HF 3421

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

A bill for an act
relating to retirement; amending postretirement provisions; providing for
the dissolution of the Minnesota postretirement investment fund; amending
Minnesota Statutes 2006, section 11A.18, subdivision 9, by adding subdivisions;
proposing coding for new law in Minnesota Statutes, chapter 11A.

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

ARTICLE 1

POSTRETIREMENT PROVISIONS

Section 1.

Minnesota Statutes 2006, section 11A.18, is amended by adding a
subdivision to read:

new text begin Subd. 2a. new text end

new text begin Composite funded ratio. new text end

new text begin (a) Annually, following June 30, the actuary
retained under section 356.214 shall determine the composite funded ratio of the
postretirement investment fund. The composite funded ratio is stated as a percentage
and calculated using:
new text end

new text begin (1) the total fair market value of the postretirement investment fund as of June 30,
calculated in accordance with generally accepted accounting principles; divided by
new text end

new text begin (2) the total reserves required as of June 30 for the annuities or benefits payable from
the postretirement investment fund on that June 30 to all recipients of participating public
pension plans or funds, as determined by the actuary retained under section 356.214 using
the applicable assumptions in section 356.215.
new text end

new text begin (b) The actuary retained under section 356.214 shall report the composite funded
ratio to the executive directors of each participating retirement fund and the Legislative
Commission on Pensions and Retirement by November 30 of the year in which the ratio
is calculated.
new text end

Sec. 2.

Minnesota Statutes 2006, section 11A.18, subdivision 9, is amended to read:

Subd. 9.

Calculation of postretirement adjustment.

(a) Annually, following June
30, the state board shall use the procedures in paragraphs (b), (c), and (d) to determine
whether a postretirement adjustment is payable and to determine the amount of any
postretirement adjustment.

(b) new text begin (1) new text end If the Consumer Price Index for urban wage earners and clerical workers all
items index published by the Bureau of Labor Statistics of the United States Department
of Labor increases from June 30 of the preceding year to June 30 of the current year, the
state board shall certify the percentage increase.

new text begin (2) new text end The amount certified must not exceed new text begin : new text end deleted text begin the lesser of the difference between
the preretirement interest assumption and postretirement interest assumption in section
356.215, subdivision 8, paragraph (a), or
deleted text end

new text begin (i) new text end 2.5 percent deleted text begin . deleted text end new text begin ; or
new text end

new text begin (ii) new text end for the Minneapolis Employees Retirement Fund, deleted text begin the amount certified must
not exceed deleted text end 3.5 percent.

(c) new text begin If the amount calculated under paragraph (b), clause (1), is greater than the
maximum amount allowable under paragraph (b), clause (2), item (i), new text end in addition to any
percentage increase certified under paragraph (b), the board shall use the following
procedures to determine if a postretirement adjustment is payable under this paragraph:

(1) the state board shall determine the new text begin total fair new text end market value of the fund on June
30 of that year;

(2) the amount of reserves required as of the current June 30 for the annuity or
benefit payable to an annuitant and benefit recipient of the participating public pension
plans or funds must be determined by the actuary retained under section 356.214. An
annuitant or benefit recipient who has been receiving an annuity or benefit for at least 12
full months as of the current June 30 is eligible to receive a full postretirement adjustment.
An annuitant or benefit recipient who has been receiving an annuity or benefit for at
least one full month, but less than 12 full months as of the current June 30, is eligible to
receive a partial postretirement adjustment. Each fund shall report separately the amount
of the reserves for those annuitants and benefit recipients who are eligible to receive
a full postretirement benefit adjustment. This amount is known as "eligible reserves."
Each fund shall also report separately the amount of the reserves for those annuitants
and benefit recipients who are not eligible to receive a postretirement adjustment. This
amount is known as "noneligible reserves." For an annuitant or benefit recipient who is
eligible to receive a partial postretirement adjustment, each fund shall report separately
as additional "eligible reserves" an amount that bears the same ratio to the total reserves
required for the annuitant or benefit recipient as the number of full months of annuity
or benefit receipt as of the current June 30 bears to 12 full months. The remainder of
the annuitant's or benefit recipient's reserves must be separately reported as additional
"noneligible reserves." The amount of "eligible" and "noneligible" required reserves
must be certified to the board by the actuary retained under section 356.214 as soon as is
practical following the current June 30;

