EMPLOYEE BENEFITS PROGRAMS COMMITTEE

The Employee Benefits Programs Committee has statutory jurisdiction over legislative measures that affect retirement, health insurance, and retiree health insurance programs of public employees. Under North Dakota Century Code (NDCC) Section 54-35-02.4, the committee is required to consider and report on legislative measures and proposals over which it takes jurisdiction and which affect, actuarially or otherwise, retirement programs and health and retiree health plans of public employees. Section 54-35-02.4 also requires the committee to take jurisdiction over any measure or proposal that authorizes an automatic increase or other change in benefits beyond the ensuing biennium which would not require legislative approval and to include in the report of the committee a statement that the proposal would allow future changes without legislative involvement. The committee is allowed to solicit draft measures from interested persons during the interim and is required to make a thorough review of any measure or proposal it takes under its jurisdiction, including an actuarial review. A copy of the committee's report must accompany any measure or amendment affecting a public employee's retirement program, health plan, or retiree health plan which is introduced during a legislative session. The statute provides that any legislation enacted in contravention of these requirements is invalid and benefits provided under that legislation must be reduced to the level in effect before enactment. In addition, Section 54-52.1-08.2 requires the committee to approve terminology adopted by the Public Employees Retirement System (PERS) Board to comply with federal requirements; Section 18-11-15 requires the committee to receive notice from a firefighters' relief association concerning service benefits paid under a special schedule; Section 15-39.1-10.11 requires the committee to receive an annual report from the Teachers' Fund for Retirement (TFFR) Board of Trustees regarding an annual test of actuarial adequacy of the statutory contribution rate to fund an annual postretirement adjustment on June 30, 2001, and again on June 30, 2002; 2001 Session Laws, Chapter 330, Section 5, requires the committee to receive notice from the Public Employees Retirement System Board of the date the board receives a letter ruling from the Internal Revenue Service that the section allowing a member to purchase service credit with pretax or aftertax money does not jeopardize the qualified status of the Highway Patrolmen's retirement system; and 2001 Session Laws, Chapter 494, Section 11, requires the committee to receive notice from the Public Employees Retirement System Board of the date the board receives a letter ruling from the Internal Revenue Service that the section allowing a member to purchase services credit with pretax or aftertax money does not jeopardize the qualified status of the Public Employees Retirement System.

The Legislative Council assigned to the committee a study directed by Senate Concurrent Resolution No. 4017 of the feasibility and desirability of implementing a retirement program for all law enforcement and correctional officers within the state which provides retirement benefits similar to those provided to the members of the Highway Patrolmen's retirement system pursuant to NDCC Chapter 39-03.1.

Committee members were Representatives Bette Grande (Chairman), Glen Froseth, Joe Kroeber, Wayne W. Tieman, and Francis J. Wald and Senators Ralph L. Kilzer, Karen K. Krebsbach, Stanley W. Lyson, and Tim Mathern.

The committee submitted this report to the Legislative Council at the biennial meeting of the Council in November 2002. The Council accepted the report for submission to the 58th Legislative Assembly.

CONSIDERATION OF RETIREMENT AND HEALTH PLAN PROPOSALS

The committee established April 1, 2002, as the deadline for submission of retirement, health, and retiree health proposals. The deadline provided the committee and the consulting actuary of each affected retirement, health, or retiree health program sufficient time to discuss and evaluate the proposals. The committee allowed only legislators and those agencies entitled to the bill introduction privilege to submit retirement, health, and retiree health proposals for consideration.

The committee reviewed each submitted proposal and solicited testimony from proponents; retirement and health program administrators; interest groups; and other interested persons.

Under NDCC Section 54-35-02.4, each retirement, insurance, or retiree insurance program is required to pay, from its retirement, insurance, or retiree health benefits fund, as appropriate, and without the need for a prior appropriation, the cost of any actuarial report required by the committee which relates to that program.

