Focus on New Laws: Phased-Retirement Option Permanently Extended

The phased-retirement option allows certain members of the PERA General Plan to receive a retirement annuity while still working.
(Published Jul 8, 2019)

The 2019 omnibus pension bill, (First Special Session Chapter 8) permanently extends the Public Employees Retirement Association (PERA) program known as the phased-retirement option, or PRO (Minnesota Statutes, section 353.371).

The PRO was initially established in 2009 as a trial program to allow cities and counties to work with an employee near retirement age to provide for an orderly arrangement for the transfer of knowledge and skills to a new employee.

The PRO authorization was scheduled to expire on June 30, 2019, for any new PRO arrangements. Existing PRO arrangements could have been renewed (not to exceed four renewals) until June 30, 2024.

How a PRO works

Under a PRO, an active member of the PERA General Plan who is at least age 62 can receive a PERA retirement annuity without a formal termination of employment. However, members must reduce their work schedule in each pay period by 25 percent and not work more than 1,044 hours in a year while participating in the PRO agreement.

The governing body of the governmental entity has the discretion to determine if it will offer the PRO program to an employee, as well as the duration of the PRO arrangement. Any earnings under the PRO position are not subject to the post-retirement annual earnings limits defined in Minnesota Statutes, section 353.37.

The changes in the statute will apply to all new PRO agreements or to renewals of existing agreements entered on or after July 1, 2019. In addition to eliminating the program’s sunset, the bill makes several changes to the program.

For example, it adds additional employer reporting requirements such as the salary earned and number of compensated hours worked on a pay period basis. It also adds a requirement that the employer must inform the PERA executive director when the agreement terminates.

The bill also changes the maximum initial agreement period from the current one-year limit to up to five years. And it changes the program from “postretirement option” to “phased retirement option.”

Employee eligibility to participate in a PRO

In addition to existing eligibility requirements mentioned above (age, reduction in hours worked, etc.), the statute was clarified to specify that:

  • Elected officials cannot participate in a PRO arrangement.
  • The employee accepting the phased retirement agreement must be continuing employment with the same employer.

PRO duration

Under prior law, a PRO arrangement was limited to a one-year duration with up to four annual renewals at the discretion of the employer. Under the changes in the statute, a PRO arrangement can be initially structured for a period of up to five years. This change should reduce the employer’s administrative requirements.

If a duration shorter than the five-year maximum is initially specified in the PRO, it can be extended by agreement between the employer and employee, but it cannot exceed five years.

PRO documentation to PERA

The changes to the PRO include a requirement that the employer provide documentation of each new PRO arrangement to the PERA executive director before the employee terminates membership with PERA.

—View the PERA PRO agreement form (pdf)

Additional employer reporting requirements

The governmental subdivision employer will be required to report to the PERA executive director, on a pay period basis, the salary earned by an employee in a PRO agreement.

The pay period report must include the number of compensated hours the employee worked in a manner prescribed by the executive director. Reports must be submitted no later than 14 calendar days following the last day of each pay period.

Termination and reporting

The statute includes a requirement that upon termination of employment under a PRO, the governmental subdivision and employee must inform the executive director of the effective date of the employee’s termination of public service.

PERA is in the process of updating information on the phased retirement option. For more information about it, visit the PERA website or contact the League’s Human Resources Department at HRBenefits@lmc.org.

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