(3) the state board shall determine the percentage increase certified under paragraph
(b) multiplied by the eligible required reserves, as adjusted for mortality gains and losses
under subdivision 11, determined under clause (2);

(4) the state board shall add the amount of reserves required for the annuities or
benefits payable to annuitants and benefit recipients of the participating public pension
plans or funds as of the current June 30 to the amount determined under clause (3);

(5) the state board shall subtract the amount determined under clause (4) from the new text begin
total fair new text end market value of the fund determined under clause (1);

(6) the state board shall adjust the amount determined under clause (5) by the
cumulative current balance determined under clause (8) and any negative balance carried
forward under clause (9);

(7) a positive amount resulting from the calculations in clauses (1) to (6) is the
excess market value. A negative amount is the negative balance;

(8) the state board shall allocate one-fifth of the excess market value or one-fifth
of the negative balance to each of five consecutive years, beginning with the fiscal year
ending the current June 30; deleted text begin and
deleted text end

(9) to calculate the postretirement adjustment under this paragraph deleted text begin based on
investment performance for a fiscal year deleted text end , the state board shall add together all excess
market value allocated to that year and subtract from the sum all negative balances
allocated to that year. If this calculation results in a negative number, the entire negative
balance must be carried forward and allocated to the next year. If the resulting amount is
positive, a postretirement adjustment is payable under this paragraph. The board shall
express a positive amount as a percentage of the total eligible required reserves certified
to the board under clause (2). new text begin The percentage determined under this paragraph must not
exceed the difference between:
new text end

new text begin (i) the increase in the Consumer Price Index for urban wage earners and clerical
workers all items index published by the Bureau of Labor Statistics of the United States
Department of Labor from June 30 of the preceding year to June 30 of the current year; and
new text end

new text begin (ii) 2.5 percent; and
new text end

new text begin (10) for the Minneapolis Employees Retirement Fund, the board of the Minneapolis
Employees Retirement Fund:
new text end

new text begin (i) must use the procedures in clauses (1) to (9) to determine an increase under this
paragraph regardless of the increase in the Consumer Price Index for urban and wage
earners and clerical workers all items index published by the Bureau of Labor Statistics of
the United States Department of Labor; and
new text end

new text begin (ii) there is no limit on the maximum amount certified under this paragraph.
new text end

(d) The state board shall determine the amount of any postretirement adjustment
which is payable using the following procedure:

(1) The total "eligible" required reserves as of the first of January next following the
end of the fiscal year for the annuitants and benefit recipients eligible to receive a full or
partial postretirement adjustment as determined by clause (2) must be certified to the state
board by the actuary retained under section 356.214. The total "eligible" required reserves
must be determined by the actuary retained under section 356.214 on the assumption that
all annuitants and benefit recipients eligible to receive a full or partial postretirement
adjustment will be alive on the January 1 in question; and

(2) The state board shall add the percentage certified under paragraph (b) to any
positive percentage calculated under paragraph (c). The board shall not subtract from the
percentage certified under paragraph (b) any negative amount calculated under paragraph
(c). The sum of these percentages deleted text begin must be carried to five decimal places and deleted text end must be
certified to each participating public pension fund or plan as the full postretirement
adjustment percentage. The full postretirement adjustment percentage certified to each
participating public pension plan or fund must not exceed five percent. For the Minneapolis
Employees Retirement Fund, no maximum percentage adjustment is applicable.

