Summary of S.F. 77 (Wiger); H.F. ( )

S.F. 77 (Wiger); H.F. ____ ( ) amends Minnesota Statutes 2000, Section 353.01, Subdivision 2b, specifying various exclusions from membership in the Public Employees Retirement Association, by adding exclusions for bricklayers, masons, glassworkers, painters, plasterers and related trades personnel employed by the City of St. Paul who have union pension coverage and for plumbers employed by the Metropolitan Airports Commission who have union pension coverage. The exclusion is elective for the applicable trades personnel who were employed before May 2, 2001, and is mandatory for the applicable trades personnel who are employed after May 1, 2001.

When the General Employee Retirement Plan of the Public Employees Retirement Association (PERA-General) was established in 1931, plan membership was optional for governmental subdivisions and, if the governmental subdivision elected to be a participating employer, was optional for employees employed before April 24, 1931, and was mandatory for employees employed after April 23, 1931. All counties, all first (except Minneapolis), second, and third class cities, including home rule cities, all public schools (except the Minneapolis Public Schools), and all villages with a population of at least 7,000 were eligible to be participating employers. Employees of a participating employer who were not paid in whole or in part from public funds, or who were covered by another public pension plan, or who were temporary employees, or who had an average length of employment annually of less than six months were excluded from PERA membership.

By 1941, the specification in law of PERA membership had become somewhat more complex. School districts were specified as eligible participating employers, reflecting the authorization of independent school districts. The 1941 exceptions from membership were:

1. employees of governmental subdivisions that had not elected to be participating employers;

2. employees hired before the governmental subdivisions became a participating employer and did not elect PERA membership;

3. employees of a participating employer who were not paid in whole or in part from public funds;

4. temporary employees of participating employers (defined as a person who is employed for less than six months within a 12 month period, or who is employed as a substitute for another employee who is on leave, or who is employed in a position that is not seasonal but is of an essentially temporary character, or who is employed part-time with total annual compensation of less than $300 unless the person was in a government classified civil service position);

5. a member of another Minnesota public employee pension plan; or

6. a person who by virtue of past employment is entitled to a pension from another Minnesota public employee pension plan or who has been designated as a future beneficiary of a benefit from another Minnesota public employee pension plan.

In 1951, towns and boroughs were added as eligible participating employers. In 1951 and 1955, PERA membership was made mandatory for local government employees who were not eligible for other Minnesota public pension plan coverage. This resulted in a rapid growth in the PERA membership, from 8,246 members in 1946 to 36,470 members in 1956.

By 1957, more changes in the PERA membership specification had occurred. The League of Minnesota Municipalities and PERA itself were made eligible participating employers. PERA coverage was made mandatory for all employees of all governmental subdivisions unless the employee was specifically excluded or the employee was over age 60 on June 30, 1957, and had less than six years of service as of that date. Legislators, the secretary of the Minnesota Senate, and the chief clerk of the Minnesota House of Representatives were specifically included in PERA membership. The PERA membership exclusions were revised, with the major exclusions as follows:

1. person employed for professional services incidental to the person’s regular profession and compensated on a per diem basis;

2. election officers;

3. employees of independent contractors performing public services;

4. patient or inmate help in local government charitable, penal, or correctional facilities;

5. members of boards, commissions, volunteer fire departments, bands, and other intermittent employees paid on a per diem, per meeting, or per fire basis;

6. temporary, emergency, or seasonal employees as defined by PERA rules; and

7. employees required to contribute to another Minnesota public pension plan on account of that employment.

In 1961, the PERA membership specification provisions continued to change. Local elected officials were given the option to be members of PERA and employees of local elected officials were included in PERA membership, as were district court reporters and port authority employees. An exclusion for police matrons employed by a city police department and transferred to a joint city-county detentions and corrections authority was also added to PERA law.

After 1961 and until 1974, public employees who had a salary of less than $75 per month were excluded from PERA membership. In 1963, an exclusion for persons who elected to be excluded from PERA membership for religious reasons was added. In 1965, probate, municipal and special municipal judges were included in PERA membership and students who were occasionally employed part-time by governmental subdivisions were excluded from PERA membership. In 1967, the student exclusion was modified to apply to full-time students employed part-time as governmental employees. In 1971, the specific exclusion for volunteer firefighters was deleted from PERA law. In 1973, school district employees with separate salaries for driving their own buses were included in PERA coverage and exclusions were added for resident physicians, medical interns, pharmacist interns in public hospitals and for appointed or elected officials compensated entirely on a fee basis if not members in 1971.

In 1974, until 1977, the minimum salary threshold for PERA membership was increased to $150 in any month during a year, or $1,800 annually. The minimum salary threshold for PERA membership was increased in 1977 to $250 in any month during a year or $3,000 annually in 1977. In 1981, the minimum salary threshold for PERA membership increased to $325 in any month during the year, or $3,900 annually. Also, in 1981, city managers were granted the authority to elect an exclusion from PERA coverage in favor of separate individual deferred compensation program coverage. The current minimum salary threshold for PERA membership was set at $425 in any month during the year, or $5,100 annually, in 1988. In 1997, St. Paul school district pipefitters were excluded from PERA membership and, in 2000, other St. Paul city and school district trades personnel were also excluded from PERA membership. The 1997 legislation was considered and recommended by the Legislative Commission on Pensions and Retirement. The 2000 legislation was not reviewed or recommended by the Commission, but was added by the Senate Governmental Operations Committee to the 2000 omnibus pension bill.

S.F. 77 (Wiger); H.F. ____ ( ) would add two exclusions to the 18 current Public Employees Retirement Association (PERA) exclusions, applicable for bricklayers, masons, glaziers, painters, plasterers and allied trades personnel employed by the City of St. Paul who have trade union pension coverage and for plumbers employed by the Metropolitan Airports Commission who have trade union pension coverage.

