LEGISLATIVE COMMISSION ON PENSIONS AND RETIREMENT

Call to order:
Senator Lawrence Pogemiller called the meeting to order at 6:48 p.m.

Commission Members Present:
Representatives Philip Krinkie, Ann Lenczewski, Harry Mares, Mary Murphy, and Steve Smith
Senators Don Betzold, Dean Johnson, Lawrence Pogemiller, Dan Stevens, and Roy Terwilliger

Senator Krentz presented and testified in support of her bill.

Mr. Edward Burek, Deputy Director, Legislative Commission on Pensions and Retirement, reviewed the staff memo and policy issues raised by the amendment.

Ms. Karen Leverentz, the person affected by the legislation, testified in support of the bill and responded to members’ questions regarding her situation.

Ms. Mary Vanek, Executive Director, PERA, testified that PERA staff has worked with Ms. Leverentz on this issue and they did received verification from the State of Washington retirement division for three years and seven months of credited service. PERA has done the calculations for a purchase of service credit because it is similar service to covered by PERA, although they do not have similar provisions that the teachers have for purchasing out-of-state service.

Representative Mares moved LCPR02-061, with appropriate language to clarify that this is an occupational therapist who would have been a PERA-type employee.

Mr. Gary Austin, Executive Director, TRA, testified that he does not believe that TRA would be involved because the person would be purchasing service in PERA as opposed to TRA.

Representative Krinkie asked Ms. Vanek if the PERA board has taken a position on this issue. Ms. Vanek replied that if it is at full actuarial value the board does not oppose this type of purchase.

Mr. Burek said that he does not recall a situation where an individual has been permitted to purchase out-of-state teaching service in a non-teacher plan. Ms. Vanek said that she does not recall out-of-state service being purchased, but she does recall that last year there was a purchase made for a current member for Minnesota service that was not covered by PERA.

Ms. Leverentz testified that she has a statement from the chairman of the board that indicated that the board is in support of her pursuing this purchase and outlined the process for doing so. She also stated that she is planning to retire in June.

There was no action on the amendment.

Senator Johnson explained that amendment LCPR02-099 deals with the state employees who were out on strike this past year and would allow them to buy back their service if they pay the contributions.

Mr. Lawrence Martin, Executive Director, Legislative Commission on Pensions and Retirement, reviewed the differences between amendments LCPR02-098 and LCPR02-099. Mr. Martin said that LCPR02-098 is intended to be identical to the bill introduced by Senator Pogemiller and is very open-ended so that an individual who has strike time could exercise the option at any time prior to retirement, essentially allowing a service credit purchase not at full actuarial value, which has not been the Commission’s policy. According to Mr. Martin, LCPR02-099 treats the situation more like a leave of absence in that if the purchase is made within a year of the strike one would pay the contributions that would have been paid, if it’s longer than a year one would have to buy back the service under the service credit purchase procedure at full actuarial value.

Ms. Mary Vanek, Executive Director, PERA, testified that employees of PERA and of TRA are also covered by the same collective bargaining agreement and their employees also participated in the strike. Ms. Vanek requested that if the Commission allows state employees to purchase in MSRS, PERA and TRA employees also be allowed to purchase in their plans.

Mr. David Bergstrom, Executive Director, MSRS, testified that they are not opposed to a 12-month window.

Mr. Brian Bergson, Minnesota Association of Professional Employees, testified in support of the provision.

Mr. Mark McAfee, AFSCME Council 6, testified in support of the provision and that they are not opposed to the 12-month window.

Mr. Martin clarified that PERA and TRA employees are employees of the state and were on strike, but they are covered by their respective pension plans. Mr. Martin said that the Commission could make a provision just for PERA staff who are members of PERA to purchase their lost time, or it could be broadened to be applicable to any PERA member who is on any strike, but the proposal before the Commission is only for state strike time.

Ms. Vanek testified that they have a number of other employees covered by PERA whose employment status has changed from county, city, or school district to state.

Senator Betzold suggested a 12-month sunset from the date of enactment so the Commission and the Legislature would need to revisit the issue.

Senator Johnson moved LCPR02-099, amended to extend the provision to state employees to cover the state employees of the funds and to include a 12-month sunset from the date of enactment. MOTION PREVAILED.

Representative Murphy asked how the amendments passed at the meeting would procedurally catch up with the omnibus pension bill. Mr. Martin replied that Representative Mares could offer those amendments in the House Ways and Means Committee and that Senator Johnson could offer the amendments when the bill comes up on the Senate Floor.

