Agenda - Council Work Session - 06/12/2007

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Public Employees Retirement Association of MN Page 2 of3 of previously purchased shares from one account to another. Some special restrictions apply, however, to transferring funds to other accounts from the Fixed Interest Account. Contact the PERA office for complete details about these transfer restrictions. Although investment changes and transfers may be requested at any time, PERA is able to execute those changes only oncea month when the State Board of Investment values shares in the Supplemental Investment Fund. Purchasing Past Service An elected official who joins the Defined Contribution Plan and who has previous uncovered service as an elected official prior to June 30, 1991, may pay contributions on that past service and invest those contributions in the DCP. Uncovered service is elected service (in either the present or a previous elected position) for which the employer did not contribute to any pension plan on the elected official's behalf. Consequently, service cannot be purchased if the employer paid into PERA's Basic or Coordinated Plans for past elected service, even if the elected official took a refund of contributions upon termination of office. In addition, enrollment in the DCP does not permit the elected employee to repay a refund, if one was issued. Past contributions may only be paid by elected officials presently enrolled in the DCP for elected service c rendered before June 30, 1991. Although the employer and employee contribution rates are five percent for current earnings, PERA computes the cost of past contributions using the PERA Coordinated (or Basic) Plan contribution rates in effect at the time the service was rendered. As part of the cost of past service, both employee and employer are charged 6 percent interest compounded annually. Interest payments on past service are invested in the employee's a<;:count along with all other contributions. If the participant chooses to pay these past contributions, the participant's employer must pay the corresponding employer matching contributions and additional contributions applicable at the time. Enrollment in the DCP does not obligate the participant to purchase past service. In addition, the participant may purchase all or a portion of past service, subject to annual contribution limits established by the U.S. Internal Revenue Service (IRS). Under IRS rules, total contributions to the participant's DCP account may not exceed 100 percent of includible income from elected service in a calendar year, or $40,000, whichever is less. Generally, includible income is gross salary for elected service minus contributions to the DCP and other tax-qualified plans from those earnings. All employer and employee contributions-from present-year earnings and for past service-count toward the IRS-imposed limit. PERA accepts payments for past service once a year in December, unless the participant requests the ability to pay more frequently. PERA computes the cost of past service using the official's history of elective salary. This salary history is to be supplied to PERA by the employer for whom the past service was rendered and may be submitted on PERA's form Record of Annual Earnings for Elected Official. An elected official interested in purchasing past service should ask his or her employer to submit the form to PERA. Contact the PERA office for complete details about purchasing past service. The Defined Contribution Plan And Taxes Participants do not pay taxes on contributions to the DCP withheld from earnings and those made on behalf of the participant by the employer. However, because the DCP is a qualified tax-deferred program, these contributions are taxable upon withdrawal, unless rolled over into another tax-qualified plan. If taken out before age 59Y2, withdrawals are, with a few exceptions, subject to an additional ten percent tax surcharge, unless rolled over. httn://www.mnnera.om/index.aso?Tvoe=B BASIC&SEC={ 1 F154A6F -38A2-4426-BDC9-50 1... 6/7/2007