The committee referred every proposal submitted to it to the affected retirement or insurance program and requested the program authorize the preparation of actuarial reports. The Public Employees Retirement System used the actuarial services of The Segal Company in evaluating proposals that affected retirement programs and the actuarial services of Deloitte & Touche, LLP, in evaluating proposals that affected the public employees health insurance program. The Teachers' Fund for Retirement Board of Trustees used the actuarial services of Gabriel, Roeder, Smith and Company in evaluating proposals that affected the Teachers' Fund for Retirement.

The committee obtained written actuarial information on each proposal. In evaluating each proposal, the committee considered the proposal's actuarial cost impact; testimony by retirement and health insurance program administrators, interest groups, and affected individuals; the impact on state general or special funds and on the affected retirement program; and other consequences of the proposal or alternatives to it. Based on these factors, each proposal received a favorable recommendation, unfavorable recommendation, or no recommendation.

A copy of the actuarial evaluation and the committee's report on each proposal will be appended to the proposal and delivered to its sponsor. Each sponsor is responsible for securing introduction of the proposal in the 58th Legislative Assembly.

Teachers' Fund for Retirement

Former NDCC Chapter 15-39 established the teachers' insurance and retirement fund. This fund, the rights to which were preserved by Section 15-39.1-03, provides a fixed annuity for full-time teachers whose rights vested in the fund before July 1, 1971. The plan was repealed in 1971 when the Teachers' Fund for Retirement was established with the enactment of Chapter 15-39.1. The plan is managed by the Teachers' Fund for Retirement Board of Trustees.

The Teachers' Fund for Retirement became effective July 1, 1971. The Teachers' Fund for Retirement is administered by a board of trustees. A separate state investment board is responsible for the investment of the trust assets, although the Teachers' Fund for Retirement Board of Trustees establishes the asset allocation policy. The Retirement and Investment Office is the administrative agency for the Teachers' Fund for Retirement. The Teachers' Fund for Retirement is a qualified governmental defined benefit retirement plan. For Governmental Accounting Standards Board purposes, it is a cost-sharing, multiple-employer public employee retirement system.

Every certified teacher of a public school in the state participates in the Teachers' Fund for Retirement. This includes teachers, supervisors, principals, and administrators. Noncertified employees such as teacher's aides, janitors, secretaries, and drivers are not allowed to participate in the Teachers' Fund for Retirement. Eligible employees become members at their date of employment.

An active member contributes 7.75 percent of salary per year. The employer may "pick up" the member's assessments under Internal Revenue Code Section 414(h). The member's total earnings are used for salary purposes, including overtime, and including nontaxable wages under a Section 125 plan, but excluding certain extraordinary compensation such as fringe benefits or unused sick or vacation leave.

The district or other employer that employs a member contributes 7.75 percent of the member's salary. Employees receive credit for service while a member. A member may also purchase credit for certain periods, such as time spent teaching at a public school in another state, by paying the actuarially determined cost of the additional service. Special rules and limits govern the purchase of additional service.

A member is eligible for a normal service retirement benefit at age 65 with credit for three years of service, or when the sum of the member's age and years of service is at least 85--the Rule of 85. The monthly retirement benefit is 2.00 percent of final average compensation, defined as the average of the member's highest three-plan year salaries with monthly benefits based on one-twelfth of this amount, times years of service. Benefits are paid as a monthly life annuity, with a guarantee that if the payments made do not exceed the member's assessments plus interest, determined as of the date of retirement, the balance will be paid in a lump sum to the member's beneficiary.

A member may retire early after reaching age 55 with credit for three years of service. In this event, the monthly benefit is 2.00 percent of final average compensation times years of service, multiplied by a factor that reduces the benefit 6 percent for each year from the earlier of age 65 or the age at which current service plus age equals 85.

A member is eligible for disability retirement benefits provided the member has credit for at least one year of service. The monthly disability retirement benefit is 2.00 percent of final average compensation times years of service with a minimum 20 years of service. The disability benefit commences immediately upon the member's retirement. Benefits cease upon recovery or reemployment. Disability benefits are payable as a monthly life annuity with a guarantee that, at the member's death, the sum of the member's assessments plus interest as of the date of retirement will be paid in a lump sum to the member's beneficiary. All alternative forms of payment are also permitted in the case of disability retirement. Disability benefits are converted to normal retirement benefits when the member reaches normal retirement age or age 65, whichever is earlier. A member with at least three years of service who does not withdraw contributions from the fund is eligible for a deferred termination benefit. The deferred termination benefit is a monthly benefit of 2.00 percent of final average compensation times years of service. Final average compensation and service are determined at the time the member leaves active employment. Benefits may commence unreduced at age 65 or when the Rule of 85 is met. Reduced benefits may commence at or after age 55 if the member is not eligible for an unreduced benefit. The form of payment is the same as for normal retirement.

