Agenda - Council - 05/27/1980 - Laserfiche WebLink

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Proposed fe. deral pension legislation Veterans' preference The State of Minnesota through its legislature has demonstrated a continuing concern over the past two decades for the security of public em- ployee retirement funds. Standards have been a- dopted requiring full funding and steps have been taken to strengthen management responsibility and reporting to employees. Moreover, a perman- ent commission has been established by the legis- lature to study and analyze public retirement funds and advise the legislature on appropriate steps. Adequate controls and standards exist in Minne- sota to safeguard the interest of the participants in public employee retirement funds. For these reasons, the League recommends that any pro- posed national controls and standards pertain only to matters of funding and should be designed to exclude public funds such as those in Minnesota where ade~tuate safeguards already are present. In 1975 the legislature adopted a uniform vet- erans' preference law for state and local govern- ment which modified preference in employment and promotion; in 1977, the legislature terminated veterans' preference for persons who enter military service after 1976. The League supports these modifications and believes that these provisions should not be amended further. Veterans should continue to be protected against unjust dismissals, but when a veteran's employment is terminated and he or she does not request a hearing within ten days, or when an impartial hearing body deter- mines that the dismissal was for just cause, the law should not require that the veteran receive com- pensation for any period when services were not actually performed. Further, the law should make it clear that the petition procedure is an alternative to local administrative hearings. Taxation of PERA contributions Deferred compensation For several years, litigation has been pending in federal courts to consider whether employee contributions to PERA and similar public pension systems should be subiect to federal income tax laws during the year in which they are contributed to the system, as opposed to the year in which the employee actually receives the benefit. To our knowledge, no similar litigation is pending regard- ing the applicability of the state income tax. It may be argued that the individual employee does not have the use of the contributions which he makes to PERA in the year in which they are contributed and therefore, the contributions should not be subject to either state or federal income taxation, but should be excluded from the employee's gross income. Rather, it may be argued that the contributions should not be taxed until the benefits are actually received. Such a position would be consistent with the way in which the municipal contributions to the employees pen- sions are taxed. Therefore, the League recommends that the PERA and state income tax laws be amended as follows: Employee deductions to PERA and similar pub- lic employee pension systems should be deducted from the employee's gross income and other de- ferred compensation plans presently permitted by law and not subjected to state income taxa- tion during the year contributed to PERA. Deferred compensation plans have provided individualized, portable means to supplement retirement systems for municipal employees. For the most part, employees at their own expense defer compensation, making it a less expensive means of providing retirement benefits than tra- ditional pension programs. The League endorses deferred compensation as an option for municipal employees and urges that appropriate congressional and administrative actions be taken to insure that it continues to be available. The League urges that, in implementing federal deferred compen- sation provisions, IRS not restrict eligibility beyond the provision of the federal statutes. Intergovernmental Personnel-Act In Minnesota, personnel management services for local government initiated with assistance of Intergovernmental Personnel Act ([PA) grants have proven valuable in improving personnel ad- ministration in cities and counties. It is unfortun- ate, however, that the state government has seen fit to retain 49% of the funds available for assis- tance to local governmentally related projects. In many instances, it appears that the state has used IPA funds to underwrite activities which the state would have funded from other sources had not IPA funds been available. The League believes that such projects should not be funded in the future and that, in any event, a greater pro- portion of the IPA grant funds should be devoted to projects directly related to local government. The League strongly supports continued federal funding of the IPA program. -11 -