2003 Minnesota Statutes

     356.55 Prior service credit purchase payment amount 
  determination procedure. 

    Subdivision 1.    Application.  (a) Unless the prior 
 service credit purchase authorization special law or general 
 statute provision explicitly specifies a different purchase 
 payment amount determination procedure, this section governs the 
 determination of the prior service credit purchase payment 
 amount of any prior service credit purchase.  

    (b) The purchase payment amount determination procedure 
 must recognize any service credit accrued to the purchaser in a 
 pension plan enumerated in section 356.30, subdivision 3. 

    (c) Any service credit in a Minnesota defined benefit 
 public employee pension plan available to be reinstated by the 
 purchaser through the repayment of a refund of member or 
 employee contributions previously received must be repaid in 
 full before any purchase of prior service credit payment is made 
 under this section. 

    Subd. 2.    Determination.  (a) Unless the prior service 
 credit purchase minimum purchase payment amount determined under 
 paragraph (d) is greater, the prior service credit purchase 
 amount is the result obtained by subtracting the amount 
 determined under paragraph (c) from the amount determined under 
 paragraph (b). 

    (b) The present value of the unreduced single life 
 retirement annuity, with the purchase of the additional service 
 credit included, must be calculated as follows: 

    (1) the age at first eligibility for an unreduced single 
 life retirement annuity, including the purchase of the 
 additional service credit, must be determined; 

    (2) the length of total service credit, including the 
 period of the purchase of the additional service credit, at the 
 age determined under clause (1) must be determined; 

    (3) the highest five successive years average salary at the 
 age determined under clause (1), assuming five percent annual 
 compounding salary increases from the most current annual salary 
 amount at the age determined under clause (1), must be 
 determined; 

    (4) using the benefit accrual rate or rates applicable to 
 the prospective purchaser of the service credit based on the 
 prospective purchaser's actual date of entry into covered 
 service, the length of service determined under clause (2), and 
 the final average salary determined under clause (3), the annual 
 unreduced single life retirement annuity amount must be 
 determined; 

    (5) the actuarial present value of the projected annual 
 unreduced single life retirement annuity amount determined under 
 clause (4) at the age determined under clause (1), using the 
 same actuarial factor that the plan would use to determine 
 actuarial equivalence for optional annuity forms and related 
 purposes, must be determined; and 

    (6) the discounted value of the amount determined under 
 clause (5) to the date of the prospective purchase, using an 
 interest rate of 8.5 percent and no mortality probability 
 decrement, must be determined. 

    (c) The present value of the unreduced single life 
 retirement annuity, without the purchase of the additional 
 service credit included, must be calculated as follows:  

    (1) the age at first eligibility for an unreduced single 
 life retirement annuity, not including the purchase of 
 additional service credit, must be determined; 

    (2) the length of accrued service credit, without the 
 period of the purchase of the additional service credit, at the 
 age determined under clause (1), must be determined; 

    (3) the highest five successive years average salary at the 
 age determined under clause (1), assuming five percent annual 
 compounding salary increases from the most current annual salary 
 amount to the age determined under clause (1), must be 
 determined; 

    (4) using the benefit accrual rate or rates applicable to 
 the prospective purchaser of the service credit based on the 
 prospective purchaser's actual date of entry into covered 
 service the length of service credit determined under clause 
 (2), and the final average salary determined under clause (3), 
 the annual unreduced single life retirement annuity amount must 
 be determined; 

    (5) the actuarial present value of the projected annual 
 unreduced single life retirement annuity amount determined under 
 clause (4) at the age determined under clause (1), using the 
 same actuarial factor that the plan would use to determine 
 actuarial equivalence for optional annuity forms and related 
 purposes, must be determined; 

    (6) the discounted value of the amount determined under 
 clause (5) to the date of the prospective purchase, using an 
 interest rate of 8.5 percent and no mortality probability 
 decrement, must be determined; and 

    (7) the net value of the discounted value determined under 
 clause (6), must be determined by applying a service ratio, 
 where the numerator is the total length of credited service 
 determined under paragraph (b), clause (2), reduced by the 
 period of the additional service credit proposed to be 
 purchased, and where the denominator is the total length of 
 service credit determined under clause (2). 