Senator Hottinger testified that S.F. 3066 (Hottinger); H.F. 3164 (Seifert), as originally introduced, had errors in terms of references and obsolete provisions and the amendment would better frame the bill.

Senator Hottinger explained that the bill would create a set of early retirement incentives for teachers and he briefly explained the sections of the bill.

Ms. Cheryl Furrer, Education Minnesota, testified in support of the amendment.

Mr. Russ Stanton, representing the faculties of the state universities and two-year colleges, testified in support of the amendment.

Mr. Gary Austin, Executive Director, TRA, testified that TRA does not have specific costs related to Section 1, but they have estimated that the cost for each person retiring during this period would be about $40,000 per member. According the Mr. Austin, because the time period covered by the bill would include two retirement school years, he would expect at least 4,000-5,000 teachers to retire during this period and would estimate the cost of the incentive to be about $200 million.

Ms. Mary Vanek, Executive Director, PERA, testified that the bill as she interprets it would require PERA to pay the additional one-tenth of one percent in the formula multiplier in the combined service provisions. She testified that PERA has a number of individuals who have credited service in PERA from previous employment who are now teachers and the majority of combined service accounts they have are with TRA; therefore PERA would pay a higher multiplier on the teacher average salary under this early retirement incentive, which would be a cost to PERA.

Mr. David Bergstrom, Executive Director, MSRS, testified that MSRS would also incur costs as people would be getting a higher monthly benefit and that it would come at the cost of the general employees retirement plan at a time when state employees are being laid off.

Senator Johnson asked Mr. Stanton to confirm that the Legislative Auditor took a look at this situation and that the Legislative Auditor had an opposite opinion.

Mr. Stanton said that the Office of the Legislative Auditor did do a study in 1995 and basically said that the service credit should be paid for by the employer rather than by the pension funds and they concluded that a broad based benefit generally cost more than it saved. He pointed out that the report did say that targeted benefits could be of value. Mr. Stanton said that the health care incentive for MnSCU is a targeted benefit that is voluntary and does have the support of both the unions and MnSCU.

Representative Mares asked why we would we want to encourage earlier retirement when there is a teachers shortage. He also asked for an update regarding a potential EEOC age discrimination violation.

Ms. Furrer responded to Representative Mares questions. She said there were several discussions a year or so ago on the teachers shortage issue and what changes things now is that there is a budget crisis in school districts. According to Ms. Furrer, they see this as a way to allow those eligible to retire with an incentive and she indicated that the employer-paid health insurance piece is probably a key component.

Mr. Burek referred members to pages 4 and 5 of the staff memo containing suggestions for members, but he noted that staff may require some direction. He then explained several potential amendments.

Representative Murphy asked Ms. Furrer if the health insurance portion would be under the present contract or the contract under negotiation. Ms. Furrer responded that it would be under the current contract. Mr. Stanton confirmed that they would be covered in the same manner they were covered prior to retirement; and as the plan changed under future contracts they would be covered in the same manner as a comparably situated employee. Mr. Stanton also clarified the potential EEOC age discrimination issue, stating that there is a specific exemption for early retirement incentives of this kind for higher education employees.

Mr. Harley Ogada, General Counsel for Education Minnesota, reported that two years ago the EEOC charged over 300 school districts with age discrimination for violation of the Age Discrimination and Employment Act (ADEA). Mr. Ogada noted that many of the school districts offered incentives, like the provisions in this bill, providing health insurance for retirees that would end at age 65 or at eligibility for Medicare. He informed members that about 18 months ago the EEOC announced that it would no longer seek charges pertaining to these types of benefits, that they dropped charges against the school districts, and that the EEOC no longer considers these benefits to be age discriminatory under the ADEA.

The amendment was laid over.

Senator Scheevel testified that several issues regarding the statewide volunteer firefighter retirement plan study have come to his attention. He explained that the volunteer firefighter groups have historically been an independent group and have coveted control over each of their pension plans, so there has been resistance to the proposed study by those firefighters. Senator Scheevel said that they are concerned that a portion of their two-percent pension money is being diverted from their pension funds, and that it will be used to lobby the volunteer firefighting organizations to accept such a plan.

Mr. Dallas Henn, Vice President, Minnesota State Fire Department Association (MSFDA), testified in opposition to the proposed study and said that in his travels around the state he finds a majority of firefighters are against taking money out of the two percent.

Mr. Paul Olson, volunteer firefighter from Dodge County and secretary of the Southeast Region of the MSFDA, testified in opposition to the proposed study.

