Omnibus Retirement Bill
The Legislative Commission on Pensions and Retirement (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 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 lowers 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.
The bill reduces aid payments to PERA for the 2010 Minneapolis Employees Retirement Fund (MERF) merger into PERA. The MERF fund within PERA has performed well, so less state aid is necessary over the next few decades. The Senate took the House position in the Omnibus Retirement Bill to continue the supplemental contribution level by employers (Minneapolis, Minneapolis school district, Hennepin County, etc.) to PERA. Currently, $31 million per year is contributed by the Minneapolis employers and $24 million is contributed by the state for a total of $55 million. The House’s position requires the state to provide $6 million each year of the next biennium and the city employers to continue to pay $31 million in supplemental aid for a combined total of $37 million.
Individual and small group pension changes were 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 was signed into law. (S.F. 1398)