The proposed legislation raises several pension and related public policy issues for Commission consideration, including the following:

1. Potential For Undesired Additional or Excessive Pension Coverage. The policy issue is the potential for trades personnel employed in the public sector to have undesired additional pension coverage or excessive total pension coverage. For trades personnel, pension coverage for their employment is typically provided through a Taft-Hartley Act jointly (union and employer(s)) trusteed union pension plan. These union pension plans typically have break-in-service rules whereby prior service credit in the plan can be forfeited by virtue of an extended interval without plan contributions and coverage. As a result, trades personnel employed in the public sector who have had prior private sector trade employment or who are contemplating future private sector trade employment after their public sector trade employment ends frequently retain union pension plan coverage in addition to the public pension plan coverage while in public sector trade employment. Since public employers generally are unwilling to pay more than private sector trade wage scale and benefit costs, the cost of the public pension plan employer contribution is deducted when setting the trade person’s hourly rate. In this way, many trades personnel end up with double pension coverage for their public employment, for which they typically bear the full member and employer contribution cost for the public pension plan coverage. The double pension coverage, at the full member and employer contribution cost of the tradesperson, may be undesired coverage from the perspective of the tradesperson and may be excessive coverage from a pension policy perspective.

2. Proposed Legislation As A Likely Reaction To The PERA Funding Difficulties. The policy issue relates to the potential motivation for the proposed legislation, which is likely to be, in whole or in part, a reaction to the current PERA funding difficulties and the potential for increased future member and employer contribution rates as part of the resolution of that problem. Because, as outlined in the first policy issue, the tradesperson bears economic effect of the full cost of public pension plan member and employer contribution rates, a potential significant increase in both member and employer contribution rates as currently proposed for PERA (a total of 1.25 percent of covered payroll in S.F. ____ ( ); H.F. 855 (Mares) and a total of 2.00 percent of covered payroll in S.F. 810 (Pogemiller); H.F. ____ ( )) can be expected to produce an adverse reaction among trades personnel. Although S.F. 810 (Pogemiller); H.F. ____ ( ) proposes a 0.75 percent of year 2001 covered payroll ($27 million) State aid program to PERA employers, there is no statutory mechanism to redirect the appropriate portion of that aid (or the prior 1997 PERA State aid either) to these trades personnel.

3. Past Precedent For Proposed Legislation. The policy issue is the question of the existence of a past precedent for the proposed legislation. The proposed legislation would exclude various City of St. Paul trades personnel and Metropolitan Airports Commission plumbers from PERA General Employee Retirement Plan (PERA-General) coverage. Similar exclusions have been approved by the Legislature on three prior occasions, for the General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General) with respect to various trades personnel at the Metropolitan Council Environmental Services waste treatment plant (the former Metropolitan Waste Control Commission facility) (see Laws 1977, Chapter 98), for PERA-General with respect to pipefitters and associated trades employed by the St. Paul School District (see Laws 1997, Chapter 241, Article 2, Sections 1, 8, and 12), and for PERA-General with respect to electrical workers, plumbers, carpenters, and related trades personnel employed by either the City of St. Paul or the St. Paul School District (see Laws 2000, Chapter 461, Article 7, Sections 1, 4, and 5). The change appears to involve the same type of exclusion, but involves more types of trades personnel (nine) and involves more trade union pension plans (six) than any of the previous exclusions.

4. The Likelihood of Similar Future Requests By Other Trades or Involving Other Employers. The policy issue is the likelihood that other trades personnel employed by these employers or trades personnel employed by other employers would make similar requests in the future. The Commission staff does not have any reliable information on the extent of trades personnel in public employment, but the practice undoubtedly extends beyond the Metropolitan Council, the City of St. Paul, the St. Paul Public Schools, and the Metropolitan Airports Commission. These exclusions can continue to be proposed on a piecemeal basis in the future as various trades personnel or unions begin to recognize the perceived problem or the Commission could attempt to address the trades personnel coverage issue on a more comprehensive basis. While the incremental addition of trades personnel exclusions is no particular pension policy problem, processing exclusion requests for small groupings of trades personnel every year does expend valuable legislative time and resources, potentially to the exclusion of other legislative initiatives. Amendment LCPR01-24 would broaden the proposed PERA-General exclusion to include all public employees who have Taft-Hartley jointly trusteed union pension coverage for the public employment in addition to PERA-General.

5. Adequacy of the Union Pension Plan Coverage Replacing PERA-General Plan Coverage. The policy issue is the adequacy of the union pension plan coverage that will be the affected public employees total pension coverage (with Social Security) following enactment of the proposed legislation, if recommended by the Legislative Commission on Pensions and Retirement. In fashioning public employee pension plan coverage, the Commission attempts to assist the public personnel system by providing pension benefit coverage that is sufficient to assist in recruiting qualified new employees, retaining existing productive employees, and providing for the predictable out-transitioning of employees at the end of their normally expected work careers. Without taking testimony about the nature of the six union pension plans that will be the sole future pension coverage for the individuals affected by the proposed legislation, the Commission will lack the basis for determining whether or not the future union pension plan coverage is sufficient to replace the PERA-General coverage. If future pension plan coverage turns out not to be adequate objectively or in comparison to future PERA-General developments, future legislative requests to reverse these exclusions could be expected.

Commission staff amendment LCPR01-25 repositions a modifying clause "under a collective bargaining agreement" in the current language of the law and the proposed language of the bill so that the sense of the provision is clearer and the important regulatory modifier does not get lost following a string of references to union pension plans.