Senator Johnson said that he has talked with 25 fire departments in West Central Minnesota, that they are very much in support of the study, and he wondered why there was such a difference. Mr. Olson responded that, in their view, most everything that is done benefits mainly the seven-county metro area, and they would have liked to have had more information on this issue.

Mr. Nyle Zikmund, representing the Minnesota Area Relief Association Coalition (MARAC), testified that he had previously informed the Commission that the proposed study was not unanimously supported throughout the state. He said that in their meetings with firefighters, MARAC asked the attendees to give their relief association’s position, and the response was about 69 to 75 percent in favor of the proposed study. Mr. Zikmund said that there were five mailings offering a presentation on the issue anywhere in the state, but he has not been invited to the Southeastern Region. He said that there is legitimate opposition to the use of the two-percent monies, but there is not another source of funds. Mr. Zikmund further stated that the cities underwrite these plans and the League of Minnesota Cities is supportive of the study.

Senator Stevens recommended that if a fire relief association is interested they should pass a resolution of support. He also pointed out that there are full-time fire departments that would have their percentage of the fire state aid used for the proposed study, but would receive no benefit from it.

Senator Pogemiller moved amendment SCS2984A-1, which would remove the provision from the Senate version of the omnibus bill. Representative Mares confirmed that the provision has already been removed in the House. Representative Murphy expressed her concern about waiting too much longer to get the information the proposed study would gather. MOTION PREVAILED.

Senator Betzold explained that the legislation was brought forth by the Metropolitan Council and Representative Mares informed members that this amendment was added to the omnibus bill in the House Governmental Operations Committee.

Mr. Jack Nelson, Chief of the Metropolitan Council Transit Police, testified in support of the legislation and provided information on the officers who would be affected. He stated that the Metropolitan Council supports this legislative change which would cost the Council an additional $48,000 per year, and he addressed concerns that officers might be allowed to pad their retirement income.

Mr. Martin reviewed the staff memo and the policy issues. Mr. Martin informed members that the addition of part-time police officers to the Metro Transit operations was done in another committee and that Commission members have not addressed this issue. He also pointed out that the proposed legislation does not address the issue of service credit purchases. Mr. Martin then reviewed Amendments LCPR02-080 and SCS2984A-5.

Senator Betzold moved Amendments LCPR02-080 and SCS2984A-5. MOTION PREVAILED.

Mr. Martin reported that the current actuarial services contract with Milliman USA would expire on June 30, 2002, and that the contract would need to be re-bid. Mr. Martin recommended that the Commission delegating the task of selecting an actuarial firm to a subcommittee, as it has in the past.

Senator Johnson appointed the following members to the Actuarial Services Subcommittee: Senator Betzold (chair), Senator Stevens, Representative Murphy, and Representative Smith.

Representative Mares offered Amendment H3127A-4, explaining that this amendment for the Minneapolis Police Relief Association (MPRA) defines that only the designated member’s spouse can receive the joint-and-survivor annuity.

Mr. Brian Rice, General Counsel, MPRA, testified in support of the amendment and explained that the legislation was brought forth in an effort to avoid potential lawsuits.

Mr. Martin expressed concern that if there are joint annuitants who are not surviving spouses, imposing a requirement after the fact may create a lawsuit rather than avoid one, and that the legislation may have retroactive detrimental impact on one or more joint annuitants. Mr. Rice testified that to his knowledge there is no person currently in that situation.

Representative Murphy asked if the proposed legislation intends that the spouse who is divorced should not be a beneficiary. Mr. Rice responded that in the case of a divorced spouse who was designated as a joint-and-survivor recipient, if he or she were divorced from the member at the time of the member’s death there would not be a surviving spouse benefit. He further clarified that if they were divorced after the member’s retirement but before the member’s death, the spouse would be entitled to claim the member’s pension as a present asset, but once the member dies the pension ends.

Representative Mares moved Amendment H3127A-4. MOTION PREVAILED.

Representative Mares presented his amendment for a mandated study on pension coverage for state, city, and county 911 dispatchers and state and county probation and parole officers.

Senator Pogemiller remarked that the proposed task force was a large group.

Mr. Robert Johnson, representing 911 dispatchers and probation officers, testified in support of the study on this issue.

Senator Johnson asked Representative Mares if the Commission staff could simply be asked to study the issue. Senator Pogemiller recommended a smaller task force.

Mr. Martin expressed his concern that the proposed mandated study requires actuarial work to be done, and because the budget reductions essentially eliminated the special projects fund there would not be much left for actuarial work the Commission may wish to pursue during the upcoming Session. He noted that the Commission could direct staff to study the issue without a legislative mandate.

