HF 3938

as introduced - 85th Legislature (2007 - 2008) Posted on 12/15/2009 12:00am

A bill for an act
relating to retirement; volunteer firefighter relief associations; requiring
misconduct reporting by public accountants; authorizing brokers to hold relief
association assets; clarifying certain authorized investment limitations; requiring
broker certification of sufficient securities investor protection corporation
insurance for broker-held assets; adding ancillary benefit definition; revising
surviving spouse definition; modifying interest crediting for deferred service
pensions; clarifying the limitation on ancillary benefits; disallowing special fund
payment of funeral benefits; amending Minnesota Statutes 2006, sections 6.67;
69.011, subdivision 1; 356A.06, subdivisions 1, 7, 8b; 424A.001, subdivision 6,
by adding a subdivision; 424A.02, subdivisions 7, 9; 424A.05, subdivision 3.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2006, section 6.67, is amended to read:

6.67 PUBLIC ACCOUNTANTS; REPORT OF EVIDENCE POINTING TO
MISCONDUCT.

Whenever a public accountant in the course of auditing the books and affairs of a
county, city, town, school district, deleted text begin or deleted text end other public deleted text begin corporations, shall discover deleted text end new text begin corporation,
or local public pension plan governed by section 69.77, sections 69.771 to 69.775, or
chapter 354A, 422A, 423B, 423C, or 424A, discovers new text end evidence pointing to nonfeasance,
misfeasance, or malfeasance, on the part of an officer or employee in the conduct of duties
and affairs, the public accountant shall promptly make a report of such discovery to the
state auditor and the county attorney of the county in which the governmental unit is
situated and the public accountant shall also furnish a copy of the report of audit upon
completion to said officers. The county attorney shall act on such report in the same
manner as required by law for reports made to the county attorney by the state auditor.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
new text end

Sec. 2.

Minnesota Statutes 2006, section 69.011, subdivision 1, is amended to read:

Subdivision 1.

Definitions.

Unless the language or context clearly indicates that a
different meaning is intended, the following words and terms shall for the purposes of this
chapter and chapters 423, 423A, 424 and 424A have the meanings ascribed to them:

(a) "Commissioner" means the commissioner of revenue.

(b) "Municipality" means:

(1) a home rule charter or statutory city;

(2) an organized town;

(3) a park district subject to chapter 398;

(4) the University of Minnesota;

(5) for purposes of the fire state aid program only, an American Indian tribal
government entity located within a federally recognized American Indian reservation;

(6) for purposes of the police state aid program only, an American Indian tribal
government with a tribal police department which exercises state arrest powers under
section 626.90, 626.91, 626.92, or 626.93;

(7) for purposes of the police state aid program only, the Metropolitan Airports
Commission with respect to peace officers covered under chapter 422A; and

(8) for purposes of the police state aid program only, the Department of Natural
Resources and the Department of Public Safety with respect to peace officers covered
under chapter 352B.

(c) "Minnesota Firetown Premium Report" means a form prescribed by the
commissioner containing space for reporting by insurers of fire, lightning, sprinkler
leakage and extended coverage premiums received upon risks located or to be performed
in this state less return premiums and dividends.

(d) "Firetown" means the area serviced by any municipality having a qualified fire
department or a qualified incorporated fire department having a subsidiary volunteer
firefighters' relief association.

(e) "Market value" means latest available market value of all property in a taxing
jurisdiction, whether the property is subject to taxation, or exempt from ad valorem
taxation obtained from information which appears on abstracts filed with the commissioner
of revenue or equalized by the State Board of Equalization.

(f) "Minnesota Aid to Police Premium Report" means a form prescribed by the
commissioner for reporting by each fire and casualty insurer of all premiums received
upon direct business received by it in this state, or by its agents for it, in cash or otherwise,
during the preceding calendar year, with reference to insurance written for insuring against
the perils contained in auto insurance coverages as reported in the Minnesota business
schedule of the annual financial statement which each insurer is required to file with
the commissioner in accordance with the governing laws or rules less return premiums
and dividends.

