HF5031

Purpose

This bill focuses on changes to teachers’ retirement rules in Minnesota. It aims to (1) create a “career rule” enabling a teacher to retire early at age 60 with 30 years of service, and (2) adjust how retirement funds are funded and calculated for districts and teachers. It also updates how retirement benefits and employer contributions are computed and paid.

Main Provisions

• Section 1 – Pension adjustment revenue and funding for districts

  • Establishes how a district’s pension adjustment revenue is calculated. It combines:
  • The difference between the district’s 2014 adjustment per adjusted pupil unit and the state average adjustment per adjusted pupil unit (using 2014 figures), and
  • The district’s adjusted pupil units for the fiscal year,
  • Multiplied by the district’s salaries for employees who were members of the Teachers Retirement Association (TRA) or the St. Paul Teachers Retirement Fund Association (SPTRFA) in the prior year and the district’s pension adjustment rate for the year.
  • Pension adjustment rates vary by district:
  • St. Paul (Independent School District No. 625): 2.3% (FY2023), 2.5% (FY2024–2025), and 3.25% (FY2026+).
  • All other districts: 1.25% (FY2025) and 2.31% (FY2026+).
  • Caps and prorating:
  • For FY2025, state total pension adjustment revenue must not exceed the amount for FY2024; the commissioner prorates to stay within the cap.
  • For FY2026–2027, no prorating is required.
  • For FY2028 and later, the state total must not exceed the FY2027 amount; the commissioner prorates to stay within the maximum.
  • Cooperative units (as defined by state law) can receive pension adjustment revenue as if they were districts; the aid goes to the cooperative unit.

• Section 2 – Employer contributions to retirement funds (section 354.42, subdivision 3)

  • Updates regular and additional employer contribution rates:
  • Minneapolis Special School District No. 1: regular contribution equals the applicable percentage for each coordinated and basic member; additional contribution is 3.64% of salary for each such member.
  • Duluth Independent School District No. 709: regular contribution equals the applicable percentage for each old/new law coordinated member.
  • All other employers: 9.81% of salary for coordinated members and 13.81% for basic members.
  • When an employer rate changes, the new rate applies to the entire salary in the first payroll cycle of the fiscal year.

• Section 3 – Computation of formula retirement annuity (section 354.44, subdivision 6)

  • The formula retirement annuity is calculated using the member’s average salary (defined in law) and years of formula service credit, with rates that differ by membership type and by when service was earned.
  • Early retirement reductions:
  • For a member who is at least 60 years old with 30 years of service: the annuity is the normal amount reduced by 5% for each year the retirement age is before the normal retirement age, plus an augmentation if retirement is deferred to normal retirement age (2.5% per year if retirement after 2006, or 3% per year if before 2006), compounded annually.
  • For a member under age 60 or with fewer than 30 years of service: reductions are:
    • 4% per year for ages 55–58,
    • 7% per year for age 59 up to normal retirement age, plus the same deferral augmentation described above (with the rate depending on when retirement occurs).
  • The augmentation rate is fixed for a member from the retirement date until normal retirement age and was set at 2.5% (post-2006 starters) or 3% (pre-2006 starters), then declines monthly starting July 2019, reaching zero by July 2024. After June 30, 2024, annuities started before normal retirement age do not include augmentation.
  • Salary cap rule: no retirement annuity is paid to a former employee with a salary exceeding 95% of the governor’s salary until salary figures used in calculating the highest five-year average salary meet audit and statutory requirements (highest five-year average salary referred to as the “highest five successive years average salary”).
  • Member types and historical adjustments:
  • Coordinated members and basic members have different formula percentages for service before and after July 1, 2006.
  • Special cases apply for members who were part of former Minneapolis or Duluth retirement funds or who joined before specific dates; some calculations may be more favorable under one method than another, and certain provisions reference prior fund rules.
  • The formula uses a mix of paragraphs and exceptions to determine the final annuity for each member, with special rules for when to apply which calculation method.

What the bill seeks to accomplish

• Provide a pathway for teachers to retire early (career rule) at age 60 with 30 years of service.
• Clarify and adjust how pension adjustments are funded and allocated across districts, including caps and pro-ration rules.
• Update how employer contributions to teacher retirement funds are calculated and collected by districts.
• Revise how retirement benefits are computed, including early retirement penalties, augmentation for deferral, and salary-based restrictions, with attention to different member types and historical fund structures.
• Align formulas with specific historical fund rules (Minneapolis, Duluth, Duluth-related funds) and ensure compliance with salary audit requirements.

Notable Changes to Existing Law

• New career rule enabling early retirement at 60 with 30 years of service.
• New structure and caps for pension adjustment revenue across multiple fiscal years, including proration rules and cooperative units.
• Updated employer contribution rates for Minneapolis, Duluth, and other districts.
• Revised formula retirement annuity calculations, including explicit early retirement reductions, deferral augmentation rules, and salary-based constraints.

Potential Implications

• District budgets may need to adjust to new pension adjustment revenue rules and updated employer contribution rates.
• Teachers may gain a clearer path to early retirement, but with defined reductions and deferral rules that affect the annuity amount.
• Long-term retirement costs could shift due to changes in how augmentation and early retirement reductions are applied.

Relevant Terms - pension adjustment revenue - pension adjustment rate - cooperative unit - adjusted pupil unit (APU) - Teachers Retirement Association (TRA) - St. Paul Teachers Retirement Fund Association (SPTRFA) - coordinated member - basic member - average salary (section 354.05 subdivision 13a) - formula retirement annuity - normal retirement age - early retirement reduction - deferral augmentation - highest five successive years average salary - governor’s salary (salary cap rule) - Minnesota Statutes sections 126C.10, 354.42, 354.44 - Special School District No. 1 (Minneapolis) - Independent School District No. 709 (Duluth) - former Minneapolis Teachers Retirement Fund Association - former Duluth Teachers Retirement Fund Association