HF 2194

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

A bill for an act
relating to retirement; postretirement earnings offsets to pensions for teacher
retirement fund associations in cities of the first class; modifying provisions
on the procurement of actuarial services for state and local public retirement
programs; appropriating money; amending Minnesota Statutes 2006, sections
16A.055, subdivision 5; 356.214, subdivisions 1, 3, by adding a subdivision;
356.215, subdivisions 1, 2, 3, 11, 18; repealing Minnesota Statutes 2006, sections
354A.31, subdivisions 3, 3a; 356.214, subdivision 2; 356.215, subdivision 2a.

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

Section 1.

Minnesota Statutes 2006, section 16A.055, subdivision 5, is amended to
read:

Subd. 5.

Retirement fund reporting.

(a) The commissioner may not require a
public retirement fund to use financial or actuarial reporting practices or procedures
different from those required by section 356.20 or 356.215.

(b) The commissioner may contract with the consulting actuary retained under
section 356.214 for the preparation of quadrennial projection valuations as required under
section 356.215, deleted text begin subdivisions deleted text end new text begin subdivision new text end 2 deleted text begin and 2a deleted text end . The initial projection valuation under
this paragraph, if any, is due on May 1, 2003, and subsequent projection valuations are
due on May 1 each fourth year thereafter. The commissioner of finance shall assess the
applicable statewide and major local retirement plan or plans the cost of the quadrennial
projection valuation.

Sec. 2.

Minnesota Statutes 2006, section 356.214, subdivision 1, is amended to read:

Subdivision 1.

Joint retention.

(a) The deleted text begin chief administrative officers of the
Minnesota State Retirement System, the Public Employees Retirement Association, the
Teachers Retirement Association, the Duluth Teachers Retirement Fund Association, the
Minneapolis Employees Retirement Fund, and the St. Paul Teachers Retirement Fund
Association, jointly, on behalf of the state, its employees, its taxpayers, and its various
public pension plans, deleted text end new text begin governing board or managing or administrative official of each
public pension plan and retirement fund or plan enumerated in paragraph (b) new text end shall contract
with an established actuarial consulting firm to conduct annual actuarial valuations and
related services deleted text begin for the retirement plans named in paragraph (b) deleted text end . The principal from
the actuarial consulting firm on the contract must be an approved actuary under section
356.215, subdivision 1, paragraph (c). deleted text begin Prior to becoming effective, the contract under this
section is subject to a review and approval by the Legislative Commission on Pensions
and Retirement. deleted text end

(b) The contract for actuarial services must include the preparation of actuarial
valuations and related actuarial work for the following retirement plans:

(1) the teachers retirement plan, Teachers Retirement Association;

(2) the general state employees retirement plan, Minnesota State Retirement System;

(3) the correctional employees retirement plan, Minnesota State Retirement System;

(4) the State Patrol retirement plan, Minnesota State Retirement System;

(5) the judges retirement plan, Minnesota State Retirement System;

(6) the Minneapolis employees retirement plan, Minneapolis Employees Retirement
Fund;

(7) the public employees retirement plan, Public Employees Retirement Association;

(8) the public employees police and fire plan, Public Employees Retirement
Association;

(9) the Duluth teachers retirement plan, Duluth Teachers Retirement Fund
Association;

(10) the St. Paul teachers retirement plan, St. Paul Teachers Retirement Fund
Association;

(11) the legislators retirement plan, Minnesota State Retirement System;

(12) the elective state officers retirement plan, Minnesota State Retirement System;
and

(13) local government correctional service retirement plan, Public Employees
Retirement Association.

(c) The contract must require completion of the annual actuarial valuation
calculations on a fiscal year basis, with the contents of the actuarial valuation calculations
as specified in section 356.215, and in conformity with the standards for actuarial work
adopted by the Legislative Commission on Pensions and Retirement.

