Agenda - Council Work Session - 06/10/2014

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Pensions — An omnibus pension bill was passed that made a number of changes to both state -wide pension plans and single employer relief associations, including: • Changes to the Public Employees Retirement Association (PERA) General Plan: o The "average salary" for determining surviving spouse and dependent benefits was redefined. o A number of clarifications were made to what constitutes "salary" for plan purposes. o Changes were made to the level of annual post- retirement adjustments, which will vary based on the funding level of the plan. • Changes to the PERA Police and Fire Plan: o Increases employee contribution rate from 9.6 percent of salary to 10.2 percent for fiscal 2014, and 10.8 percent for fiscal 2015 and thereafter. o Increases employer contribution rate from 14.4 percent of salary to 15.3 percent for fiscal 2014, and 16.2 percent for fiscal 2015 and thereafter. o A 20 -year proportional vesting period was established for new hires beginning in 2014, under which the member becomes 50 percent vested after 10 years, and vests an additional 5 percent annually until fully vested at 20 years. o The retirement annuity formula calculation was changed to incorporate the effect of the new 20 -year vesting period, and a new cap of 33 years on allowable service time included in the annuity calculation. o The early retirement reduction factor was increased from the current 2.4 percent per year to 5 percent, phased in over a 5 -year period beginning July 1, 2014. o Changes were made to the level of annual post- retirement adjustments, which will vary based on the funding level of the plan. • Changes to single employer relief associations: o The threshold of assets at which police relief associations and salaried or volunteer fire relief associations must prepare financial statements and have them audited by an independent auditor was raised from $200,000 to $500,000. o Volunteer firefighter relief associations are now required to pay a supplemental survivor benefit whenever it pays a survivor benefit, regardless of whether it is authorized in the association bylaws. o Any change to the interest rate paid during the deferral period of lump -sum service pensions must be approved by the governing body of the city or independent firefighting corporation to which the association is related. In addition, a new supplemental state aid was created to provide funding for pension plans. An annual allotment of $15.5 million will be distributed among the PERA Police and Fire Plan ($9 million), municipal volunteer firefighter associations ($5 5 million allocated based on proportionate share of fire state aid), and the Minnesota State Retirement System State Patrol Plan ($1 million). Expansion of Debt Authority — Several changes were made to expand the allowable uses of certain types of debt, including: • Home rule charter city or statutory city capital notes are allowed to be used for the purchase of application development services and training related to the use of computer hardware and software. • Capital improvement program (CIP) bonds are allowed to be used for expenditures incurred before the adoption of the CIP, if the expenditures are included in the plan. • Street reconstruction bonds are allowed to be used for bituminous overlay projects, which previously had not been included in the definition of reconstruction.