(e) A retirement annuity payable in the event of retirement before becoming eligible
for Social Security benefits as provided in section 352.116, subdivision 3; 353.29,
subdivision 6; or 354.35 must be treated as the sum of a period certain retirement annuity
and a life retirement annuity for the purposes of any postretirement adjustment. The
period certain retirement annuity plus the life retirement annuity must be the annuity
amount payable until age 62 or 65, whichever applies. A postretirement adjustment
granted on the period certain retirement annuity must terminate when the period certain
retirement annuity terminates.

Sec. 3.

Minnesota Statutes 2006, section 11A.18, is amended by adding a subdivision
to read:

new text begin Subd. 9a. new text end

new text begin Lost purchasing power increase. new text end

new text begin (a) This subdivision applies for fiscal
years ending June 30 in which all of the following conditions exist:
new text end

new text begin (1) the composite funded ratio for the postretirement investment fund as of June 30,
as determined by the actuary retained under section 356.214, is more than 90 percent;
new text end

new text begin (2) the State Board of Investment determines that the time weighted total rate of
return on investment of assets in the postretirement investment fund for the fiscal year
ending June 30 exceeds 8.5 percent; and
new text end

new text begin (3) the postretirement adjustment percentage certified under subdivision 9, paragraph
(b), is less than 2.5 percent.
new text end

new text begin (b) The resulting postretirement increase from paragraph (a) is payable the following
January 1.
new text end

new text begin (c) Each participating public pension fund or plan must annually calculate:
new text end

new text begin (1) the cumulative postretirement adjustment percentage applied to the annuity or
benefit paid to each eligible annuitant and benefit recipient since the person first received a
postretirement adjustment; and
new text end

new text begin (2) the increase in the Consumer Price Index for urban wage earners and clerical
workers all items index published by the Bureau of Labor Statistics of the United
States Department of Labor from June 30 of the year before the person first received a
postretirement adjustment to June 30 of the current year. If a person received a prorated
increase under subdivision 9, paragraph (c), clause (2), the same ratio of number of months
receiving a monthly benefit to twelve months must be applied to the inflation calculation
for the fiscal year used to calculate the prorated amount of lost purchasing power for that
period. If the percentage in clause (2) is greater than the percentage in clause (1) with
respect to a person, and the conditions in paragraph (a) are met, that person is eligible to
receive an increase under this subdivision.
new text end

new text begin (d) The percentage increase payable to a person under this subdivision may not
exceed the difference between 2.5 percent and the amount certified under subdivision 9 or
the amount calculated under paragraph (b), whichever is lower. The percentage increase
otherwise payable under this subdivision must be reduced as provided in paragraph (e).
new text end

new text begin (e) The actuary retained under section 356.214 must determine:
new text end

new text begin (1) the reserves that would be required to pay adjustments determined under
paragraph (c); and
new text end

new text begin (2) the excess market value necessary to maintain the accrued liability composite
funding ratio at 90 percent or more, funded under paragraph (a), clause (1). If clause (1)
of this paragraph is greater than clause (2), the increase paid to each person under this
subdivision must be determined by multiplying the ratio of clause (2) divided by clause
(1), multiplied by the percentage that otherwise would be payable under paragraph (c).
new text end

new text begin (f) A percentage increase certified under this subdivision must be added to the
percentage certified under subdivision 9, and the total percent must be certified to each
participating public pension fund or plan as the full postretirement adjustment percentage.
new text end

new text begin (g) This subdivision does not apply to the Minneapolis Employees Retirement Fund.
new text end

Sec. 4.

