Omnibus Pension Bill Signed Into Law

The law addresses pension funding and sustainability for the state’s major pension systems, including the Public Employees Retirement Association plans.
(Published Jun 4, 2018)

The last bill passed during the 2018 legislative session was also the last bill receiving official action by Gov. Dayton. He signed the omnibus pension bill (Chapter 211) into law on May 31 at a Capitol Rotunda event that included the bill authors and other legislators on the Pension Commission, the pension fund directors, and employer, employee, and retiree representatives.

The 245-page bill, SF 2620 (Sen. Julie Rosen, R-Vernon Center, and Rep. Tim O’Driscoll, R-Sartell), requires $27 million in additional state funding this biennium and $113 million in the 2020-21 biennium, makes changes in pension benefits for active members and retirees, and calls for additional employer and employee contributions to stabilize the state’s major public pension plans. It received unanimous bipartisan support in both the House and Senate.

Major allocations in the bill

The bill requires $27.2 million in additional spending for the second half (fiscal year 2019) of the current biennium. Of that total, $4.5 million will be directed to the Public Employees Retirement Association (PERA) Police & Fire (P&F) Plan to reduce the need for larger employer and employee contribution increases.

The other large allocations include roughly $7 million to fund employer contribution increases for state employees in the Minnesota State Retirement System (MSRS) General Plan, the State Patrol Plan, and Corrections Plan; $10.9 million to fund a general education pension adjustment for school district contributions to the Teachers Retirement Association (TRA) plan; and $5 million to fund a direct contribution to the St. Paul Teachers Retirement Fund.

The estimated state cost of the bill increases substantially in the next biennium to $113.3 million for fiscal year (FY) 2020-21, which is due, in part, to coverage of two years of operations. However, the increase is also due to a boost in the aid to the PERA P&F Plan and even larger increases in MSRS and TRA costs. The aid to the PERA P&F Plan will increase to $9 million beginning in FY 2020.

Below is a summary of changes to the PERA General and P&F plans, and changes made to the volunteer relief association systems. The League will provide a more detailed summary of the new law in the 2018 Law Summaries, which will be published in late June.

PERA General Plan changes

The new law makes the following PERA General Plan changes:

  • Reduces the assumed rate of return from 8 percent to 7.5 percent.
  • Makes no changes in employee and employer contributions (will remain at 6.5 percent and 7.5 percent, respectively).
  • Replaces 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, with a maximum of 1.5 percent and a minimum of 1 percent.
  • Eliminates future augmentation of pension benefits for all former members.
  • Eliminates the annual COLA adjustments for early retirees. The annual COLA adjustment would begin at full retirement age.
  • Reduces the interest rate paid on contribution refunds from 4 percent to 3 percent.
  • Resets the plan’s amortization date from the 2031 target to 2047.
  • Leaves an estimated contribution sufficiency equal to roughly 1 percent of salary to buffer against future uncertainty.

PERA P&F Plan changes

For the PERA P&F Plan, the new law increases the employer and employee contribution rates, as shown in the table below.

PERA Police & Fire Contribution Changes: Current: Employer 16.2%; Employee 10.8%; Beginning 1/1/2019: Employer 16.95%; Employee 11.3%; Beginning 1/1/2020: Employer 17.7%; Employee 11.8%.

The new law also makes the following PERA P&F Plan changes:

  • Reduces the assumed rate of return from 8 percent to 7.5 percent.
  • Includes an annual state appropriation into the P&F Plan of $4.5 million per year in 2018 and 2019 and $9 million per year thereafter to stabilize the plan and reduce the need for additional employer and employee contribution increases.
  • Reduces the interest rate paid on contribution refunds from 4 percent to 3 percent.
  • Replaces the current COLA adjustment—1 percent with increase to 2.5 percent when plan funding improves—with a flat 1 percent annual COLA adjustment.
  • Eliminates future augmentation of pension benefits for all former members.
  • Resets the plan’s amortization date to a new 30-year period.

Volunteer fire relief associations

The new law makes the following volunteer fire relief association (VFRA) changes:

  • Includes a special law provision for Austin to allow the city to allocate a portion of its fire state aid to cover pension costs associated with its full-time firefighters. Under the bill, the provision is retroactive to 2013 and the authority expires on July 1, 2019.
  • Includes a special law for the City of Maplewood due to the recent dissolution of its relief association.
  • Increases the annual lump-sum benefit maximum to $12,500 for relief associations that currently provide an annual lump-sum maximum benefit of at least $9,500. (According to the Pension Commission, this only impacts Plymouth and Brainerd.)
  • Includes a requirement that any relief association that is providing an annual lump-sum benefit of $9,500 or more and is dissolved after May 8, 2018, must return unneeded relief association funds to the state general fund unless the city has made a required contribution to the fund in the last 10 years.
  • Establishes a work group under the direction of PERA (with two city representatives) to study modifying the current law requirement that all fire state aid must be used for volunteer relief plans to possibly allow the 70+ combination fire departments (departments that include both paid on-call and full-time firefighters) to allocate a portion of the fire state aid to cover pension costs for full-time firefighters (similar to the Austin provision mentioned above).
  • Establishes a work group under the direction of the Legislative Commission on Pensions and Retirement, including city representatives, to study issues related to volunteer firefighter relief association issues, including conversion from defined benefit to defined contribution systems, dissolution of fire relief associations, issues related to transition from paid, on-call departments to full-time departments, and other related issues.
  • Increases the maximum annual lump-sum benefit for the Eden Prairie Volunteer Firefighters Relief Association from the general law of $10,000 per year of service to $15,000 per year of service. However, unlike the 2017 vetoed omnibus pension bill, which generally increased the annual maximum to $15,000, the bill leaves the general law maximum at $10,000 for all other VFRAs.

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