Legislation

2024 Legislative Update

The Legislature approved the 2024 Pension and Retirement Policy and Supplemental Budget Bill, House File 5040, and Governor Walz signed the bill on May 15.

The Bill includes the following changes to PERA plans:

Defined Contribution Plan (DCP). Effective August 1, 2024, all individuals newly hired or elected to a position eligible for DCP participation must make a one-time irrevocable election within 30 days of hire. All provisions permitting individuals to make an election more than 30 days after hire or to revoke an election to participate are removed. Individuals who were hired or took office between February 1, 2024 and July 31, 2024 will have an opportunity to make a one-time irrevocable election during the month of October 2024. More information will be shared with employers and impacted members throughout the summer and early fall.

Correctional Plan Multiplier and Contribution Rates. The Correctional plan multiplier increases from 1.9% to 2.2% for any service credit earned July 1, 2025 or later. Contribution rates also increase July 1, 2025 forward:

>>Members: 6.83%

>>Employers: 10.25%

Coordinated and Correctional Workers’ Compensation Offsets. As of January 1, 2025, Coordinated and Correctional disability benefits will no longer be reduced by workers’ compensation.

Police & Fire Plan Firefighter Definition. The Bill updates the definition of firefighter for the purposes of plan membership to include certain employees that work in fire service that are exposed to the hazards of firefighting.

Statewide Volunteer Firefighter Plan. The Bill modifies the structure of 353G, updates definitions, changes administrative requirements, and establishes a defined contribution plan.

Other Administrative Changes. The Bill updates language to ensure consistency in qualification requirements and compensation across fund executive directors. The Bill also modifies provisions in Minnesota Statutes Chapter 356 relating to amortization, correction of errors, and federal compliance.

2024 Legislative Agenda

The 2024 legislative session kicked off on February 12, 2024. PERA’s legislative agenda includes four main legislative proposals. These proposals were approved by the PERA Board of Trustees at their October, December, and February meetings.

Defined Contribution Plan. PERA’s tax counsel recently reviewed PERA’s DCP for federal compliance and identified areas within the plan that need to be updated to ensure the plan meets federal Internal Revenue Service (IRS) requirements.

PERA is proposing legislation to ensure the Plan meets federal Internal Revenue Service (IRS) requirements.

Workers’ Compensation Offsets. Effective January 1, 2024, PERA no longer offsets workers’ compensation for PERA Police & Fire disability benefit recipients. The rationale to eliminate the workers‘ compensation offset is that these benefits are not directly connected to reemployment earnings.

PERA’s proposed legislation eliminates the workers’ compensation offsets for PERA General and Correctional disability benefit recipients for the same reason. Offsets will only apply to the disability benefit if the recipient’s benefit plus reemployment earnings exceed the base salary. PERA also proposes modifying the current statute for General disability benefit recipients to use the benefit amount rather than the single life annuity in the offset calculation. These changes will create consistency in offset calculation provisions across PERA Plans.

Statewide Volunteer Firefighter Plan. Since the inception of the Statewide Volunteer Firefighter (SVF) Plan in 2010, PERA staff completes the annual reporting requirement. Annual reports include both a funding status update (funding ratio) and a determination of an annual contribution requirement for the governing body. Funding ratios for the SVF Plan tends to be relatively high.

Very few participants are required to make a contribution. A significant amount of work is done to inform a very high percentage of participants that no contribution is required.

PERA’s proposed legislation is to change from an annual to a biennial preparation of reports as an effective approach to significantly reduce administrative costs without adversely impacting the commitment to inform stakeholders on the health and funding requirements of the SVF Plan.

Privatization Withdrawal Liability. During the past couple of sessions, PERA has sought a withdrawal liability assessment to future privatizing entities. Eligible healthcare entities currently may privatize and discontinue participation in PERA without paying the unfunded liability attributable to their employee’s beneﬁts.

The result is that upon privatization there is a shift of costs from that employer to the remaining employers and active members.

The proposed legislation requires a privatizing entity to pay a withdrawal liability for an entity’s eligible active members determined using current actuarial assumptions and the Plan’s funding ratio from the most recent actuarial valuation.

That amount would be amortized using current Plan assumptions to develop an annual contribution sufficient to reduce the unfunded actuarial accrued liability attributable to that entity to zero over a period of not more than ten years.

Other Administrative Proposals. PERA is proposing two other administrative changes:

Executive Director Qualifications & Salary Range. PERA staff worked with MSRS, TRA, and the LCPR to determine language to ensure consistency in qualification requirements and compensation across fund executive directors.

PERA Survivor Benefits Recodification for PERA Police & Fire, PERA Correctional, and PERA General. The purpose of the recodification is to use a standard format and consistent language for each Plan’s survivor benefits. This will make the statute more approachable for both staff and members. No changes will be made to benefit amounts or administration.

