The 1998 Omnibus Pension Bill consisted largely of technical and administrative changes, along with provisions governing service credit for individuals and small groups of public employees. One change with wider implications, however, affected the method used to determine the actuarial value of prior service in a retirement plan.

Each year, many public employees seek special legislation enabling them to purchase credit in their retirement plans for prior service in public employment for which, for varying reasons, they are not credited for purposes of determining retirement benefits. At one time, those employees were sometimes permitted to buy credit simply by paying the employer and employee contributions for the period of prior service, based on their salaries during the period, plus a small amount of interest. Since the addition of the prior service was usually early in the employees' careers, when their salaries were relatively low, the amounts they were required to pay were also relatively low.

The increase in their retirement benefits as a result of the additional service, however, was usually substantial. That meant that their retirement plans - and, ultimately, public employers and other public employees - had to cover the difference between the amount paid and the increased benefits.

To avoid that result, for the last several years the Legislature has required purchasers of prior service to pay the actuarial cost of their projected increase in benefits. Recently, however, there has been some question as to the adequacy of the method used to determine actuarial cost. This year's Omnibus Bill will, for the next three years, require purchasers to pay the higher of: (1) an amount equal to the sum of all employer and employee contributions for the length of service to be purchased, based on current salary levels and contribution rates; or (2) the difference between the present value of the purchasers' retirement annuities with and without the purchase.

In addition, the retirement plans may charge prospective purchasers a processing fee for computing purchase amounts. This new system sunsets on July 1, 2001. It will be reviewed by the Legislative Commission on Pensions and Retirement, the commission actuary, and plan administrators before then to determine whether the new formula should be retained, amended, or abandoned.

Another 1998 change establishes an enhanced on-duty disability benefit, similar to that covering state correctional employees, for certain local correctional service employees. Those covered are essential employees working at county or regional jails or other correction facilities certified by their employers as having direct contact with inmates at least 75 percent of their work time.

Finally, two provisions relate to short-term legislators and constitutional officers who opt to transfer from the Legislators Retirement Plan or the Elective State Officers Retirement Plan into the Minnesota State Retirement System unclassified retirement plan. Voluntary transfers for short-term officials were authorized by legislation last year, which also put new legislators and constitutional officers into the unclassified plan.

One of this year's provisions enables transferring officials to transfer, as well, their past member contributions, plus 8.5 percent interest, along with an equivalent amount representing what would have been employer contributions. The second provision appro-priated $700,000 to cover the cost of the employer contributions. The appropriation was necessary because no employer contributions were actually made to the plans covering legislators and constitutional officers. Instead, when an official retired, a one-time appropriation to cover benefit costs was made from the General Fund. A disadvantage of that method was that the retirement plans did not benefit from earnings on employer contributions.

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