Modifications To PERA Public Employees' Retirement Association To Eliminate Unfunded Liability
Public employees' retirement association - defined benefit plan modifications to eliminate unfunded liability - highest average salary - gross salary - state trooper definition - sensitivity analysis - confidential information - termination of affiliation - member and employer contributions - automatic adjustments - direct distribution - age and service requirements - cost of living adjustment - defined contribution plan expansion - defined contribution plan supplement - pension review commission. The hybrid defined benefit plan administered by the public employees' retirement association (PERA) is modified as follows with the goal of eliminating the unfunded actuarial accrued liability of each of PERA's divisions and thereby reaching a 100% funded ratio for each division within the next 30 years:
Highest Average Salary (HAS): For all new PERA members hired on or after January 1, 2020, who are not in the judicial division, and for all existing PERA members who do not have 5 years of service credit as of January 1, 2020, who are not in the judicial division, the HAS calculation is modified to be based on an average of the highest annual salaries associated with 5 periods of 12 consecutive months of service with a base year, rather than 3 periods of 12 consecutive months of services with a base year. For all new PERA members hired on or after January 1, 2020, who are in the judicial division, and for all existing PERA members in the judicial division who do not have 5 years of service credit as of January 1, 2020, the HAS calculation is modified to be based on an average of the highest annual salaries associated with 3 periods of 12 consecutive months of service with a base year, rather than 12 consecutive months of service.
Definition of salary: For all new PERA members hired on or afer July 1, 2019, amounts deducted from pay pursuant to a cafeteria plan or a qualified transportation plan are included in the definition of salary. For all PERA members, unused sick leave converted to cash payments is included in the definition of salary and insurance premiums paid by employers are not included in the definition of salary.
Definition of state trooper: The definition of state trooper is expanded to include a county sheriff, undersheriff, deputy sheriff, noncertified deputy sheriff, or detention officer hired by a local government division employer on or after January 1, 2020, and a corrections officer classified as I through IV hired by a state division employer on or after January 1, 2020.
Sensitivity analysis: The PERA board or its designated agent is required to perform an annual sensitivity analysis to determine when, from an actuarial perspective, model assumptions are meeting targets and achieving sustainability. The board or its designated agent is required to deliver an annual report detailing the findings of the analysis to the office of the governor, the joint budget committee, the legislative audit committee, and the finance committees of the senate and the house of representatives, or any successor committees.
Confidentiality of information: PERA may disclose information regarding certain investments that is otherwise required to be kept confidential, to the pension review commission while the commission is meeting in executive session. If PERA cannot disclose the information without violating confidentiality provisions, then PERA is required to provide enough information to the commission, while the commission is meeting in executive session, to inform the legislators regarding whether such investments continue to be in the public interest.
Termination of affiliation: An employer in the local government division that ceases operations or ceases to participate in PERA for any reason is deemed to have terminated its affiliation with PERA. Any such employer is required to fully fund its share of the unfunded liability of the defined benefit plan and its share of the unfunded liability of the health care trust fund. The PERA board will determine the amount of such payments and such determinations may be appealed by the employer through the administrative review process established in the board rules. The employees of an employer that terminates its affiliation with PERA will become inactive members of PERA as of the date of the termination. Such members may elect to have their member contributions credited to an alternative pension plan or refunded. In the absence of such election, the member contributions will remain with PERA.
Increase in member contributions: On July 1, 2019, and on July 1, 2020, the monthly member contribution to PERA will increase by .75% of salary. On July 1, 2021, the monthly member contribution to PERA will increase by .5% of salary. When all increases are fully implemented, the total contribution will be 10% of salary each month for PERA members who are not state troopers and 12% each month for PERA members who are state troopers.
Increase in employer contributions: On July 1, 2019, the monthly employer contribution to PERA on behalf of members will increase by .25% of salary; except that the increase does not apply to employers in the local government division of PERA. The total increased contribution will be equal to 10.4% of salary each month for most PERA employers, 13.1% each month for PERA employers who employ state troopers, and 13.91% for PERA employers in the judicial division.
