What Happened?
The Public Employees Retirement Association (PERA) of Minnesota has proposed sweeping changes to its Police and Fire Fund in the hopes of addressing the plan’s “declining funding levels.” According to state law, the pension plan must be fully funded by 2038. Included in the plan are changes in contributions for employees and employers and a change to discourage members from retiring early.
So What?
The public pension fund serves almost 200,000 people, 150,000 active public employees and 40,000 retirees, survivors and disabled members. It provides retirement and other benefits to county and city public safety officers throughout Minnesota. PERA’s Board of Trustees voted on the changes in December, with the plan to present them to legislature in January.
Why is it Happening?
According to PERA’s December newsletter, the plan’s funding level dropped from 83 percent to 78 percent in just the last year. The drop is partly blamed on the recession’s effect on the economy and the stock market, PERA officials said “present contribution rates cannot support current plan benefits.”
The Details
One of the more controversial changes is the change in the early retirement penalty, a move designed to keep pension recipients from retiring early. Currently those who retire early are charged a 1.2 percent penalty of their post-retirement pension benefit per each year of early retirement. Early retirement can be taken between age 50 and 54, according to PERA. The new penalty would be 5 percent per year of early retirement phased in over five years starting July 1, 2014 and ending June 30, 2019. PERA has provided examples for pension payouts under the existing and proposed programs on its website and a reduction estimator for employees with questions. The changes are designed to discourage early retirement because of the stress it puts on the fund.
“Early retirement comes with a significant cost to the plan,” wrote Mary Most Vanek, PERA’s executive director, in a letter to members. “The market declines in the early 2000s and the most recent declines that resulted from the Great Recession eroded the earlier asset gains.”
The changes will cut employee paychecks to increase employee contributions 1.2 percent over two years, raising the current contribution rate from 9.6 percent currently to 10.8 percent by 2015. Employers also will take a hit under the proposal, with its contribution to the Police and Fire Fund rising 1.8 percent over two years, from 14.4 percent of salary to 16.2 percent by 2015. At the proposed 27 percent contribution, that’s less than the estimated 33 percent contribution rate plan officials predict would be necessary to fund the plan 100 percent by 2038.
The plan would need state approval before going into effect, with the state’s lawmakers expected to see the plan this month.
More Information
Comments or questions on the plan can be forwarded to Vanek at webP&FFeedback@mnpera.org.