The contract must require completion of annual experience data collection and
processing and a quadrennial published experience study for the plans listed in paragraph
(b), clauses (1), (2), and (7), as provided for in the standards for actuarial work adopted by
the commission. The experience data collection, processing, and analysis must evaluate
the following:

(1) individual salary progression;

(2) the rate of return on investments based on the current asset value;

(3) payroll growth;

(4) mortality;

(5) retirement age;

(6) withdrawal; and

(7) disablement.

deleted text begin The contract must include provisions for the preparation of cost analyses by the
jointly retained actuary for proposed legislation that include changes in benefit provisions
or funding policies prior to their consideration by the Legislative Commission on Pensions
and Retirement.
deleted text end

(d) The actuary deleted text begin retained by the joint retirement systems deleted text end shall annually prepare a
report to the new text begin governing or managing board or administrative official and the new text end legislature,
including a commentary on the actuarial valuation calculations for the plans named in
paragraph (b) and summarizing the results of the actuarial valuation calculations. The
actuary shall include with the report the actuary's recommendations to the new text begin governing
or managing board or administrative official and the new text end legislature concerning the
appropriateness of the support rates to achieve proper funding of the retirement plans
by the required funding dates. The actuary shall, as part of the quadrennial experience
study, include recommendations to the new text begin governing or managing board or administrative
official and the new text end legislature on the appropriateness of the actuarial valuation assumptions
required for evaluation in the study.

(e) If the actuarial gain and loss analysis in the actuarial valuation calculations
indicates a persistent pattern of sizable gains or losses, deleted text begin as directed by the joint retirement
systems or as requested by the chair of the Legislative Commission on Pensions and
Retirement, deleted text end the new text begin governing or managing board or administrative official shall direct the
new text end actuary deleted text begin shall deleted text end new text begin to new text end prepare a special experience study for a plan listed in paragraph (b),
clause (3), (4), (5), (6), (8), (9), (10), (11), (12), or (13), in the manner provided for in the
standards for actuarial work adopted by the commission.

deleted text begin (f) The term of the contract between the joint retirement systems and the actuary
retained may not exceed five years. The joint retirement system administrative officers
shall establish procedures for the consideration and selection of contract bidders and
the requirements for the contents of an actuarial services contract under this section.
The procedures and requirements must be submitted to the Legislative Commission on
Pensions and Retirement for review and comment prior to final approval by the joint
administrators. The contract is subject to the procurement procedures under chapter 16C.
The consideration of bids and the selection of a consulting actuarial firm by the chief
administrative officers must occur at a meeting that is open to the public and reasonable
timely public notice of the date and the time of the meeting and its subject matter must
be given.
deleted text end

deleted text begin (g) The actuarial services contract may not limit the ability of the Minnesota
legislature and its standing committees and commissions to rely on the actuarial results
of the work prepared under the contract.
deleted text end

deleted text begin (h) The joint retirement systems shall designate one of the retirement system
executive directors as the actuarial services contract manager.
deleted text end

Sec. 3.

Minnesota Statutes 2006, section 356.214, subdivision 3, is amended to read:

Subd. 3.

Reporting to commission.

A copy of the actuarial valuations deleted text begin , deleted text end new text begin and
new text end experience studies deleted text begin , and actuarial cost analyses deleted text end prepared by the actuary retained deleted text begin by the
joint retirement systems deleted text end under the contract provided for in this section must be filed with
the executive director of the Legislative Commission on Pensions and Retirement deleted text begin at the
same time that the document is transmitted to the actuarial services contract manager or
to any other document recipient deleted text end .

Sec. 4.

Minnesota Statutes 2006, section 356.214, is amended by adding a subdivision
to read:

new text begin Subd. 4. new text end

new text begin Commission to contract with auditing actuary. new text end

new text begin (a) The Legislative
Commission on Pensions and Retirement may contract with an established actuarial
consulting firm to audit or review the actuarial valuations, experience studies, and actuarial
cost analyses prepared by the actuary retained by the governing or managing boards, or
administrative officials of each of the plans or funds listed in paragraph (b). The principal
representative from the actuarial consulting firm so engaged must be an approved actuary
under section 356.215, subdivision 1, paragraph (c).
new text end

new text begin (b) Any actuarial consulting firm retained under paragraph (a) will, according to a
schedule determined under the agreement with the Legislative Commission on Pensions
and Retirement, audit the valuation reports submitted by the actuary retained by each
governing or managing board or administrative official, and provide an assessment of the
reasonableness, reliability, and areas of concern or potential improvement in the specific
reports reviewed, the procedures utilized by any particular reporting actuary, or general
modifications to standards, procedures, or assumptions that the commission may wish to
consider. Actuarial firms retained by the retirement funds must cooperate fully and make
available any data or other materials necessary for the commission-retained actuary to
conduct an adequate review and to render advice to the commission.
new text end

Sec. 5.