Automatic contribution, annual increase, and direct distribution amount changes: Under certain circumstances, the employer contribution rate, the member contribution rate, and the annual increase percentage for retirement benefits, and the amount of the direct distribution to PERA will be adjusted so the fund remains within the target of paying off the unfunded liability within 30 years. Within specified limits, the yearly adjustments can be up to one-quarter of one percent on the annual increase percentage, up to one-half of one percent on the employer and member contribution percentages, and up to $25 million for the direct distribution.
Direct distribution: On July 1, 2018, and on July 1 each year thereafter until there are no unfunded actuarial accrued liabilities of any division of PERA that receives the direct distribution, the state treasurer is required to issue a warrant to PERA in an amount equal to $225 million. Such amount will be paid to PERA from the general fund, or any other fund. The office of state planning and budgeting may include funding sources other than the general fund in the governor's annual budget request for the 2019-20 fiscal year and each fiscal year thereafter to satisfy the funding amounts of the direct distribution. The direct distribution will end when there are no unfunded actuarial accrued liabilities of any division of PERA that receives such distribution. PERA is required to allocate the direct distribution to the trust funds of each division of PERA as it would an employer contribution, in a manner that is proportionate to the annual payroll of each division; except that PERA shall not allocate any portion of the direct distribution amount to the local government division.
Service retirement eligibility for new members: For new PERA members who are hired on or after January 1, 2020, the age and service requirements for full-service retirement benefits for most divisions is increased to age 64 with a minimum of 30 years of service credit. For state troopers who are hired on or after January 1, 2020, the age and service requirements for full-service retirement benefits is increased to age 55 with a minimum of 25 years of service credit or any age with a minimum of 35 years of service credit. For PERA members who begin employment on or after January 1, 2020, the age and service requirements for a reduced service retirement benefit to increased to 55 years with a minimum of 25 years of service credit; except that, for state troopers, the requirements are increased to 55 years with a minimum of 20 years of service credit.
Cost of living adjustment (COLA) for all retirees, members, and inactive members: For the years 2018 and 2019, the COLA is reduced from 2% to 0%. For each year thereafter, the COLA is 1.5%, unless it is adjusted pursuant to the automatic adjustment provisions explained above. In addition, benefit recipients whose effective date of retirement is on or after January 1, 2011, and who have not received a COLA on or before May 1, 2018, are required to receive benefits for at least a 36-month period following retirement before the benefit is adjusted with the COLA.
The following changes are made to the defined contribution plan:
Eligibility to participate in defined contribution plan: Beginning January 1, 2019, the defined contribution plan is expanded to included members in addition to members of the state division of PERA. Members of the local government division and members of the state division, including members in the state personnel system employed by a state college or university, hired on or after that date may choose to participate in the defined contribution plan. A new member's participant account will receive the same employer contribution as received by current members of the defined contribution plan.
Defined contribution supplement: Beginning January 1, 2021, employer contribution rates will be adjusted to include a defined contribution supplement. The defined contribution supplement for each division will be the employer contribution amount paid to defined contribution plan participant accounts that would have otherwise gone to the defined benefit trusts to pay down the unfunded liability, plus any defined benefit investment earnings thereon, expressed as a percentage of salary on which employer contributions have been made. The employer contribution amounts only include contributions made on behalf of eligible employees who commence employment on or after January 1, 2019.
In addition to the changes to the defined benefit and defined contributions plans administered by PERA, the police officers' and firefighters' pension reform commission is relocated and modified. The name of the commission is changed to the pension review commission, the number of legislators on the commission and the manner in which they are appointed is modified beginning in January 2019, and the commission has oversight over both the fire and police pension association and PERA. A subcommittee of the pension review commission consisting of legislative and non-legislative members is also created to study specified issues and to make recommendations to the commission.
(Note: This summary applies to this bill as enacted.)