Senator Johnson recommended a subcommittee to study the issue and named Representative Mares and Senator Terwilliger as co-chairs. Representative Mares withdrew the amendment.

Mr. Martin said that PERA brought to his attention that there is a potential problem with effective dates in the current omnibus regarding the changes made in PERA membership eligibility requirements, creating an overlap of two different eligibility requirements for the same six-month period, and Amendment LCPR02-078 was drafted by Commission staff to resolve the problem.

Senator Pogemiller moved LCPR02-078. MOTION PREVAILED.

Mr. David Jensen, Senate Finance employee, testified in support of the amendment and gave members some history behind the proposed legislation. He said that there are approximately six other Senate employees who might be affected by the proposed legislation.

Mr. David Bergstrom, Executive Director, MSRS, testified that when Mr. Jensen switched from classified service at the Department of Finance to the Unclassified Plan, MSRS transferred employee contributions and a matching employer contribution, with interest, from the General Plan to the Unclassified Plan. Mr. Bergstrom said that the proposed legislation would depart from a policy that has been in place since the early 1970s to not pay more than an equal employer share. He noted that at the time of Mr. Jensen’s transfer, the employee contribution was four percent and the employer contribution was six percent; so MSRS transferred a four percent employee contribution and a matching four percent employer contribution, and the additional two percent employer contribution stayed in the fund. According to Mr. Bergstrom, the idea behind the additional two percent employer contribution was for pay toward the unfunded liability of the plan and was not intended to be credited to any individual account. Mr. Bergstrom provided handouts on employee and employer contribution amounts and copies of the laws since 1971. He stated that he could not find a law providing for more than an equal employer contribution amount, so he believes Mr. Jensen’s account was handled as required by law. Mr. Bergstrom said that under the proposed legislation, MSRS would transfer over $100,000 from the General Employees Retirement Plan into Mr. Jensen’s account in the Unclassified Plan. He also pointed out that there are approximately 500-600 people who have elected to transfer service and that he is concerned about the precedent the proposed legislation would set.

Representative Murphy asked Mr. Bergstrom to confirm how many House employees who would also become eligible. Mr. Bergstrom replied that between the House, Senate and other legislative staff, there would be about 75-80 people; if the proposal were expanded to others in the Unclassified Plan the number would be much higher.

Mr. Burek then reviewed the amendment, which would provide for the transfer of the additional employer contribution amount and additional interest for a small group of individuals. Mr. Burek mentioned that he could not find anything to indicate that justification for paying only to this limited group and that there may be precedent issues. He referred members to other potential amendments that would limit or restrict the amount transferred.

Senator Terwilliger asked for further clarification on whether Mr. Jensen had been denied funds that should have been transferred for him. Mr. Burek replied that law specifies that only the matching portions of the employer contributions transfer, and referred members to a copy of the 1984 statute attached to the staff memo, noting that there have been no substantive changes to the provision. Mr. Burek suggested that Commission members may wish to view this matter as a Senate employment issue rather than as a pension fund issue.

Senator Pogemiller asked if there had been legislation for a particular employee in the 1980s that already set a precedent. Mr. Bergstrom responded that he looked back to 1971 and did not find anything and that he is unaware of any individual bill. Mr. Jensen said that he is also unaware of a citation but that it is possible something occurred as an employment issue.

The amendment was laid over.

Mr. Ari Levie, a third grade teacher at Northview Elementary in Eagan, testified in support of the amendment.

Ms. Jan Alswager, Education Minnesota, testified in support of the amendment.

Senator Stevens asked Mr. Austin to comment on what kind of sufficiency would be left in TRA if all of the proposed changes were made. Mr. Austin replied that the sufficiency and the proposed change in the post fund should cover the proposed pension benefits.

Senator Stevens stated that would not be wise for the Commission to act on the Rule of 90 at this time because of the number of unresolved issues. He suggested that in the future the Commission consider the Rule of 95 for Post-June 30, 1989. Senator Stevens also commented that if teachers want early retirement they would have to contribute more than 5 percent. Ms. Alswager agreed that they believe the contribution rate should be increased so they can pay for the proposed benefit increase.

Ms. Kristin Dybdal, Department of Finance, reminded members of the Governor’s proposal to reduce contribution rates. She testified that the Finance Department has concerns regarding the Rule of 90 – that it is more difficult to change a benefit increase than it is to change a contribution rate reduction if the need arises, there are concerns with the longterm costs, and policy concerns regarding projected teacher shortages.