Minnesota Statutes 2006, section 356.215, subdivision 1, is amended to read:

Subdivision 1.

Definitions.

(a) For the purposes of sections 3.85 and 356.20 to
356.23, each of the terms in the following paragraphs has the meaning given.

(b) "Actuarial valuation" means a set of calculations prepared by deleted text begin the deleted text end new text begin an new text end actuary
retained under section 356.214 if so required under section 3.85, or otherwise, by an
approved actuary, to determine the normal cost and the accrued actuarial liabilities of
a benefit plan, according to the entry age actuarial cost method and based upon stated
assumptions including, but not limited to rates of interest, mortality, salary increase,
disability, withdrawal, and retirement and to determine the payment necessary to amortize
over a stated period any unfunded accrued actuarial liability disclosed as a result of the
actuarial valuation of the benefit plan.

(c) "Approved actuary" means a person who is regularly engaged in the business
of providing actuarial services and who has at least 15 years of service to major public
employee pension or retirement funds or who is a fellow in the Society of Actuaries.

(d) "Entry age actuarial cost method" means an actuarial cost method under which
the actuarial present value of the projected benefits of each individual currently covered
by the benefit plan and included in the actuarial valuation is allocated on a level basis over
the service of the individual, if the benefit plan is governed by section 69.773, or over the
earnings of the individual, if the benefit plan is governed by any other law, between the
entry age and the assumed exit age, with the portion of the actuarial present value which is
allocated to the valuation year to be the normal cost and the portion of the actuarial present
value not provided for at the valuation date by the actuarial present value of future normal
costs to be the actuarial accrued liability, with aggregation in the calculation process to be
the sum of the calculated result for each covered individual and with recognition given to
any different benefit formulas which may apply to various periods of service.

(e) "Experience study" means a report providing experience data and an actuarial
analysis of the adequacy of the actuarial assumptions on which actuarial valuations are
based.

(f) "Current assets" means:

deleted text begin (1) for the July 1, 2001, actuarial valuation, the market value of all assets as of
June 30, 2001, reduced by:
deleted text end

deleted text begin (i) 30 percent of the difference between the market value of all assets as of June 30,
1999, and the actuarial value of assets used in the July 1, 1999, actuarial valuation;
deleted text end

deleted text begin (ii) 60 percent of the difference between the actual net change in the market value of
assets between June 30, 1999, and June 30, 2000, and the computed increase in the market
value of assets between June 30, 1999, and June 30, 2000, if the assets had increased at
the percentage preretirement interest rate assumption used in the July 1, 1999, actuarial
valuation; and
deleted text end

deleted text begin (iii) 80 percent of the difference between the actual net change in the market value
of assets between June 30, 2000, and June 30, 2001, and the computed increase in
the market value of assets between June 30, 2000, and June 30, 2001, if the assets had
increased at the percentage preretirement interest rate assumption used in the July 1,
2000, actuarial valuation;
deleted text end

deleted text begin (2) for the July 1, 2002, actuarial valuation, the market value of all assets as of
June 30, 2002, reduced by:
deleted text end

deleted text begin (i) ten percent of the difference between the market value of all assets as of June 30,
1999, and the actuarial value of assets used in the July 1, 1999, actuarial valuation;
deleted text end

deleted text begin (ii) 40 percent of the difference between the actual net change in the market value of
assets between June 30, 1999, and June 30, 2000, and the computed increase in the market
value of assets between June 30, 1999, and June 30, 2000, if the assets had increased at
the percentage preretirement interest rate assumption used in the July 1, 1999, actuarial
valuation;
deleted text end

deleted text begin (iii) 60 percent of the difference between the actual net change in the market value
of assets between June 30, 2000, and June 30, 2001, and the computed increase in
the market value of assets between June 30, 2000, and June 30, 2001, if the assets had
increased at the percentage preretirement interest rate assumption used in the July 1, 2000,
actuarial valuation; and
deleted text end