(g) "Peace officer" means any person:

(1) whose primary source of income derived from wages is from direct employment
by a municipality or county as a law enforcement officer on a full-time basis of not less
than 30 hours per week;

(2) who has been employed for a minimum of six months prior to December 31
preceding the date of the current year's certification under subdivision 2, clause (b);

(3) who is sworn to enforce the general criminal laws of the state and local
ordinances;

(4) who is licensed by the Peace Officers Standards and Training Board and is
authorized to arrest with a warrant; and

(5) who is a member of a local police relief association to which section 69.77
applies, the State Patrol retirement plan, the public employees police and fire fund, or the
Minneapolis Employees Retirement Fund.

(h) "Full-time equivalent number of peace officers providing contract service" means
the integral or fractional number of peace officers which would be necessary to provide
the contract service if all peace officers providing service were employed on a full-time
basis as defined by the employing unit and the municipality receiving the contract service.

(i) "Retirement benefits other than a service pension" means any disbursement
authorized under section 424A.05, subdivision 3, clauses (2) deleted text begin , deleted text end new text begin and new text end (3) deleted text begin , and (4) deleted text end .

(j) "Municipal clerk, municipal clerk-treasurer, or county auditor" means the person
who was elected or appointed to the specified position or, in the absence of the person,
another person who is designated by the applicable governing body. In a park district,
the clerk is the secretary of the board of park district commissioners. In the case of the
University of Minnesota, the clerk is that official designated by the Board of Regents.
For the Metropolitan Airports Commission, the clerk is the person designated by the
commission. For the Department of Natural Resources or the Department of Public Safety,
the clerk is the respective commissioner. For a tribal police department which exercises
state arrest powers under section 626.90, 626.91, 626.92, or 626.93, the clerk is the person
designated by the applicable American Indian tribal government.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective January 1, 2009.
new text end

Sec. 3.

Minnesota Statutes 2006, section 356A.06, subdivision 1, is amended to read:

Subdivision 1.

new text begin Authorized holder of assets; new text end title to assets.

new text begin (a) new text end Assets of a covered
pension plan may be held only by the plan treasurer deleted text begin , deleted text end new text begin ; new text end the State Board of Investment deleted text begin , deleted text end new text begin ; new text end the
depository agent of the plan deleted text begin , deleted text end new text begin ; a security broker with both insurance from the nonprofit
corporation created by the Securities Investor Protection Act, as amended, and appropriate
excess coverage, or the broker's agent; new text end or of the State Board of Investment.

new text begin (b) new text end Legal title to plan assets must be vested in the plan, the State Board of
Investment, the governmental entity that sponsors the plan, the nominee of the plan, or
the depository agent. The holder of legal title shall function as a trustee for a person or
entity with a beneficial interest in the assets of the plan.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
new text end

Sec. 4.

Minnesota Statutes 2006, section 356A.06, subdivision 7, is amended to read:

Subd. 7.

Expanded list of authorized investment securities.

(a) Authority.
Except to the extent otherwise authorized by law, a covered pension plan not described by
subdivision 6, paragraph (a), shall invest its assets only in accordance with this subdivision.

(b) Securities generally. The covered pension plan has the authority to purchase,
sell, lend, or exchange the securities specified in paragraphs (c) to (i), including puts and
call options and future contracts traded on a contract market regulated by a governmental
agency or by a financial institution regulated by a governmental agency. These securities
may be owned as units in commingled trusts that own the securities described in
paragraphs (c) to (i), including real estate investment trusts and insurance company
commingled accounts, including separate accounts.

(c) Government obligations. The covered pension plan may invest funds in
governmental bonds, notes, bills, mortgages, and other evidences of indebtedness if the
issue is backed by the full faith and credit of the issuer or the issue is rated among the top
four quality rating categories by a nationally recognized rating agency. The obligations in
which funds may be invested under this paragraph include guaranteed or insured issues
of (1) the United States, its agencies, its instrumentalities, or organizations created and
regulated by an act of Congress; (2) Canada and its provinces, provided the principal and
interest is payable in United States dollars; (3) the states and their municipalities, political
subdivisions, agencies, or instrumentalities; (4) the International Bank for Reconstruction
and Development, the Inter-American Development Bank, the Asian Development Bank,
the African Development Bank, or any other United States government sponsored
organization of which the United States is a member, provided the principal and interest is
payable in United States dollars.