A member leaving covered employment with less than three years of service is eligible to withdraw or receive a refund benefit. Optionally, a vested member (one with three or more years of service) may withdraw assessments plus interest in lieu of the deferred benefits otherwise due. The member who withdraws receives a lump sum payment of employee assessments, plus the interest credited on these contributions. Interest is credited at 6 percent.

To receive a death benefit, death must have occurred while an active or inactive, nonretired member. Upon the death of a nonvested member, a refund of the member's assessments and interest is paid. Upon the death of a vested member, the beneficiary may elect the refund benefit; payment for 60 months of the normal retirement benefit, based on final average compensation and service determined at the date of death; or a life annuity of the normal retirement benefit, based on final average compensation and service as of the date of death, but without applying any reduction for the member's age at death.

There are optional forms of payment available on an actuarial equivalent basis. These include a life annuity payable while either the participant or the participant's beneficiary is alive, "popping-up" to the original life annuity if the beneficiary predeceases the member; a life annuity payable to the member while both the member and beneficiary are alive, reducing to 50 percent of this amount if the member predeceases the beneficiary, and "popping-up" to the original life annuity if the beneficiary predeceases the member; a life annuity payable to the member, with a guarantee that, should the member die prior to receiving 60 payments, the payments will be continued to a beneficiary for the balance of the five-year period; a life annuity payable to the member, with a guarantee that, should the member die prior to receiving 120 payments, the payments will be continued to a beneficiary for the balance of the 10-year period; or a nonlevel annuity payable to the member, designed to provide a level total income when combined with the member's Social Security benefit. From time to time the Teachers' Fund for Retirement statutes have been amended to grant certain postretirement benefit increases. In addition, in 2001 two conditional annual benefit adjustments, equal to .75 percent of the benefit being paid to each retiree and beneficiary, were approved by the Legislative Assembly. The first adjustment became payable beginning with the July 2001 payment, and the second became payable beginning July 2002. These increases were conditional, and were to be paid only if there was positive margin as determined by the prior actuarial valuation, or if the amount of negative margin was small, as defined by the statutes. However, the Teachers' Fund for Retirement has no automatic cost-of-living increase features.

Since 1991 there have been several plan changes in the Teachers' Fund for Retirement. Effective July 1, 1991, the benefit multiplier was increased from 1.275 percent to 1.39 percent for all future retirees. The Legislative Assembly also provided a postretirement benefit increase for all annuitants receiving a monthly benefit on June 30, 1991. The monthly increase was the greater of a 10 percent increase or a level increase based on years of service and retirement date of $3 per year of service for retirements before 1980, $2 per year of service for retirements from 1980 to 1983, and $1 per year of service for retirements from 1984 through June 30, 1991. The minimum increase was $5 per month, and the maximum increase was $75 per month.

In 1993 the benefit multiplier was increased from 1.39 percent to 1.55 percent for all future retirees. The Legislative Assembly also provided a postretirement benefit increase for all annuitants receiving a monthly benefit on June 30, 1993. The monthly increase was the greater of a 10 percent increase or a level increase based on years of service and retirement date of $3 per year of service for retirements before 1980, $2.50 per year of service for retirements from 1980 to 1983, and $1 per year of service for retirements from 1984 through June 30, 1991. The minimum increase at this time was $5 per month, and the maximum increase was $100 per month. The minimum retirement benefit was increased to $10 times years of service up to 25, plus $15 times years of service greater than 25. Previously, it had been $6 up to 25 years of service plus $7.50 over 25 years of service. The disability benefit was also changed at this time to 1.55 percent of final average compensation times years of service using a minimum of 20 years of service.

