LEGISLATIVE COMMISSION ON PENSIONS AND RETIREMENT

Senator Dean E. Johnson, Chair of the Legislative Commission on Pensions and Retirement, called the meeting to order at 9:10 a.m. Senator Johnson informed members that the House is working to find a replacement to fill the vacancy left by Representative Wenzel’s resignation.

Commission members present:

Representatives Philip Krinkie, Harry Mares, Mary Murphy, and Steve Smith

Senators Don Betzold, Dean Johnson, Lawrence Pogemiller, and Roy Terwilliger

Commission members absent:

Senator Dan Stevens

Mr. Edward Burek, Deputy Director, Legislative Commission on Pensions and Retirement, reviewed the Summary of Retirement Legislation Enacted by the 2001 Regular and Special Sessions.

Senator Betzold moved approval of the minutes for the Commission meetings of March 2, March 5, March 19, March 23, March 26, April 2, and April 6, 2001, and for the Service Credit Purchase Subcommittee meetings of March 14 and March 21, 2001. MOTION PREVAILED.

Mr. Burek continued the 2001 pension legislation summary.

Senator Johnson asked Mr. Burek for more information about the appropriation in the Claims bill for Ms. Deborah Montgomery. Mr. Burek reminded members that the Commission has heard bills in the past concerning Ms. Montgomery’s pension benefits while she served as Assistant Commissioner of Public Safety on a mobility assignment from her position in the St. Paul Police Department. The Commission heard testimony on S.F. 1581 during the 2001 Legislative Session, but did not support any action. Ms. Montgomery then went to the Claims Commission, and a provision was included in the Claims bill which authorized an appropriation to PERA from the General Fund to the benefit of Ms. Montgomery.

Senator Betzold said that the Subcommittee felt that the agreements between the State and the City of St. Paul left no doubt that she remained an employee of the City of St. Paul.

Mr. Terry Haltiner, City of St. Paul Labor Relations Manager, testified on the issue. He said that the City of St. Paul paid pension contributions based on Ms. Montgomery’s salary as a St. Paul officer, and that the salary in question was the additional salary paid directly to Ms. Montgomery by the Department of Public Safety. Mr. Haltiner said that the agreements that were signed specified that the pension would only be calculated on the amount she was getting through the City of St. Paul.

Senator Johnson expressed concern about the appropriateness of the process and the precedent of the action by the Claims Commission.

Representative Murphy said that it was her recollection that there were verbal agreements and promises made to Ms. Montgomery. The LCPR dealt only with the contracts and the principles by which the Commission is guided. Representative Murphy said it was her understanding that the Claims Commission was not dealing with pension policy, but rather a fairness issue; that the Claims Commission acknowledged that promises were made but not kept, therefore Ms. Montgomery did not get a fair deal.

Ms. Mary Vanek, Executive Director, PERA, testified that PERA makes every effort to advise people when they know these arrangements are being made. In this instance, Ms. Montgomery was advised at the time, but the rules changed during her mobility assignment as a result of the consolidation. According to Ms. Vanek, by the time the facts got sorted out, special legislation would have been required because contributions on that extra salary was prohibited. She said that part of the testimony before both the Pension Commission and the Claims Commission was that mobility assignments were arranged thereafter for other members of the St. Paul Police Department where those individuals got full credit for all salary, so the perception was that it was unequal treatment as Ms. Montgomery got caught in the middle. Ms. Vanek said that she attended the Claims Commission hearings and that this was characterized as a compensation issue and not a benefit issue.

Mr. Burek concluded his summary of 2001 pension legislation.

Mr. Lawrence Martin, Executive Director, Legislative Commission on Pensions and Retirement, reviewed the information contained in the staff memo concerning the actuarial experience studies.

Mr. Thomas Custis, Milliman USA, reviewed the results of the actuarial experience studies, and Milliman USA’s "Summary of Recommendations Regarding New Actuarial Assumptions." He also discussed the findings of a study requested by the plan administrators to evaluate the impact on the plans’ funding of the Combined Service Annuity provision. Mr. Custis said that Milliman USA will prepare the July 1, 2001, valuation reports using the current assumptions, and they also plan to prepare alternative valuations for the same period utilizing the proposed assumption changes so the Commission can see the overall cost implications of the package before the assumption changes are formally adopted.

Representative Mares asked for clarification regarding the interest experience figure for DTRFA in 1999-2000, noting that actual occurrence was 303% in excess of expected occurrence, which was far higher than for any other plan. Mr. Jay Stoffel, Executive Secretary, DTRFA, testified that the figures are accurate. He explained that in Fiscal Year 1999, DTRFA experienced a 25.74% rate of return on their total fund, with particularly spectacular performance in their small cap growth stocks.

Mr. Custis said that the interest assumption rate was reviewed, but they don’t believe that either the favorable returns over the last 4-5 years or the less than favorable returns over the last eighteen months are reason to change that longterm assumption. Mr. Custis informed the Commission that they are not looking for formal action at this time.

Mr. Martin reviewed the staff memo. He said that it has been the practice of the Commission not to act as a Commission but to delegate to the Chair the practice of signing the contract, but it is our practice to keep Commission members up to date as to what is the status of the contract.

Mr. Martin explained to members that Minnesota Statutes, Section 3.85, Subdivision 10, requires the Commission to adopt standards for pension valuations and reports and to update them annually. Mr. Martin then reviewed the staff memo outlining the proposed changes.

Senator Terwilliger moved the proposed changes in the Standards for Actuarial Work contained in the document dated August 16, 2001. MOTION PREVAILED.

The meeting adjourned at 10:50 a.m.