PERA Board Sets Legislative Agenda

The Public Employees Retirement Association Board is proposing changes for the General Plan and the Police & Fire Plan.
(Published Dec 18, 2017)

The Public Employees Retirement Association (PERA) Board of Trustees adopted a set of legislative recommendations for the General Plan and the Police & Fire Plan on Dec. 14. The proposals, which will be forwarded to the Legislature, would positively impact the funding status of each plan and make them more equitable for all members regardless of when they choose to retire.

Last year’s omnibus pension bill, which was vetoed by Gov. Dayton due to a set of unrelated pre-emption provisions, included a change in the assumed rate of return for invested pension assets for both the General Plan and the Police & Fire Plan. It also included all the changes to the Police & Fire Plan described below.

Although the structure and funding status of the PERA General Plan is more favorable than the Police & Fire Plan, the PERA Board also decided to make recommendations for structural changes to the General Plan to more rapidly move the plan toward full funding.

The League, along with the Association of Minnesota Counties and the Minnesota Inter-County Association, argued that adjustments to the General Plan should first focus on adjustments to plan features that eliminate subsidies and, if possible, should not result in another round of increased contributions for employees or employers. Over the past 10 years, employer contributions have increased by 35 percent, while employee contributions have increased by roughly 27 percent.

Recommendations for the General Plan:

  • Reduce the assumed rate of return to 7.5 percent from the current 8.0 percent.
  • Make no changes in employee and employer contributions (will remain at 6.5 percent and 7.5 percent respectively).
  • Replace the current cost-of-living adjustment (COLA)—1 percent with increase to 2.5 percent when plan funding improves—with an adjustment based on one-half of the consumer price index (CPI) with a maximum of 1.5 percent and a minimum of 1 percent.
  • Eliminate future augmentation of pension benefits for all former members.
  • Eliminate annual COLA adjustments for early retirees. The annual COLA adjustment would begin at full retirement age.
  • Reduce the interest rate paid on contribution refunds from the current 4 percent to 3 percent.
  • Reset the plan’s amortization date from the current 2031 target to 2047.
  • Leave an estimated sufficiency equal to roughly 1 percent of salary to buffer against future uncertainty.

Recommendations for the Police & Fire Plan:

  • Reduce the assumed rate of return from the current 8 percent to 7.5 percent.
  • Increase employee contributions by 0.5 percent on Jan. 1, 2019, and an additional 0.5 percent on Jan. 1, 2020.
  • Increase employer contributions by 0.75 percent on Jan. 1, 2019, and an additional 0.75 percent on Jan. 1, 2020.
  • Support the phased-in annual $9 million state appropriation that was included in last year’s vetoed pension bill.
  • Reduce the interest rate paid on contribution refunds from the current 4 percent to 3 percent.
  • Replace the current COLA adjustment—1 percent with increase to 2.5 percent when plan funding improves—with a flat 1 percent annual COLA adjustment.
  • Eliminate future augmentation of pension benefits for all former members.
  • Reset the plan’s amortization date to a new 30-year period.

Read the current issue of the Cities Bulletin

* By posting you are agreeing to the LMC Comment Policy.