deleted text begin (iv) 80 percent of the difference between the actual net change in the market value of
assets between June 30, 2001, and June 30, 2002, and the computed increase in the market
value of assets between June 30, 2001, and June 30, 2002, if the assets had increased at
the percentage preretirement interest rate assumption used in the July 1, 2001, actuarial
valuation; or
deleted text end

deleted text begin (3) for any actuarial valuation after July 1, 2002, deleted text end the market value of all assets
as of the preceding June 30, reduced by:

deleted text begin (i) deleted text end new text begin (1) new text end 20 percent of the difference between the actual net change in the market value
of assets between the June 30 that occurred three years earlier and the June 30 that occurred
four years earlier and the computed increase in the market value of assets over that
fiscal year period if the assets had increased at the percentage preretirement interest rate
assumption used in the actuarial valuation for the July 1 that occurred four years earlier;

deleted text begin (ii) deleted text end new text begin (2) new text end 40 percent of the difference between the actual net change in the market value
of assets between the June 30 that occurred two years earlier and the June 30 that occurred
three years earlier and the computed increase in the market value of assets over that
fiscal year period if the assets had increased at the percentage preretirement interest rate
assumption used in the actuarial valuation for the July 1 that occurred three years earlier;

deleted text begin (iii) deleted text end new text begin (3) new text end 60 percent of the difference between the actual net change in the market
value of assets between the June 30 that occurred one year earlier and the June 30 that
occurred two years earlier and the computed increase in the market value of assets over
that fiscal year period if the assets had increased at the percentage preretirement interest
rate assumption used in the actuarial valuation for the July 1 that occurred two years
earlier; and

deleted text begin (iv) deleted text end new text begin (4) new text end 80 percent of the difference between the actual net change in the market
value of assets between the immediately prior June 30 and the June 30 that occurred one
year earlier and the computed increase in the market value of assets over that fiscal year
period if the assets had increased at the percentage preretirement interest rate assumption
used in the actuarial valuation for the July 1 that occurred one year earlier.

(g) "Unfunded actuarial accrued liability" means the total current and expected
future benefit obligations, reduced by the sum of current assets and the present value of
future normal costs.

(h) "Pension benefit obligation" means the actuarial present value of credited
projected benefits, determined as the actuarial present value of benefits estimated to be
payable in the future as a result of employee service attributing an equal benefit amount,
including the effect of projected salary increases and any step rate benefit accrual rate
differences, to each year of credited and expected future employee service.

Sec. 6.

Minnesota Statutes 2006, section 356.215, subdivision 2, is amended to read:

Subd. 2.

Requirements.

(a) It is the policy of the legislature that it is necessary
and appropriate to determine annually the financial status of tax supported retirement and
pension plans for public employees. To achieve this goal deleted text begin : deleted text end new text begin ,
new text end

deleted text begin (1) deleted text end the actuary retained under section 356.214 shall prepare annual actuarial
valuations of the retirement plans enumerated in section 356.214, subdivision 1, paragraph
(b), and quadrennial experience studies of the retirement plans enumerated in section
356.214, subdivision 1, paragraph (b), clauses (1), (2), and (7) deleted text begin ; and deleted text end new text begin .
new text end

deleted text begin (2) the commissioner of finance may have prepared by the actuary retained by the
commission, two years after each set of quadrennial experience studies, quadrennial
projection valuations of at least one of the retirement plans enumerated in section 6,
subdivision 1, paragraph (b), for which the commissioner determines that the analysis
may be beneficial.
deleted text end

(b) The governing or managing board or administrative officials of each public
pension and retirement fund or plan enumerated in section 356.20, subdivision 2, clauses
(9), (10), and (12), shall have prepared by an approved actuary annual actuarial valuations
of their respective funds as provided in this section. This requirement also applies to
any fund or plan that is the successor to any organization enumerated in section 356.20,
subdivision 2, or to the governing or managing board or administrative officials of
any newly formed retirement fund, plan, or association operating under the control or
supervision of any public employee group, governmental unit, or institution receiving a
portion of its support through legislative appropriations, and any local police or fire fund
to which section 356.216 applies.

