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Pension Bill Signed into Law

The new law is an important step to pension stability.
(Published May 19, 2010)

Shortly before midnight on May 15, Gov. Pawlenty signed the omnibus pension bill into law. The governor’s approval came after he issued a threat to veto the bill unless he first received the legislation to fix the broader state budget problem.

The veto threat was announced on May 12 after the House and Senate overwhelmingly approved the omnibus pension conference committee report, Chapter 359 (SF 2918), and sent the bill to the governor. The Senate vote was 52-14 while the House vote was 116-16.

For cities, Chapter 359 includes the pension sustainability provisions for the Public Employees Retirement Association (PERA) General Plan and the PERA Police and Fire (P&F) Plan. The bill also contains financial corrections for the Teachers Retirement Association (TRA) and the Minnesota State Retirement System (MSRS).

PERA provisions
The new law is aimed at ensuring long-term stability of the pension plans though a number of plan reforms and modifications that will impact employers, employees, and retirees. The new law includes a contribution increase for employees in the General Plan of 0.25 percent from the employer and 0.25 percent from the employee, effective on Jan. 1, 2011, and a reduction in the annual pension benefit adjustment to General Plan retirees to 1 percent from the current 2.5 percent.

For the PERA P&F Plan, the new law requires a contribution increase of 0.3 percent from the employer and 0.2 percent from the employee, effective on Jan. 1, 2011, while the annual pension benefit adjustment is limited to 1 percent for two years and then is adjusted according to the consumer price index, with a limit of no more than 1.5 percent per year.

Chapter 359 also increases the pension vesting requirement in the PERA General Plan from three years to five years while the vesting requirement in the P&F Plan increases from three years to 10 years in a phased-in schedule. Other changes in the PERA recommendations would decrease interest paid to certain employees who leave public service and either withdraw contributions or leave funds in the pension system.

Consolidation with MERF
The new law also includes a set of changes to consolidate the administration of the Minneapolis Employees Retirement Fund (MERF) with the PERA General Plan. The administrative consolidation will not impact the funding of the PERA General Plan and the financial obligations of the MERF plan would be covered through increased contributions from Minneapolis, other employers with MERF participants, and the state. Chapter 359 includes an annual state contribution increase of $13.75 million for fiscal year (FY) 2012 and FY 2013, which would increase to $15 million beginning in FY 2014.

The state contribution to MERF would be fixed and any additional needed future contribution increase would be borne by the employers. The MERF system, which has been closed to new employees since July 1, 1978, actually includes employees of the city of Minneapolis, the Minneapolis School District, Hennepin County, the Metropolitan Council, the Metropolitan Airports Commission, and the Minnesota State Colleges and Universities system.

Lawsuit challenges provisions affecting retirees
On Monday, a lawsuit was filed by two retirees challenging not only the retiree inflation adjustment reduction contained in Chapter 359, but also the 2009 omnibus pension bill, which modified the annual retiree adjustment. The plaintiffs are seeking a permanent injunction barring implementation of the 2009 and 2010 omnibus pension bills, arguing that the bills violate the contract clause of the Minnesota Constitution as well as the contract clause, takings clause, and substantive due process protections of the United States Constitution.

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