Session Pension/Retirement Bills

The Legislative Commission on Pensions and Retirement (LCPR) provides a website page where retirement-related bills from the House and Senate are tracked. Many proposals are introduced throughout session; however, not all are voted into law by the end of session.

You can access LCPR’s bill page here: lcpr.mn.gov/billlog

2023 Legislation

The 2023 legislative session ended on May 22. The Legislative Commission on Pensions and Retirement heard testimony and reviewed proposed legislation on several topics and initiatives related to pension benefits.

Several bills were signed at the end of the session that impact PERA: the Pension and Retirement Omnibus Policy Bill (SF3016/HF2950), the Pension Omnibus Budget Bill (SF3162/HF3100), and the Public Safety PTSD/Duty Disability Bill (SF1959/HF1234). These legislative changes are effective July 1, 2023, unless noted below.

Plan Assumptions. PERA’s assumed investment return changed from 7.5% to 7.0% effective June 30, 2023. This is the rate at which PERA assumes we will see a return on the investments made by the State Board of Investment on PERA’s behalf. Interest charged by PERA on omitted deductions, delinquent invoices, purchases of service or salary credit, and repayments of refund will be lowered to 7.0% after June 30. Interest accrued prior to that date would remain at 7.5%.

Membership Eligibility. The defined benefit annual earnings requirement for local government and school employees of $5,100 and $3,800, respectively, is now replaced with a monthly threshold of $425. Current members who qualified for membership under the previous rules are not affected and will retain their membership until termination.

Vesting. For Coordinated members, three-year vesting now applies to active public employees. Five-year vesting still applies to members first hired on or after July 1, 2010, and who terminated before June 30, 2023. For Police & Fire members, five to 10-year graded vesting now applies to those who became a member on or after July 1, 2010, and have not taken a refund or started a benefit. The previous 10 to 20- year graded vesting was removed from statutes. There are no vesting changes for Correctional members.

One-time Payment. Coordinated, Basic, and Police & Fire benefit recipients who have received retirement, survivor, or disability benefits for at least 12 full months as of June 30, 2023, are eligible for a one-time payment. The amounts will be based off the 2024 annual increase and your gross benefit. We are unable to determine your one-time payment until March 2024. For Coordinated members, the amount will be the difference between the actual 2024 increase and 2.5%. For Basic and Police & Fire members, it is the difference between the actual 2024 increase and 4.0% as these members are not eligible for Social Security (exception: if a Police & Fire recipient has not received an annual increase on their benefit as of Jan. 2024, the one-time amount will be based on 3.0%). You will receive this extra payment by March 31, 2024. This one-time payment is non-compounding toward the overall benefit. More information will be shared in our Winter 2023 Newsletter.

Annual Increase. For Coordinated, Basic, and MERF members who start early retirement benefits January 1, 2024 or later, the delayed annual increase provision was removed from statute. These members will now follow the standard increase schedule based on their benefit effective date. For Correctional members, the trigger provision was corrected to move back to the 2.5% increase cap after meeting certain criteria if it ever dropped to 1.5%.

Death Benefits. Dependent child benefits for all defined benefit plans now have a benefit duration to age 23. This provision generally applies when a member’s death occurs before starting a PERA benefit. The Police & Fire full-time student requirement between ages 18 to 23 was removed from statute.

Member Purchases. Members who terminate employment or start a disability benefit before paying a leave of absence will now have the same period of time to make the purchase as active members, which is one year after the end of each reporting period. Members who are applying for a disability benefit are now eligible to purchase all leave types. Accrued interest on member purchases (repaying a refund, leave of absence, etc.) will be 7.0%, July 1, 2023, forward.

Defined contribution plan. Beginning May 20, 2023, appointed public officials (such as city or township clerks, treasurers, or auditors) who had previously been excluded from the DCP because their position was not elected, are now eligible to participate if their salary remains below the threshold for mandatory Coordinated Plan membership.

Police & Fire Duty Disability. The duty total and permanent disability benefit formula is now 99% of average salary. Members with a psychological condition must complete a treatment requirement before applying for a duty disability benefit. Earnings offsets were modified for disability recipients who have reemployment earnings. There is currently an injunction which limits these modifications for some duty disability recipients. As of January 1, 2024, workers’ compensation will no longer offset disability benefits.

Disability Reapplication Process. While this is not a new process, the current administrative procedures for the disability reapplication process were clarified in law. The legislation clarified that disability recipients reapply and provide evidence of continued disability once a year for the first five years and every three years thereafter. The legislation also clarified that if our medical consultant states in writing that no improvement can be expected with the disabling condition that the benefit was based on, then the reapplication process may be waived.

MN State Taxes. The tax withholding form will change beginning January 1, 2024, and allow withholding elections based on a percentage of your gross benefit.