The most notable provision in the sweeping omnibus pension bill is an increase in pension contributions for employees and for cities.
(Published Aug 5, 2013)
The most significant provisions of the 2013 omnibus pension bill (Chapter 111) are the Public Employee Retirement Association Police & Fire (PERA P&F) financial solvency measures, which eliminate the annual contribution shortfall and should place the plan on a more stable financial footing moving forward.
For cities, this means an increase in their employer contribution of 0.9 percent of salary in 2014, and an additional 0.9 percent beginning in 2015. A more detailed summary of the omnibus pension bill can be found on page 38 of the 2013 Law Summaries (pdf).
PERA P&F solvency measures
For fiscal year 2012, the annual contribution to PERA P&F was 7.9 percent less than the required annual contribution. (The required contribution is an amount sufficient to cover the annual benefits, administrative costs, and an amortization contribution to fund future benefits.) The Fund had not received the required annual contribution since 2002, and its funding ratio was projected to decline significantly over the next decade.
In response, the PERA Board recommended to the Legislature a package of solvency measures proposed by police and firefighter organizations. The solvency package was passed by the 2013 Legislature, and included the following provisions:
PERA estimates the solvency measures will bring the plan to 96 percent funding by 2038. Without the measures, the plan’s funding percentage was projected to decrease to 61 percent by 2038.
Added financial support
In addition to the solvency measures recommended by the PERA Board, the Legislature passed a $15.5 million appropriation to provide additional support for PERA P&F, the state troopers retirement fund, and the volunteer firefighters fund. The $15.5 million appropriation is divided as follows:
Other notable provisions in the pension bill
The omnibus pension bill contained a number of other notable changes to pension law.
Practical considerations for cities
The PERA P&F contribution increases take effect on Jan. 1, 2014. The contributions must be deducted from the first paychecks issued in 2014, and apply to the total salary paid in that pay period, even if it was earned in 2013.
The $5.5 million appropriation for the voluntary firefighter funds will be distributed to municipalities other than those solely employing firefighters covered by PERA P&F. The supplemental aid will be paid at the same time cities receive their usual police and fire aid payments, although it will be a separate aid payment. Within 30 days of receipt of the funds from the Department of Revenue (DOR), the municipality must transfer the funds to the treasurer of the applicable volunteer firefighter relief association for deposit in its special fund. At the time of publication, DOR had not determined the aid amounts each municipality will receive.
A number of cities and police and fire groups expressed concern that changes to the early retirement penalty would lead to a mass exodus of early-retirement-eligible officers. In order to address this concern, the Legislature phased in the changes to the early retirement penalties over five years. The phase-in period provides incentives for officers to stay on the force longer. Employees with questions can use the updated MY PERA tool on the PERA website to make individual calculations.
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