(d) Corporate obligations. The covered pension plan may invest funds in bonds,
notes, debentures, transportation equipment obligations, or any other longer term
evidences of indebtedness issued or guaranteed by a corporation organized under the laws
of the United States or any state thereof, or the Dominion of Canada or any province
thereof if they conform to the following provisions:

(1) the principal and interest of obligations of corporations incorporated or organized
under the laws of the Dominion of Canada or any province thereof must be payable in
United States dollars; and

(2) obligations must be rated among the top four quality categories by a nationally
recognized rating agency.

(e) Other obligations. (1) The covered pension plan may invest funds in
bankers acceptances, certificates of deposit, deposit notes, commercial paper, mortgage
participation certificates and pools, asset backed securities, repurchase agreements and
reverse repurchase agreements, guaranteed investment contracts, savings accounts, and
guaranty fund certificates, surplus notes, or debentures of domestic mutual insurance
companies if they conform to the following provisions:

(i) bankers acceptances and deposit notes of United States banks are limited to those
issued by banks rated in the highest four quality categories by a nationally recognized
rating agency;

(ii) certificates of deposit are limited to those issued by (A) United States banks and
savings institutions that are rated in the highest four quality categories by a nationally
recognized rating agency or whose certificates of deposit are fully insured by federal
agencies; or (B) credit unions in amounts up to the limit of insurance coverage provided
by the National Credit Union Administration;

(iii) commercial paper is limited to those issued by United States corporations or
their Canadian subsidiaries and rated in the highest two quality categories by a nationally
recognized rating agency;

(iv) mortgage participation or pass through certificates evidencing interests in pools
of first mortgages or trust deeds on improved real estate located in the United States where
the loan to value ratio for each loan as calculated in accordance with section 61A.28,
subdivision 3, does not exceed 80 percent for fully amortizable residential properties and
in all other respects meets the requirements of section 61A.28, subdivision 3;

(v) collateral for repurchase agreements and reverse repurchase agreements is
limited to letters of credit and securities authorized in this section;

(vi) guaranteed investment contracts are limited to those issued by insurance
companies or banks rated in the top four quality categories by a nationally recognized
rating agency or to alternative guaranteed investment contracts where the underlying
assets comply with the requirements of this subdivision;

(vii) savings accounts are limited to those fully insured by federal agencies; and

(viii) asset backed securities must be rated in the top four quality categories by a
nationally recognized rating agency.

(2) Sections 16A.58, 16C.03, subdivision 4, and 16C.05 do not apply to certificates
of deposit and collateralization agreements executed by the covered pension plan under
clause (1), item (ii).

(3) In addition to investments authorized by clause (1), item (iv), the covered
pension plan may purchase from the Minnesota Housing Finance Agency all or any part of
a pool of residential mortgages, not in default, that has previously been financed by the
issuance of bonds or notes of the agency. The covered pension plan may also enter into
a commitment with the agency, at the time of any issue of bonds or notes, to purchase
at a specified future date, not exceeding 12 years from the date of the issue, the amount
of mortgage loans then outstanding and not in default that have been made or purchased
from the proceeds of the bonds or notes. The covered pension plan may charge reasonable
fees for any such commitment and may agree to purchase the mortgage loans at a price
sufficient to produce a yield to the covered pension plan comparable, in its judgment,
to the yield available on similar mortgage loans at the date of the bonds or notes. The
covered pension plan may also enter into agreements with the agency for the investment
of any portion of the funds of the agency. The agreement must cover the period of the
investment, withdrawal privileges, and any guaranteed rate of return.

(f) Corporate stocks. The covered pension plan may invest funds in stocks or
convertible issues of any corporation organized under the laws of the United States or the
states thereof, any corporation organized under the laws of the Dominion of Canada or its
provinces, or any corporation listed on an exchange regulated by an agency of the United
States or of the Canadian national government, if they conform to the following provisions:

(1) the aggregate value of investments under this paragraph, plus paragraphs (g) and
(k), plus equity investments under paragraphs (h), (i), and (j), as adjusted for realized
gains and losses, must not exceed 85 percent of the market or book value, whichever is
less, of a fund; and

(2) investments must not exceed five percent of the total outstanding shares of
any one corporation.

