Omnibus Retirement Bill

The Legislative Commission on Pensions and Retirement (LCPR) convened for the first time in late February. The LCPR is a bipartisan commission tasked with creating an omnibus retirement bill each session and delving into additional state pension issues throughout the interim. The omnibus retirement bill is currently in the process of being compiled and the following provisions are anticipated to be included in the final bill.

The rate of return assumption is the assumed annual investment return for each of the pension plans based on historical market factors and the investment performance of the Board of Investment. The current ‘select and ultimate’ rate is a blended rate of 8.5% and 8%, which is scheduled to increase back to 8.5% in the next few years. The omnibus pension bill will lower the assumed rate of return to 8% for the Public Employee Retirement Association (PERA), Minnesota State Retirement System (MSRS), and the St. Paul Teachers Retirement Fund. This change provides a more conservative approach to assumed returns but also affects the assumed future pension liabilities because the plans aren’t predicted to grow as much over time. However, MSRS testified this change will have less of an impact on retirees and active members if the assumed rates are lowered now.

Another provision alters the adjustment mechanism for cost-of-living-adjustments (COLAs) for retirees based on market value losses. Currently, COLA increases are triggered for pension plans when the funding ratio of plans are at high levels (typically over 90% funded based on market value). This bill would trigger a corresponding decrease in COLAs if the market value is below 85% for two years, or below 80% for one year.

Individual and small group pension changes will be added to the omnibus retirement bill, in addition to reforms for local volunteer fire relief associations (VFRAs). One of the major proposals will allow monthly benefit VFRAs to join the statewide program for lump-sum VFRA plans administered by PERA. These plans are difficult for volunteer firefighters to manage and will be more easily administered by PERA.

STATUS: The bill is being compiled in the LCPR.

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