A major overhaul of statewide and local pension plans was enacted during the 1997 regular session. Laws 1997, Chapter 233, revised accrual rates, contributions, and post-retirement adjustments and shifted funds among plans to improve the financial health of those that were under-funded.

The single most significant change for the statewide defined-contribution plans -- the Public Employees Retirement Association (PERA), the Minnesota State Retirement System (MSRS), and the Teachers Retirement Association (TRA) -- was an increase in benefits at the time of retirement coupled with a slight lowering in future post-retirement benefit adjustments. The benefit accrual rate rises to 1.7 percent of the average of the highest five years of pay for each year of eligible service. The old accrual rates were 1.5 percent a year for PERA and MSRS members and 1.63 percent for TRA members.

To cover part of the cost of the benefit improvement, post-retirement adjustments will be based on fund earnings in excess of 6 percent instead of the old rate of 5 percent. Benefit recipients who are already retired and are thus unaffected by the increase in initial benefit levels will receive a one-time actuarial adjustment that will be computed to make up for their decrease in future post-retirement benefits.

Another part of Chapter 233 significantly changes the retirement plan for legislators and elected constitutional officers. Under the change, newly elected legislators and constitutional officers will be covered by the defined-benefit plan for unclassified state employees. Current legislators and constitu-tional officers will have a chance to opt into the unclassified plan. Transitional provisions are designed to assure that no legislator or constitutional officer either gains or loses benefits because of the change. In the past, the plans for legislators and constitutional officers were not funded on a pay-as-you-go basis. Instead, member contributions went into the General Fund, with no employer match, and a General Fund appropriation was needed each time a member retired.

Chapter 233 also provides assistance to the under-funded first-class city teacher retirement associations. Transfers of funds from well-funded retirement plans will help these associations -- especially the Minneapolis plan -- to approach full funding.

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