(g) Developed market foreign stocks investments. In addition to investments
authorized under paragraph (f), the covered pension fund may invest in foreign stock sold
on an exchange in any developed market country that is included in the Europe, Australia,
and Far East Index.

(h) Commingled or mutual investments. The covered pension plan may invest
in index funds or mutual funds, including index mutual funds, through bank-sponsored
collective funds and shares of open-end investment companies registered under the
Federal Investment Company Act of 1940, deleted text begin if the investments of the index or of the mutual
fund deleted text end new text begin to the extent that these funds new text end comply with paragraphs (c) to (j).

(i) Real estate investment trust; related investments. The covered pension plan
may invest in real estate investment trusts secured by mortgages or deeds of trust and
sold on an exchange, and insurance company commingled accounts, including separate
accounts, of a debt or equity nature.

(j) Exchange traded funds. The covered pension plan may invest funds in exchange
traded funds, subject to the maximums, the requirements, and the limitations set forth in
paragraphs (c) to (i), as applicable.

(k) Other investments. (1) In addition to the investments authorized in paragraphs
(b) to (j), and subject to the provisions in clause (2), the covered pension plan may invest
funds in:

(i) venture capital investment businesses through participation in limited partnerships
and corporations;

(ii) real estate ownership interests or loans secured by mortgages or deeds of trust
through investment in limited partnerships or bank sponsored collective funds;

(iii) regional and mutual funds through bank sponsored collective funds and
open-end investment companies registered under the Federal Investment Company Act
of 1940 deleted text begin which do deleted text end new text begin to the extent that a fund or a portion of a fund does new text end not qualify under
paragraph (h);

(iv) resource investments through limited partnerships, private placements, and
corporations; and

(v) international debt securities and emerging market equity securities.

(2) The investments authorized in clause (1) must conform to the following
provisions:

(i) the aggregate value of all investments made according to clause (1) new text begin , including
allocated amounts of index and mutual funds, new text end may not exceed 20 percent of the market
value of the fund for which the covered pension plan is investing;

(ii) there must be at least four unrelated owners of the investment other than the
covered pension plan for investments made under clause (1), item (i), (ii), (iii), or (iv);

(iii) covered pension plan participation in an investment vehicle is limited to 20
percent thereof for investments made under clause (1), item (i), (ii), (iii), or (iv); and

(iv) covered pension plan participation in a limited partnership does not include a
general partnership interest or other interest involving general liability. The covered
pension plan may not engage in any activity as a limited partner which creates general
liability.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
new text end

Sec. 5.

Minnesota Statutes 2006, section 356A.06, subdivision 8b, is amended to read:

Subd. 8b.

Disclosure of investment authority; receipt of statement.

(a) For
this subdivision, the term "broker" means a broker, broker-dealer, investment advisor,
investment manager, or third party agent who transfers, purchases, sells, or obtains
investment securities for, or on behalf of, a covered pension plan.

(b) Before a covered pension plan may complete an investment transaction with or
in accord with the advice of a broker, the covered pension plan shall provide annually to
the broker a written statement of investment restrictions applicable under state law to the
covered pension plan or applicable under the pension plan governing board investment
policy.

(c) A broker must acknowledge in writing annually the receipt of the statement of
investment restrictions and must agree to handle the covered pension plan's investments
and assets in accord with the provided investment restrictions. A covered pension plan
may not enter into or continue a business arrangement with a broker until the broker has
provided this written acknowledgment to the chief administrative officer of the covered
pension plan.

new text begin (d) If any portion of the plan's assets are held by a security broker or its agent, the
security broker or its agent must acknowledge in writing annually that sufficient insurance
has been obtained from the Securities Investor Protection Corporation, supplemented by
additional insurance, if necessary, to cover the full amount of covered pension plan assets
held by the security broker or its agent. Uniform acknowledgment forms prepared by the
state auditor shall be used by covered pension plans and brokers to meet the requirements
of this subdivision.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
new text end

Sec. 6.

