LEGISLATIVE COMMISSION ON PENSIONS AND RETIREMENT

Representative Steve Smith, Chair of the Legislative Commission on Pensions and Retirement, called the meeting to order at 6:40 p.m.

Representatives Sondra Erickson, Philip Krinkie, Eric Lipman, Mary Murphy, and Steve Smith

Senators Don Betzold, Keith Langseth, and Lawrence Pogemiller

Senators Cal Larson and Geoff Michel

Mr. William V. Hogan, Milliman USA, presented the summary of the July 1, 2002, actuarial valuations.

Mr. Thomas K. Custis, Milliman USA, reviewed the implications of the market experience over the past three years and the smoothing technique used in calculating the actuarial value of assets.

Mr. Lawrence Martin, Executive Director, Legislative Commission on Pensions and Retirement, reviewed the staff memo and Draft Resolution 03-1.

Ms. Mary Vanek, Executive Director, PERA, testified in support of the proposed assumption changes, provided a summary of the final outcome of the study, and responded to members’ questions. Ms. Vanek informed members that the PERA Board feels strongly that the assumptions should be adopted so that when the actuarial valuations are performed they truly reflect the experience of the plan. When asked why the PERA Board chose to use Mercer Human Resources Consulting, Ms. Vanek replied that PERA used Mercer for the previous experience study so they chose them again, knowing Milliman USA would review the results.

Ms. Bonnie Wurst, Mercer Human Resources Consulting, testified that Mercer follows the Minnesota Standards for Actuarial Work. Ms. Wurst also said that she is not a Fellow in the Society of Actuaries (FSA), but the experience study was supervised by FSA Stephen McElhaney, meeting the Commission’s "approved actuary" requirement. Ms. Wurst acknowledged that it was Mercer’s oversight that Mr. McElhaney was not a cosigner of the experience study and she offered to submit a letter to PERA and the Commission explaining how Mercer’s team meets the standards.

Mr. Custis testified that Milliman USA was asked to review the study and that Milliman looked at the study results in detail and compared them to the annual valuation results. Mr. Custis indicated that they found the results to be reasonable and that Milliman is comfortable with Mercer’s recommendations.

Rep. Smith asked Mr. Custis how late the Commission could wait to approve the assumption changes and have them effective for the July 1, 2003, actuarial valuations. Mr. Custis replied that a delay in processing the valuation data could result in additional cost, but a month’s delay would be acceptable.

The item was laid over.

Mr. Edward Burek, Deputy Director, Legislative Commission on Pensions and Retirement, reviewed his summary of 2003 pension legislation.

Rep. Smith directed members’ attention to page 6, Item D, a MnSCU provision that was included in an omnibus higher education finance bill so the Commission did not review. Rep. Smith asked MnSCU to address their intent regarding the language and to send it to the Commission staff.

Rep. Murphy asked Mr. Burek to find out the amount is anticipated to be collected by the provision in the omnibus tax bill making benefit payments subject to estate taxes and if that is a common practice.

Mr. Martin reviewed the staff memo on the budget reduction issue, and outlined several potential options. Mr. Martin asked for direction regarding the broad approach the Commission would like to take in trying to accommodate the budget shortfall. Mr. Martin indicated that in order to resolve the budget shortfall, the Commission would need to reduce the staffing of the Commission, reduce some of the actuarial services to the Commission, find a way to enhance the Commission’s revenue, or utilize some combination of the three.

Rep. Lipman asked Mr. Custis for his perspective on how Commission operations would be hampered if the Commission were to implement option 3 on page 5 of the staff memo. Mr. Custis responded that the specific services listed in option 3 were those that Milliman could identify as perhaps being the least critical, at least from the point of view of disseminating the important actuarial information to Commission members.

Rep. Smith offered a written amendment that was distributed to Commission members. The amendment read as follows:

1. Eliminate the actuarial valuation of the Legislators Retirement Plan;
2. Eliminate the actuarial valuation of the Elective State Officers Retirement Plan.
3. Reduce the gain and loss analysis for each remaining actuarial valuation to mortality and investment performance.
4. Eliminate the report of prior service credit purchase liabilities.
5. Eliminate the summary report on the annual actuarial valuations."

Mr. Martin reviewed the items contained in the amendment and the impact of the proposed changes, noting that the budget saving would be $35,000 each fiscal year or $70,000 for the biennium. Mr. Martin also said that does not achieve a balanced budget because of the experience study issue, but action on that $60,000 issue could wait until the 2004 Session.

Rep. Smith renewed his motion. MOTION FAILED.

Sen. Pogemiller indicated his concern relating to Items 3 and 5 of the Smith motion.

Sen. Betzold moved Items 1, 2, and 4 of the previous Smith motion.

Rep. Lipman what the savings would be if Items 1, 2, and 4 were to pass. Mr. Martin replied that the Betzold motion would be the same as option 3, representing total savings of $40,000.

Sen. Betzold renewed his motion. MOTION PREVAILED.

Mr. Martin reviewed the staff memo and proposed work plan to process the administrative legislation.

Chair Smith indicated his intention to Rep. Lipman, Rep. Smith, Sen. Betzold, and Sen. Pogemiller to the Subcommittee. Sen. Pogemiller recommended the appointment of Sen. Michel represent the minority.

Chair Smith appointed Rep. Lipman, Rep. Smith, Sen. Betzold, and Sen. Michel to the Subcommittee.

The meeting adjourned at 9:10 p.m.