S.F. 611 (Betzold); H.F. 1240 (Bernardy) amends Minnesota Statutes, Sections 352.275, Subdivision 1; 352B.01, Subdivision 3a; 353.01, Subdivision 165a, Subdivision 1; and 354A.097, Subdivision 1, the 1999 and 2000 prior military service credit purchase provisions, be eliminating the restrictions on the purchase authorization that the purchaser not be permitted to purchase military service beyond the initial period of enlistment, induction, or call to active service and that the purchaser not be entitled to a current or deferred U.S. military pension plan retirement annuity.

S.F. 611 (Betzold); H.F. 1240 (Bernardy) modifies the 1999 and 2000 prior military service credit purchase provisions, by eliminating the restrictions on the purchase authorization that the purchaser not be permitted to purchase military service beyond the initial period of enlistment, induction, or call to active service and that the purchaser not be entitled to a current or deferred U.S. military pension plan retirement annuity.

The draft proposed legislation, if introduced into the 2001 Legislative Session and heard by the Legislative Commission on Pensions and Retirement, will likely raise several pension and other public policy issues, as follows:

1. Validity of Alleged Violation of Federal Law: The policy issue is the validity of the allegation that Minnesota Statues, Section 354.533, conflicts with Title 10 U.S. Code § 12736, as applied by the Ninth Circuit Court of Appeals in Cantwell v San Mateo County, C.A. 9 (Cal) 1980, 631 F. 2d 631, certiorari denied 101 S. Ct. 1703, 450 U.S. 998, 68 L. Ed. 2d 199. The sole argument provided for the suggested Minnesota law change is its alleged inconsistency with federal law. If the federal law, as interpreted in Cantwell, is inapplicable, if Minnesota Statutes, Section 354.533, varies significantly from the California county retirement law challenged in Cantwell, or if Cantwell is otherwise distinguishable, some other policy basis for the suggested change would need to be forwarded by its proponents for the Commission to justify a liberalization in the affected statutes. Additional legal research on these issues would be useful.

2. Constitutionality of the Federal Law. Although rarely an issue in Minnesota public pension plan proposed changes, because of the relatively modest extent of federal regulation of public pension plan coverage, the issue is the constitutionality of Title 10 U.S.C. § 12736. It appears that the constitutionality of this 1956 federal law has not been challenged in any recorded litigation. The U.S. Supreme Court perspective on federalism and the latitude for states to set their own compensation and employment benefits has changed in the 44 years since the applicable federal law was enacted. If Title 10 U.S.C. § 12736 is not consistent with recent trends in the U.S. Supreme Court view of federalism, there is no reason for the Legislature to enact a change in Minnesota Statutes, Section 354.533, and other comparable state pension laws based on the incompatibility with a questionable federal law. Additional legal research on this issue would be useful.

3. Appropriateness of Permitting the Purchase of Potential Double Pension Coverage. The policy issue is the appropriateness of the Legislature enacting a change that permits the purchase of service credit that potentially allows the purchaser to gain double pension coverage. The principal reason for the restriction on the military service credit purchase that disallows potential purchasers who have qualified for a military pension from their military service is the desire of the Legislature to restrict the special permission to potential purchasers who suffer from an interruption in their career pension plan coverage and to avoid providing two public pension benefits for the same period of service. When the teacher military service credit purchase was enacted in 1999, the Legislature was reacting to complaints from and the hardships of teachers who were either drafted into the military or enlisted for the military facing likely conscription right after college, before they were employed in teaching, and who were unable to gain retirement coverage for this gap in their career akin to those teachers who took a leave of absence to enter the military. On-leave military service credit purchases, required by both federal and state military laws, are limited in their service credit purchasers to their initial period of enlistment, induction, or call to active service and Minnesota Statutes, Section 354.533, and comparable provisions impose the same restriction on prior military service credit purchasers. Under the proposed legislation, however, a purchaser could purchase public pension plan service credit for up to 20 or 30 years of service credit, including periods which give the purchaser entitlement to a military service credit, thereby giving the person involved two pensions for the identical period of time.

4. Appropriateness of This Indirect Encouragement of Early Retirement. The policy issue is the appropriateness of the Commission and the Legislature enacting public pension plan legislation that indirectly operates to encourage early age retirement in light of a predicted pending shortage in teachers and other public employees. Much of the motivation for the 1999 teacher service credit purchase authorization legislation appears to have been a desire by many teachers to obtain additional service credit to gain access to the "Rule of 90" early normal retirement age provision at an earlier age, when the sum of a retiree’s age at retirement and accrued service credit is 90 or greater. Each year of purchasable service credit means the potential for retirement six months earlier. Commentators on education issues are indicating a current shortage of teachers in some specialty areas and predicting a future shortage of teachers in all areas. Similar employment shortages apparently face other levels of government also. Barring other justifying policy ends, enacting legislation that encourages early retirement and exacerbates the employee shortage problem is ill advised.

5. Magnitude of Service Pension Purchase Payment Obligations. The policy issue is the advisability of the proposed legislation in light of the significant purchase payment amount associated with prior service credit purchases. A purchase by a teacher of prior service credit for four years of prior military service for a person with a moderate current salary can easily exceed $40,000 or $50,000 and for a person with a high current salary can exceed $100,000. Longer purchase periods, especially when eligibility for the "Rule of 90" early normal retirement age is involved, will involve even greater purchase payment amounts. It is unlikely that many potential purchases under the proposed legislation will have both the financial resources and the inclination to spend those resources in this manner. If there are unlikely to be many (or any) utilizers of the resulting revised law, passage of the proposed legislation would be pointless.

6. Appropriateness of the Proposed Legislation in Light of an Alternative Remedy. The policy issue is the appropriateness of this proposed legislation if there are other, potentially more appropriate, legislative remedies to the problem. The problem identified by Mr. German is a potential incompatibility of Minnesota Statues, Section 354.533, and the related 1999 and 2000 legislation with Title 10 U.S. Code § 12736. Since the alleged incompatibility with federal law by the 1999 and 2000 prior service credit purchases is in limiting the amount of purchases and disqualifying purchasers who could gain double pension coverage, a more appropriate manner for resolving this incompatibility would be to repeal Minnesota Statutes, Section 354.533 and the related 1999 and 2000 legislation. If the Commission had known that any foray into prior military service credit purchase authorizations would raise this legal question and potentially widen or broaden the purchase authority by subsequent litigation, the Commission may well have declined to authorize any prior military service credit purchase in 1999. The policy basis for the 2000 prior military service credit purchases was the precedent set by the 1999 teacher prior military service credit purchases. A repeal of these 1999 and 2000 prior military service credit purchase provisions would place the situation back to the 1998 situation, when no violation of Title 10 U.S.C. § 12736 has been alleged.