Sec. 7.

Minnesota Statutes 2006, section 356.215, subdivision 3, is amended to read:

Subd. 3.

Reports.

(a) The actuarial valuations required annually must be made as of
the beginning of each fiscal year.

(b) Two copies of the new text begin completed new text end valuation must be delivered to the executive
director of the Legislative Commission on Pensions and Retirement, to the commissioner
of finance new text begin , new text end and to the Legislative Reference Library deleted text begin , not later than the first day of the sixth
month occurring after the end of the previous fiscal year deleted text end .

(c) Two copies of a quadrennial experience study must be filed with the
executive director of the Legislative Commission on Pensions and Retirement, with the
commissioner of finance, and with the Legislative Reference Library, not later than the
first day of the 11th month occurring after the end of the last fiscal year of the four-year
period which the experience study covers.

(d) For actuarial valuations and experience studies prepared at the direction of the
Legislative Commission on Pensions and Retirement, two copies of the document must be
delivered to the governing or managing board or administrative officials of the applicable
public pension and retirement fund or plan.

Sec. 8.

Minnesota Statutes 2006, section 356.215, subdivision 11, is amended to read:

Subd. 11.

Amortization contributions.

(a) In addition to the exhibit indicating the
level normal cost, the actuarial valuation must contain an exhibit indicating the additional
annual contribution sufficient to amortize the unfunded actuarial accrued liability. For
funds governed by chapters 3A, 352, 352B, 352C, 353, 354, 354A, and 490, the additional
contribution must be calculated on a level percentage of covered payroll basis by the
established date for full funding in effect when the valuation is prepared. For funds
governed by chapter 3A, sections 352.90 through 352.951, chapters 352B, 352C, sections
353.63 through 353.68, and chapters 353C, 354A, and 490, the level percent additional
contribution must be calculated assuming annual payroll growth of 6.5 percent. For funds
governed by sections 352.01 through 352.86 and chapter 354, the level percent additional
contribution must be calculated assuming an annual payroll growth of five percent. For the
fund governed by sections 353.01 through 353.46, the level percent additional contribution
must be calculated assuming an annual payroll growth of six percent. For all other funds,
the additional annual contribution must be calculated on a level annual dollar amount basis.

(b) For any fund other than the Minneapolis Employees Retirement Fund deleted text begin and deleted text end new text begin , new text end
the Public Employees Retirement Association general plan, new text begin and the St. Paul Teachers
Retirement Fund Association, new text end if there has not been a change in the actuarial assumptions
used for calculating the actuarial accrued liability of the fund, a change in the benefit
plan governing annuities and benefits payable from the fund, a change in the actuarial
cost method used in calculating the actuarial accrued liability of all or a portion of the
fund, or a combination of the three, which change or changes by itself or by themselves
without inclusion of any other items of increase or decrease produce a net increase in the
unfunded actuarial accrued liability of the fund, the established date for full funding is the
first actuarial valuation date occurring after June 1, 2020.

(c) For any fund or plan other than the Minneapolis Employees Retirement Fund and
the Public Employees Retirement Association general plan, if there has been a change in
any or all of the actuarial assumptions used for calculating the actuarial accrued liability
of the fund, a change in the benefit plan governing annuities and benefits payable from
the fund, a change in the actuarial cost method used in calculating the actuarial accrued
liability of all or a portion of the fund, or a combination of the three, and the change or
changes, by itself or by themselves and without inclusion of any other items of increase or
decrease, produce a net increase in the unfunded actuarial accrued liability in the fund, the
established date for full funding must be determined using the following procedure:

(i) the unfunded actuarial accrued liability of the fund must be determined in
accordance with the plan provisions governing annuities and retirement benefits and the
actuarial assumptions in effect before an applicable change;

(ii) the level annual dollar contribution or level percentage, whichever is applicable,
needed to amortize the unfunded actuarial accrued liability amount determined under item
(i) by the established date for full funding in effect before the change must be calculated
using the interest assumption specified in subdivision 8 in effect before the change;

