HF4694

Purpose

This bill changes rules for Minnesota’s public employee deferred compensation plans. It clarifies what plans can be offered, who administers them, how employees enroll, how fees and performance are disclosed, and how contributions (including special types) work.

Main Provisions

• Definitions and eligible plans

  • Defines terms: deferred compensation plan, plan administrator, and vendor.
  • Allows enrollment under these plan types: the Minnesota deferred compensation plan under section 352.965, a tax-sheltered annuity under section 403(b) of the Internal Revenue Code, or a deferred compensation plan under section 457(b) of the Internal Revenue Code.

• Fee disclosure and reporting

  • For each investment fund available to participants (except for self-directed brokerage accounts or fixed annuity contracts), the plan must annually disclose:
  • All fees (administrative, maintenance, and investment fees) that affect returns.
  • The fund’s rates of return for the prior 1 year, 5 years, and 10 years (or the life of the fund if shorter).
  • The plan administrator or fund vendor must file a copy of this statement each year with the Executive Director of the Legislative Commission on Pensions and Retirement.

• Enrollment and coverage

  • Enrollment can be through:
  • A public employer’s personnel policy,
  • A collective bargaining agreement,
  • An individual employment contract between a city and a city manager or other management employee, or between a school district and a superintendent or other management employee.
  • The plan may cover employees of a school district, state agency, or other governmental subdivision.
  • The plan may cover city managers under an alternative retirement arrangement, but cannot cover employees of the Board of Trustees of Minnesota State Colleges and Universities who are covered by the Higher Education Supplemental Retirement Plan (HE-SRP).

• Contributions and matching

  • If the public employer makes matching contributions, they must match dollar-for-dollar the employee’s elective deferrals up to the lesser of:
  • The maximum allowed by the employer’s enrollment policy, or
  • One-half of the annual limit on elective deferrals under IRC 402(g).
  • As an alternative or in addition to basic matching, an employer may contribute on behalf of an employee for qualified student loan payments (per the Secure 2.0 Act of 2022). The total employer contributions for student loan payments plus any matching contributions for deferrals must not exceed for the year the lesser of:
  • The policy maximum for enrollment,
  • One-half of the annual deferral limit under IRC 402(g),
  • The employee’s yearly compensation.
  • Contributions may include amounts deducted from an employee’s sick leave, vacation leave, or severance pay (whether labeled as employee contributions or as nonelective employer contributions), up to IRC limits. These contributions are not subject to the plan’s standard matching and deferral limits.

Significant Changes to Existing Law

• Expands and clarifies eligible plans (adds 403(b) and 457(b) options alongside the Minnesota deferred compensation plan).
• Strengthens transparency by requiring annual, easy-to-understand fee and performance disclosures and reporting to a state pension authority.
• Tightens enrollment pathways and eligibility, specifying how and where public employees can enroll.
• Sets specific rules for how employer matching works, including the option to use student loan repayment as a vehicle for employer contributions, with clear annual caps.
• Allows contributions sourced from certain paid time off or severance pay, but places limits consistent with IRC rules.

Administration and Oversight

• Requires annual filing of the disclosure with the Executive Director of the Legislative Commission on Pensions and Retirement.
• Identifies key roles: plan administrator and vendor (as defined in the bill).

Eligibility and Coverage Boundaries

• Applies to employees of school districts, state agencies, or other governmental subdivisions.
• Excludes employees covered by the HE-SRP (Higher Education Supplemental Retirement Plan) for the Minnesota State Colleges and Universities Board.

Practical Implications for Participants

• Participants will receive clearer, more frequent information about fund fees and performance.
• Employers have defined rules for how much they can contribute or match, including through student loan payments.
• Enrollment is more clearly tied to specific employment documents and agreements.

Relevant Terms - deferred compensation plan - plan administrator - vendor - investment fund - fees - rate of return - enrollment - personnel policy - collective bargaining agreement - individual employment contract - city manager - school district - state agency - governmental subdivision - Higher Education Supplemental Retirement Plan (HE-SRP) - 403(b) tax-sheltered annuity - 457(b) deferred compensation - 352.965 (Minnesota plan reference) - 402(g) (IRC deferral limit) - Secure 2.0 Act of 2022 - qualified student loan payments - sick leave - vacation leave - severance pay - Executive Director of the Legislative Commission on Pensions and Retirement