Omnibus Pension Bill Signed by Governor

Provisions of interest to cities include a PERA General Plan employer and employee contribution increase.
(Published May 19, 2014)

(Updated May 30, 2014)

The conference committee report on the omnibus pension bill, HF 1951, passed off the House floor on a vote of 79-52 and off the Senate floor 38-24. Gov. Dayton signed the bill into law on May 21.

The conference committee on the 2014 omnibus pension bill reached agreement on differences between the House and Senate versions of the bill on May 14. The negotiations were delayed as the Legislature and Gov. Dayton worked to address funding provisions related to the Duluth Teachers Retirement plan merger with the statewide Teachers Retirement Association, and an increase in state aid to the St. Paul Teachers Retirement Fund Association.

During the negotiations, the financial issues were quickly addressed, but a secondary issue arose. It was related to a House and Senate provision to allow a former county commissioner who opted out of the Public Employees Retirement Association (PERA) defined benefit plan to purchase service credit from the PERA-General Plan for the full actuarial value amount of the purchase. The PERA Board had earlier taken a position not to support the request, but the provision was included in the House and Senate pension bills. After the governor raised concerns, the conference committee stripped the provision from the final conference committee report.

General Plan contribution increases
Of interest to cities, the conference committee report includes a PERA General Plan employer and employee contribution increase, and a modification to the PERA General Plan defined benefit eligibility threshold. The General Plan is the defined benefit plan that covers most city employees. Police and fire employees and correctional employees are covered by the separate Police and Fire Plan and Corrections Plan.

The contribution increase included in the conference committee report was actually required under current law due to a reported actuarial contribution deficiency in the PERA General Plan for the past two consecutive years. Late last year, after the PERA Board received the final valuation report for the General Plan for the 2013 fiscal year showing the second consecutive funding deficiency, the Board recommended that contributions made by employers and employees each be increased by 0.25 percent to address the deficiency. With the contribution increase contained in the conference committee report, the total employer contribution on behalf of PERA General Plan members would be 7.5 percent while the total employee contribution would be 6.5 percent.

The conference committee report requires that the contribution increases will be effective beginning on Jan. 1, 2015. If the omnibus pension bill had not affirmatively included the Jan. 1, 2015, effective date, current law would have required that the increases go into effect July 1, 2014. The League and county organizations have been urging the Legislature to delay the implementation to coincide with the city and county fiscal years, and allow cities and counties to budget for the increase.

Participation threshold change
The conference committee report also includes a League-supported measure to modify the PERA mandatory participation threshold, which currently impacts employees once they earn at least $425 in any one month. The conference committee report changes the threshold to earnings of more than $5,100 in a year.

Although this earnings threshold is simply annualizing the $425/month amount ($425 x 12 = $5,100), the annual threshold would avoid having an employee eclipse the threshold due to a single month of elevated earnings.

Phased retirement option extension
The conference committee report also includes an extension of the sunset for the phased-retirement option (PRO) arrangement, which allows an employer to offer a PERA General Plan member, who is age 62 or older and meets several other requirements, the option to begin receiving their PERA pension without formally resigning.

The goal of a PRO arrangement is to allow an employer to gradually phase in new employees while maintaining and phasing down the near-retirement employee. This arrangement allows the new employee the opportunity to tap the experience and knowledge of the person phasing toward retirement.

The authorization for an employer to enter into new PRO arrangements was scheduled to sunset on June 30, 2014. Under the agreement, the sunset is extended to June 30, 2019.

Gov. Dayton is expected to sign this chapter.

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