In 1997 the benefit multiplier was increased from 1.55 percent to 1.75 percent for all future retirees, the member assessment rate and employer contribution rate were increased from 6.75 percent to 7.75 percent, and a $30 per month benefit improvement was granted to all retirees and beneficiaries.

In 1999 the vesting requirement was reduced from five years of service to three years of service. The early retirement reduction factor was changed to 6 percent per year from the earlier of age 65 or the date as of which age plus service equals 85 rather than from 65 in all cases. An ad hoc cost-of-living adjustment was provided for all retirees and beneficiaries. This increase was equal to an additional $2 per month for each year of service plus $1 per month for each year since the member's retirement. Finally, the benefit multiplier was increased from 1.75 percent to 1.88 percent.

In 2001 an ad hoc cost-of-living adjustment was provided for all retirees and beneficiaries. The ad hoc cost-of-living adjustment increase was equal to an additional $2 per month for each year of service plus $1 per month for each year since the member's retirement. Retirees and beneficiaries were also eligible to receive the two conditional annual benefit adjustments equal to .75 percent times the monthly benefit, payable July 1, 2001, and July 1, 2002, as described above. The benefit multiplier was also increased from 1.88 percent to 2.00 percent.

The latest available report of the consulting actuary was dated July 1, 2002. The consulting actuary reported that the primary purposes of the valuation report are to determine the adequacy of the current employer contribution rate, to describe the current financial condition of the Teachers' Fund for Retirement, and to analyze changes in the fund's condition. In addition, the report provides information required by the Teachers' Fund for Retirement in connection with Governmental Accounting Standards Board Statement No. 25, and provides various summaries of the data. Concerning the financing objectives of the Teachers' Fund for Retirement Board of Trustees, the consulting actuary reported that the member and employer contribution rates are intended to be sufficient to pay the fund's normal cost and to amortize the funds unfunded actuarial accrued liability in level payments over a period of 20 years from the valuation date. The funding period is set by the board of trustees, and is considered reasonable by the actuary.

As of July 1, 2002, the employer contribution rate needed in order to meet these goals was 6.09 percent. This is less than the 7.75 percent rate required by law so the current contribution rate is adequate. The margin between the rate mandated by law and the rate necessary to fund the unfunded actuarial accrued liability in 20 years is 1.66 percentage points. This margin decreased from 3.76 percentage points as of July 1, 2001, mainly because of recognized investment experience losses. If the 7.75 percent contribution rate remains in place, and all actuarial assumptions are exactly realized, including an 8.00 percent investment return on the actuarial value of assets, then the unfunded actuarial accrued liability will be completely amortized in 10.0 years from July 1, 2002. The funded ratio, the ratio of the actuarial value of assets to the actuarial accrued liability, decreased from July 1, 2001. The funded ratio on July 1, 2001, was 96.4 percent while it was 91.6 percent as of July 1, 2002. This decrease is also due to the recognized investment experience losses.

However, the consulting actuary reported that this picture of the Teachers' Fund for Retirement is misleading. All the standard actuarial measurements, including the funded ratio and the margin, are functions of the actuarial value of assets, which recognizes investment gains and losses, the positive or negative difference between the actual net investment return on market value and the assumed 8.00 percent investment return, over a period of five years, at the rate of 20 percent per year. Therefore, 60 percent of the investment losses in fiscal year 2001 and 80 percent of the investment losses in fiscal year 2002 are not yet reflected in the actuarial measurements. As these losses are recognized over the next four valuations, the consulting actuary expects the margin to turn negative and the funded ratio to continue to decrease, in the absence of changes in the benefit and contribution structure of the Teachers' Fund for Retirement and in the absence of other experience gains or losses. The funded ratio would have been 74.4 percent, rather than 91.6 percent, if the market value of assets had been used rather than the actuarial value of assets.

The consulting actuary reported that the second of two .75 percent conditional annual benefit adjustments began to be paid effective in July 2002. Because the margin in the last actuarial valuation was positive, the conditions on which the .75 percent benefit is conditioned were met. This conditional annual benefit adjustment was reflected in the valuation results. Actuarial assumptions and methods are set by the board of trustees, based upon recommendations made by the plan's consulting actuary. These assumptions were last changed in 2000, following an analysis of the plan experience through the preceding five years. The consulting actuary reported that the assumptions are internally consistent and are reasonable based on the actuarial experience of the Teachers' Fund for Retirement.