Senator Pogemiller asked Mr. Austin to confirm that this change would not affect retirements at the present time. Mr. Austin responded that the Rule of 90 would not impact retirements for as long as 20 years from now, but that affected teachers are now beginning to plan for their retirement. Senator Pogemiller asked if it would be cheaper to incorporate this benefit now as opposed to 10 years from now. Mr. Austin replied that the cost would increase about one-tenth of one percent every year.

Senator Pogemiller asked Mr. Austin if he had calculated what the change in employer/employee share would be in reference to Amendment LCPR02-019. Mr. Austin said that those figures were included in the February 6, 2002, Commission staff memo. Mr. Martin recommended that members use the cost estimates based on the assumption changes recently approved by the Commission.

Senator Pogemiller asked Ms. Alswager about Education Minnesota’s position on using sufficiencies since it would mean that teachers who are members of funds with a deficiency would not get the Rule of 90 until some future date, and asked how many Education Minnesota members are from Minneapolis or St. Paul. Ms. Alswager replied that she wasn’t certain of the percentage of Minneapolis/St. Paul teachers and stated again that Education Minnesota is committed to getting the Rule of 90 for all teachers in all of the funds as soon as possible.

Representative Krinkie offered Amendment MS156, which would merge all three of the first class city teacher plans into TRA. He said that the Commission should make an affirmative action to put all of the teachers in the state on the same level playing field and move to unification of these funds.

Representative Murphy said that the funds have been working together and that it appears there will be consolidation at some point in the future, but she is not sure they are ready for that right now.

Mr. Eugene Waschbusch, StPTRFA, began the Review of Implementation Plan Study for the Aggregation of the Four Teacher Retirement Plans. Mr. Waschbusch said that while they have been working on the issue and are making progress, they are not yet ready to move forward.

Mr. J. Michael Stoffel, DTRFA, reported that they have delivered to the Legislature their report dated February 15, 2002. Mr. Stoffel said that the directors met 13 times to discuss this issue and they have done extensive research. He then reviewed the process, the report and the recommendations.

Ms. Karen Kilberg, MTRFA, pointed out that there would be logistic problems in meeting the July 1 date. She said that there are still issues that need to be addressed, such as the difference between MTRFA’s year of service definition and that of the other funds, how they would transition records in such a short period of time, and the need to take a closer look at the additional burden that would be placed on the city of Minneapolis or the school district.

Mr. Gary Austin, TRA, said that he also had concerns about the transfer of assets and the liability burden that would be placed solely on TRA. He said that the transfer of annuity assets would be to a separate fund; if Minneapolis were to transfer their full annuity assets to one fund they would not have any assets left to cover their active members in the TRA fund, which would put the burden of funding Minneapolis on TRA’s membership and that would not be acceptable and may be against statute.

Representative Krinkie asked Ms. Kilberg and Mr. Waschbusch what would happen if the Legislature did not fund any additional monies to the Minneapolis or St. Paul teacher retirement funds. Mr. Waschbusch replied that it would exacerbate the funding problem, and he pointed out that StPTRFA had a funding sufficiency before the adoption of the new actuarial assumptions. Ms. Kilberg said that MTRFA was only 51% funded when came to the Legislature in 1991 and they have made significant progress and are now over 65% funded, so to take the funding away would be disastrous for the fund.

Amendments LCPR02-017 and MS156 were laid over.

Senator Johnson announced to the audience that the Improved Money Purchase Program issue would not be discussed during this Legislative Session.

Senator Terwilliger explained that he was unable to attend the Commission meeting when his bill was to be discussed, and he reviewed the situation leading to the legislation.

Mr. Martin explained that Amendment LCPR02-088 would mandate MSRS to create an optional accelerated annuity form and he reviewed the policy issues raised by the amendment.

Ms. Jean Mellett, an active member of MSRS and an inactive member of TRA, testified in support of the amendment.

Mr. David Bergstrom, Executive Director, MSRS, testified that the MSRS board has considered this issue several times over the years and the board has decided not to offer this optional annuity form because it has a negative impact on the members.

Senator Terwilliger asked Mr. Bergstrom why the MSRS Board views this negatively when other plans actually have it. Mr. Bergstrom replied that TRA offers a totally different program and their board felt it was an attractive option; but when MSRS ran the numbers the board didn’t agree and was concerned about offering a benefit the staff would have to say was not a good deal. Mr. Bergstrom said that when he worked at PERA there was a lot of confusion over the provision; that members would forget that they had taken it and when their benefits were reduced at age 62 they didn’t have enough money.

The amendment was laid over.

Adjournment
The meeting adjourned at 10:11 p.m.