  • Eliminating deferred augmentation, which increases the benefit for individuals that leave covered public service.
  • Eliminating early retirement augmentation.
  • Eliminating COLAs for early retirees until normal retirement age.
  • Reducing the interest rate applied to refunds of contributions from 4 percent to 3 percent.

The bill does not include employee or employer contribution increases for the PERA General Plan.

Next steps
The recommendations of the Pension Commission must travel through the normal House and Senate committee process and ultimately be approved by each body. The Senate version of the bill has been considered by all committees, while the House version of the bill has two remaining committee stops before reaching the House floor.

At this point, it is unclear whether the bill will make it to the governor, or whether he will sign it.

For more background information about the pension bill, read a previous Bulletin story.

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