Minnesota Statutes 2006, section 424A.001, is amended by adding a
subdivision to read:

new text begin Subd. 1a. new text end

new text begin Ancillary benefit. new text end

new text begin "Ancillary benefit" means a benefit other than a service
pension that is permitted by law and that is provided for in the relief association bylaws.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective January 1, 2009.
new text end

Sec. 7.

Minnesota Statutes 2006, section 424A.001, subdivision 6, is amended to read:

Subd. 6.

Surviving spouse.

For purposes of this chapter, and the governing bylaws
of any relief association to which this chapter applies, the term "surviving spouse" means
deleted text begin any person who was the dependent spouse of a deceased active member or retired former
member living with the member at the time of the death of the active member or retired
former member for at least one year prior to the date on which the member terminated
active service and membership deleted text end new text begin the spouse of a deceased member who was legally married
to the member either at the time of separation from active service with the fire department
or at death, as specified by the governing bylaws, or, if the governing bylaws do not
specify, at the time of death new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective January 1, 2009.
new text end

Sec. 8.

Minnesota Statutes 2006, section 424A.02, subdivision 7, is amended to read:

Subd. 7.

Deferred service pensions.

(a) A member of a relief association is entitled
to a deferred service pension if the member:

(1) has completed the lesser of the minimum period of active service with the fire
department specified in the bylaws or 20 years of active service with the fire department;

(2) has completed at least five years of active membership in the relief association;
and

(3) separates from active service and membership before reaching age 50 or the
minimum age for retirement and commencement of a service pension specified in the
bylaws governing the relief association if that age is greater than age 50.

(b) The deferred service pension is payable when the former member reaches age
50, or the minimum age specified in the bylaws governing the relief association if that age
is greater than age 50, and when the former member makes a valid written application.

(c) A relief association that provides a lump sum service pension governed by
subdivision 3 may, when its governing bylaws so provide, pay interest on the deferred
lump sum service pension during the period of deferral. If provided for in the bylaws,
interest must be paid in one of the following manners:

(1) at the investment performance rate actually earned on that portion of the assets
if the deferred benefit amount is invested by the relief association in a separate account
established and maintained by the relief association or if the deferred benefit amount is
invested in a separate investment vehicle held by the relief association; new text begin or
new text end

(2) at an interest rate of up to five percent, compounded annually, as set by the board
of directors and approved as provided in subdivision 10 deleted text begin ; or deleted text end new text begin .
new text end

deleted text begin (3) at a rate equal to the actual time weighted total rate of return investment
performance of the special fund as reported by the Office of the State Auditor under
section 356.219, up to five percent, compounded annually, and applied consistently for
all deferred service pensioners.
deleted text end

deleted text begin A relief association may not use the method provided for in clause (3), until it has
modified its bylaws to be consistent with that clause.
deleted text end

(d) Interest under paragraph (c), clause (2) deleted text begin or (3) deleted text end , is payable deleted text begin from the first day of
the month next deleted text end following the date on which the municipality has approved the deferred
service pension interest rate established by the board of trustees deleted text begin or from the first day of the
month next following the date on which the member separated from active fire department
service and relief association membership, whichever is later, to the last day of the month
immediately before the month in which the deferred member becomes eligible to begin
receipt of the service pension and applies for the deferred service pension deleted text end .

(e) A relief association that provides a defined contribution service pension may,
if its governing bylaws so provide, credit interest or additional investment performance
on the deferred lump sum service pension during the period of deferral. If provided for
in the bylaws, the interest must be paid in one of the manners specified in paragraph
(c) or alternatively the relief association may credit any investment return on the assets
of the special fund of the defined contribution volunteer firefighter relief association in
proportion to the share of the assets of the special fund to the credit of each individual
deferred member account through the date on which the investment return is recognized
by and credited to the special fund.

(f) For a deferred service pension that is transferred to a separate account established
and maintained by the relief association or separate investment vehicle held by the relief
association, the deferred member bears the full investment risk subsequent to transfer and
in calculating the accrued liability of the volunteer firefighters relief association that pays
a lump sum service pension, the accrued liability for deferred service pensions is equal
to the separate relief association account balance or the fair market value of the separate
investment vehicle held by the relief association.

