Impact of Minneapolis Disability Benefit Surge on PERA Police & Fire Plan

July 21, 2020

On July 17, a Star Tribune headline stated “‘Staggering’ number of Minneapolis cops seeking disability benefits.” The story went on to note that it is expected that close to 200, out of a sworn force of about 850, will be seeking duty disability benefits through PERA. This article attempts to explain why the significant change impacting Minneapolis is unlikely to directly impact current PERA Police & Fire benefits or costs at this time. A more likely scenario will be a further delay for any opportunity to either improve benefits (such as a higher retiree cost of living adjustment) or reduce member or employer contribution rates.

Answering stakeholder concerns about potential benefit reductions and/or contribution rate increases requires providing context. The impact of 200 members out of a workforce of 850 is highly significant. However, in the context of a plan that covers over 25,000 members, the number of expected disabilities is less than 1% of total plan membership. Total plan membership includes active members and retirees from both police and fire departments statewide.

A sudden decline of nearly a quarter of the active police force will have significant ramifications for the City of Minneapolis. Included in those challenges will be a requirement to pay for increased costs to cover worker’s compensation benefits and the cost to provide continued health insurance coverage until age 65 for members deemed eligible for a duty disability benefit.

While worker’s compensation and health insurance costs must be paid directly by the City, the cost to provide disability benefits, and disability retirement benefits, is paid from the PERA Police & Fire Retirement Plan (the “Plan”). Since this is a cost sharing plan, any incremental change in cost will ultimately need to be shared in some way by all members and employers. If cost increases are significant, it could require immediate benefit reductions and member and employer contribution increases. If the cost impact is not significant, current benefit levels and contribution rates could continue without change.

The Star Tribune article noted that many of the expected duty disability applicants are seasoned vets with at least 20 years of experience. When members have attained age 55 with 20 or more years of service, there is no cost distinction within the Plan between a duty disability benefit and a non-duty retirement benefit. Members who are part of the expected duty disability surge that are over this age and service threshold will not add to the Plan’s cost.

The ultimate cost of a plan is dependent on many assumptions, one of which is that a certain number of duty disability retirements will occur each year. In other words, some of the disabilities are expected and already baked into existing plan costs. This means only actual disabilities in excess of expected disabilities will create an unexpected cost (and then only if the member has not reached retirement age).

Currently, the Plan is approximately 90% funded and is expected to improve to 100% funded within 15 years, if all assumptions are met. Although the surge of disability retirements is significant, after consideration of above factors including plan size, differentials between disability and retirement benefits, and baseline disability expectations, it seems unlikely that benefit or contribution rates would need to change. The result instead would be that increased duty disability related benefits and costs would delay the expected full funding period. If that is the case, current benefits and cost would not need to change, but the opportunity for future benefit changes or cost reductions would be delayed.

The above analysis reflects only what is expected to occur. When more details are known about the actual number of disabilities, we will have a better ability to quantify the expected impact to the Plan.