    (d) The minimum prior service credit purchase payment 
 amount is the amount determined by multiplying the most current 
 annual salary of the prospective purchaser by the combined 
 current employee, employer, and any additional employer 
 contribution rates for the applicable pension plan and by 
 multiplying that result by the number of years of service or 
 fractions of years of service of the potential service credit 
 purchase. 

    Subd. 3.    Source of determination.  The prior service 
 credit purchase payment amounts under subdivision 2 must be 
 calculated by the chief administrative officer of the public 
 pension plan using a prior service credit purchase payment 
 amount determination process that has been verified for accuracy 
 and consistency under this section by the commission-retained 
 actuary.  That verification must be in writing and must occur 
 before the first prior service credit purchase for the plan 
 under this section is accepted and every five years thereafter 
 or whenever the preretirement interest rate, postretirement 
 interest rate, payroll growth, or mortality actuarial assumption 
 for the applicable pension plan is modified under section 
 356.215, whichever occurs first. 

    Subd. 4.    Prior service credit purchase processing fee. 
  A public pension plan may establish a fee to be charged to 
 the prospective purchaser for processing a prior service credit 
 purchase application and the prior service credit purchase 
 payment amount calculation.  The fee must be established by the 
 governing board of the pension plan and must be uniform for 
 comparable service credit purchase situations or actuarial 
 calculation requests.  The prior service credit purchase 
 processing fee structure must be published by the chief 
 administrative officer of the applicable retirement plan in the 
 State Register. 

    Subd. 5.    Payment responsibility; employer option.  
 Unless the prior service credit purchase authorization special 
 law or general statute provision explicitly specifies otherwise, 
 the prior service credit purchase payment amount determined 
 under subdivision 2 is payable by the purchaser.  However, the 
 former employer of the purchaser or the current employer of the 
 purchaser may, at its discretion, pay all or a portion of the 
 purchase payment amount in excess of an amount equal to the 
 employee contribution rate or rates in effect during the prior 
 service period applied to the actual salary rates in effect 
 during the prior service period, plus annual compound interest 
 at the rate of 8.5 percent from the date on which the 
 contributions would have been made if made contemporaneous with 
 the service period to the date on which the payment is actually 
 made. 

    Subd. 6.    Report on prior service credit purchases.  
 (a) As part of the regular data reporting provided to the 
 consulting actuary retained by the Legislative Commission on 
 Pensions and Retirement annually, the chief administrative 
 officer of each public pension plan that has accepted a prior 
 service credit purchase payment under this section shall report 
 for any purchase, the purchaser, the purchaser's employer, the 
 age of the purchaser, the period of the purchase, the 
 purchaser's prepurchase accrued service credit, the purchaser's 
 postpurchase accrued service credit, the purchaser's prior 
 service credit payment, the prior service credit payment made by 
 the purchaser's employer, and the amount of the additional 
 benefit or annuity purchased. 

    (b) As a supplemental report to the regular annual 
 actuarial valuation for the applicable public pension plan 
 prepared by the consulting actuary retained by the Legislative 
 Commission on Pensions and Retirement, the actuary shall provide 
 a comparison for each purchase showing the total prior service 
 credit payment received from all sources and the increased 
 public pension plan actuarial accrued liability resulting from 
 each purchase. 

    Subd. 7.    Expiration of purchase payment determination 
 procedure.  (a) This section expires and is repealed on July 
 1, 2004. 

    (b) Authority for any public pension plan to accept a prior 
 service credit payment that is calculated in a timely fashion 
 under this section expires on October 1, 2004. 

    HIST: 1998 c 390 art 4 s 1; 1999 c 222 art 16 s 14,15; 1Sp2001 
 c 10 art 6 s 16; 2002 c 392 art 11 s 40; 1Sp2003 c 12 art 6 s 1 

*   NOTE:  The amendment to subdivision 7 by Laws 2001, First 
*Special Session chapter 10, article 6, section 16, expires May 
*16, 2004.  Laws 2001, First Special Session chapter 10, article 
*6, section 21, as amended by Laws 2003, First Special Session chapter 
*12, article 6, section 5.