(g) The deferred service pension is governed by and must be calculated under
the general statute, special law, relief association articles of incorporation, and relief
association bylaw provisions applicable on the date on which the member separated from
active service with the fire department and active membership in the relief association.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
new text end

Sec. 9.

Minnesota Statutes 2006, section 424A.02, subdivision 9, is amended to read:

Subd. 9.

Limitation on ancillary benefits.

Any relief association, including
any volunteer firefighters relief association governed by section 69.77 or any volunteer
firefighters division of a relief association governed by chapter 424, may only pay
ancillary benefits which would constitute an authorized disbursement as specified in
section 424A.05 subject to the following requirements or limitations:

(1) with respect to a relief association in which governing bylaws provide for a
lump sum service pension to a retiring member, no ancillary benefit may be paid to any
former member or paid to any person on behalf of any former member after the former
member (i) terminates active service with the fire department and active membership
in the relief association; and (ii) commences receipt of a service pension as authorized
under this section; and

(2) with respect to any relief association, no ancillary benefit paid or payable to any
member, to any former member, or to any person on behalf of any member or former
member, may exceed in amount the total earned service pension of the member or former
member. The total earned service pension must be calculated deleted text begin using deleted text end new text begin by multiplying
new text end the service pension amount specified in the bylaws of the relief association deleted text begin and deleted text end new text begin at the
time of death or disability, whichever applies, by new text end the years of service credited to the
member or former member. The years of service must be determined as of (i) the date
the member or former member became entitled to the ancillary benefit; or (ii) the date
the member or former member died entitling a survivor or the estate of the member or
former member to an ancillary benefit. The ancillary benefit must be calculated deleted text begin (i) deleted text end without
regard to whether the member deleted text begin or former member deleted text end had attained the minimum amount of
service and membership credit specified in the governing bylaws deleted text begin ; and (ii) without regard
to the percentage amounts specified in subdivision 2; deleted text end new text begin . For active members, the amount
of a permanent disability benefit or a survivor benefit must be equal to the member's
total earned service pension new text end except that the bylaws of any relief association may provide
for the payment of a survivor benefit in an amount not to exceed five times the yearly
service pension amount specified in the bylaws on behalf of any member who dies before
having performed five years of active service in the fire department with which the relief
association is affiliated.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective January 1, 2009.
new text end

Sec. 10.

Minnesota Statutes 2006, section 424A.05, subdivision 3, is amended to read:

Subd. 3.

Authorized disbursements from the special fund.

(a) Disbursements
from the special fund are not permitted to be made for any purpose other than one of
the following:

(1) for the payment of service pensions to retired members of the relief association if
authorized and paid under law and the bylaws governing the relief association;

(2) for the payment of temporary or permanent disability benefits to disabled
members of the relief association if authorized and paid pursuant to law and specified in
amount in the bylaws governing the relief association;

(3) for the payment of survivor benefits to surviving spouses and surviving children,
or if none, to designated beneficiaries, of deceased members of the relief association,
and if survivors and if no designated beneficiary, for the payment of a death benefit to
the estate of the deceased active firefighter, if authorized by and paid pursuant to law and
specified in amount in the bylaws governing the relief association;

(4) deleted text begin for the payment of any funeral benefits to the surviving spouse, or if no surviving
spouse, the estate, of the deceased member of the relief association if authorized by law
and specified in amount in the bylaws governing the relief association;
deleted text end

deleted text begin (5) deleted text end for the payment of the fees, dues and assessments to the Minnesota State Fire
Department Association, to the Minnesota Area Relief Association Coalition, and to
the state Volunteer Firefighters Benefit Association in order to entitle relief association
members to membership in and the benefits of these associations or organizations; and

deleted text begin (6) deleted text end new text begin (5) new text end for the payment of administrative expenses of the relief association as
authorized under section 69.80.

(b) For purposes of this chapter, a designated beneficiary must be a natural person.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective January 1, 2009.
new text end