(iii) the unfunded actuarial accrued liability of the fund must be determined in
accordance with any new plan provisions governing annuities and benefits payable from
the fund and any new actuarial assumptions and the remaining plan provisions governing
annuities and benefits payable from the fund and actuarial assumptions in effect before
the change;

(iv) the level annual dollar contribution or level percentage, whichever is applicable,
needed to amortize the difference between the unfunded actuarial accrued liability amount
calculated under item (i) and the unfunded actuarial accrued liability amount calculated
under item (iii) over a period of 30 years from the end of the plan year in which the
applicable change is effective must be calculated using the applicable interest assumption
specified in subdivision 8 in effect after any applicable change;

(v) the level annual dollar or level percentage amortization contribution under item
(iv) must be added to the level annual dollar amortization contribution or level percentage
calculated under item (ii);

(vi) the period in which the unfunded actuarial accrued liability amount determined
in item (iii) is amortized by the total level annual dollar or level percentage amortization
contribution computed under item (v) must be calculated using the interest assumption
specified in subdivision 8 in effect after any applicable change, rounded to the nearest
integral number of years, but not to exceed 30 years from the end of the plan year in
which the determination of the established date for full funding using the procedure set
forth in this clause is made and not to be less than the period of years beginning in the
plan year in which the determination of the established date for full funding using the
procedure set forth in this clause is made and ending by the date for full funding in effect
before the change; and

(vii) the period determined under item (vi) must be added to the date as of which
the actuarial valuation was prepared and the date obtained is the new established date
for full funding.

(d) For the Minneapolis Employees Retirement Fund, the established date for full
funding is June 30, 2020.

(e) For the general employees retirement plan of the Public Employees Retirement
Association, the established date for full funding is June 30, 2031.

(f) For the Teachers Retirement Association, the established date for full funding is
June 30, 2037.

new text begin (g) For the St. Paul Teachers Retirement Fund Association, the established date for
full funding is June 30, 2038. In addition to other requirements of this chapter, the annual
actuarial valuation shall contain an exhibit indicating the funded ratio and the deficiency
or sufficiency in annual contributions when comparing liabilities to the market value of
the assets of the fund as of the close of the most recent fiscal year.
new text end

deleted text begin (g) deleted text end new text begin (h) new text end For the retirement plans for which the annual actuarial valuation indicates
an excess of valuation assets over the actuarial accrued liability, the valuation assets in
excess of the actuarial accrued liability must be recognized as a reduction in the current
contribution requirements by an amount equal to the amortization of the excess expressed
as a level percentage of pay over a 30-year period beginning anew with each annual
actuarial valuation of the plan.

Sec. 9.

Minnesota Statutes 2006, section 356.215, subdivision 18, is amended to read:

Subd. 18.

Establishment of actuarial assumptions.

(a) The actuarial assumptions
used for the preparation of actuarial valuations under this section that are other than
those set forth in this section may be changed only with the approval of the Legislative
Commission on Pensions and Retirement.

(b) A change in the applicable actuarial assumptions may be proposed by the
governing board of the applicable pension fund or relief association, by the actuary
retained by the deleted text begin joint deleted text end retirement systems under section 356.214, deleted text begin by the actuarial advisor to
a pension fund governed by chapter 352, 353, 354, or 354A, deleted text end or by the actuary retained by
a local police or firefighters relief association governed by sections 69.77 or 69.771 to
69.776, if one is retained.

Sec. 10. new text begin APPROPRIATION; LEGISLATIVE COMMISSION ON PENSIONS
AND RETIREMENT.
new text end

new text begin $....... is appropriated from the general fund to the Legislative Commission on
Pensions and Retirement in fiscal year 2009 in order to cover the costs of any contract
authorized under Minnesota Statutes, section 356.214, subdivision 4. The commissioner
of finance must include these funds in the base level funding for the commission when
preparing forecasts of general fund spending and revenue and initial budget estimates
each biennium, as long as an actuary remains under contract to the commission under
Minnesota Statutes, section 356.214, subdivision 4.
new text end

Sec. 11. new text begin REPEALER.
new text end

new text begin Minnesota Statutes 2006, sections 354A.31, subdivisions 3 and 3a; 356.214,
subdivision 2; and 356.215, subdivision 2a, new text end new text begin are repealed.
new text end