Minnesota Statutes 2006, section 11A.18, is amended by adding a subdivision
to read:

new text begin Subd. 9b. new text end

new text begin Excess assets trigger. new text end

new text begin If the composite funded ratio of the postretirement
investment fund created in subdivision 2a is 115 percent or greater on June 30 of any
year, the governing bodies of the retirement funds participating in the postretirement
investment fund must jointly report to the Legislative Commission on Pensions and
Retirement by the next January 15. The report must evaluate and make recommendations
for the overall benefits and funding of the retirement funds for both active employees and
benefit recipients.
new text end

Sec. 5. new text begin EFFECTIVE DATE.
new text end

new text begin Sections 1 to 4 are effective June 30, 2008.
new text end

ARTICLE 2

MINNESOTA POSTRETIREMENT INVESTMENT FUND DISSOLUTION

Section 1.

new text begin [11A.181] DISSOLUTION OF MINNESOTA POSTRETIREMENT
INVESTMENT FUND.
new text end

new text begin Subdivision 1. new text end

new text begin Conditions for dissolution. new text end

new text begin The postretirement investment fund
established in section 11A.18 must be dissolved according to the schedule in subdivision 2
if the composite funded ratio calculated on June 30 of each year under section 11A.18,
subdivision 2a, is:
new text end

new text begin (1) less than 85 percent for two consecutive years; or
new text end

new text begin (2) less than 80 percent for one year.
new text end

new text begin Subd. 2. new text end

new text begin Transition. new text end

new text begin If conditions for dissolution of the postretirement investment
fund under subdivision 1 apply:
new text end

new text begin (1) retirement funds shall not transfer reserves as required under sections 11A.18,
subdivision 6; 352.119, subdivision 1; 352B.26, subdivision 3; 353.271, subdivision 2;
354.63, subdivision 2; and 490.123, subdivision 1e, to the postretirement investment
fund after December 31 as of the calendar year in which conditions for dissolution under
subdivision 1 occur;
new text end

new text begin (2) the retirement funds shall not transfer additional funds to the Minnesota
postretirement investment fund as a result of the calculation by the actuary retained under
section 356.214 adjusting for mortality gains and losses specified in section 11A.18,
subdivision 11;
new text end

new text begin (3) the assets of the postretirement investment fund must be transferred back to each
participating public retirement plan on June 30 of the year following the year in which
conditions for dissolution under subdivision 1 occur. The assets to be transferred to each
public retirement plan must be based on each plan's participation in the postretirement
fund, as determined under section 11A.18, subdivision 7, on June 30 when the transfer
back to the plan occurs; and
new text end

new text begin (4) The postretirement fund is dissolved upon transfer of assets as required in
clause (3).
new text end

new text begin Subd. 3. new text end

new text begin Postretirement adjustments. new text end

new text begin (a) Notwithstanding section 11A.18 or any
other law to the contrary, if the postretirement investment fund is dissolved, postretirement
adjustments must be paid only as follows:
new text end

new text begin (1) a postretirement increase of 2.5 percent must be applied, effective January 1 of
each year, to the monthly annuity or benefit of each annuitant and benefit recipient who has
been receiving an annuity or benefit for at least 12 full months as of the prior June 30; and
new text end

new text begin (2) for each annuitant or benefit recipient who has been receiving an annuity or
benefit for at least one full month, a postretirement increase of one-twelfth of 2.5 percent
for each month the person has been receiving an annuity or benefit must be applied,
effective January 1 of the year in which the person has been retired for less than 12 months.
new text end

new text begin (b) The increases provided by this subdivision apply on the first January 1 after the
postretirement fund is dissolved under subdivision 2.
new text end

Sec. 2. new text begin PROPOSED STATUTORY CHANGES.
new text end

new text begin By November 30 of the year in which conditions for dissolution of the postretirement
fund first occur, the executive directors of the retirement systems that participate in
the postretirement fund must report to the Legislative Commission on Pensions and
Retirement a draft of proposed legislation that would make changes in statute necessary to
conform with dissolution of the postretirement fund.
new text end

Sec. 3. new text begin EFFECTIVE DATE.
new text end

new text begin Sections 1 and 2 are effective June 30, 2008.
new text end