The fund had 16,433 members on July 1, 2002. Of this total, 9,931 were active members, 5,054 were retired members, 1,223 were inactive vested members, and 225 were inactive nonvested members. The total payroll was $348.1 million. The average salary was $35,052 and the average annual retiree benefit was $13,829. The assets at market value were $1,165.4 million with an actuarial value of $1,443.5 million.

The total contributions for the year ending June 30, 2002, were $56.4 million while benefit payments, refunds, and administrative expenses were $71.3 million. Therefore, net external cashflow was minus $14.9 million or -1.3 percent of the market value of assets. The return on the market value of assets was approximately -8.6 percent for the year ending June 30, 2002. This compares to a negative 7.6 percent for the fiscal year ending June 30, 2001. The average return for the last 10 years is 7.9 percent. The consulting actuary reported that to understand the actuarial impact of the market return of minus 8.6 percent, the return must be compared to the 8.0 percent actuarially assumed rate of return. A return of minus 8.6 percent means a loss of 16.6 percent, phased in over five years. To offset a year this bad, the Teachers' Fund for Retirement must earn at least 24.6 percent or 8.0 percent plus 16.6 percent. The consulting actuary reported that in the 1990s, the highest return was approximately 18.5 percent. The actuarial return on the value of assets was 3 percent in fiscal year 2002, compared to 8.6 percent in fiscal year 2001. The fund has averaged a 9.9 percent return on actuarial value over the last 10 years. The actuarial value is 123.9 percent of fair market value, but the fund has $278.1 million in deferred losses that are not yet recognized. A history of investment return rates for plan years ending beginning June 30, 1990, is contained in the following table:

The consulting actuary reported that it has been monitoring assumed investment return rates. Currently, the consulting actuary reported that based on consensus capital market assumptions for 2002 and based on the Teachers' Fund for Retirement's asset allocation policy, the actuarially assumed rate of return of 8.0 percent is still reasonable. However, investment consulting firms have already significantly lowered their expected return assumptions, especially for equities, and if more decreases occur, it may ultimately be necessary to decrease this assumption. The consulting actuary reported that the unfunded actuarial accrued liability increased from $53 million to $132.3 million and the funded ratio, actuarial assets divided by actuarial accrued liability, decreased from 96.4 percent to 91.6 percent. The funded ratio using market value of assets is 74 percent. The consulting actuary reported that the actuarial losses were due to negative investment experience and increased liabilities, which are due mainly to salary increases and retirements. The consulting actuary reported that more of the deferred losses from fiscal years 2001 and 2002 will be recognized next year which will increase the unfunded actuarial accrued liability and decrease the funded ratio and margin. If the market return is 10 percent next year, the expected margin will be minus .29 percent, and if the market return is minus 10 percent the expected margin will be minus 1.50 percent. If the market return for fiscal year 2003 is between a positive 10 percent and a negative 10 percent and the market return for the first five years after fiscal year 2003 is a positive 8 percent, the projected margins for the next five years will still be negative.

The following is a summary of the proposal affecting the Teachers' Fund for Retirement over which the committee took jurisdiction and the committee's action on the proposal:

Bill No. 52

Proposal: Changes the definition of salary to include bonus amounts paid to members for performance, retention, experience, and other service-related bonuses, unless amounts are conditioned on or made in anticipation of an individual member's retirement or termination; provides that for purposes of determining vesting of rights and eligibility for benefits in instances of multiple plan membership, a teacher's service credit may not exceed one year of service in the Public Employees Retirement System or the Highway Patrolmen's retirement system in any fiscal year; provides that in instances of multiple plan membership a teacher may elect to have benefits calculated using the three highest certified fiscal year salaries for TFFR in the computation of final average salary, and all service credit earned in TFFR or using the three highest certified fiscal year salaries of TFFR combined with the alternate plan in the computation of final average salary, and service credit not to exceed one year in any fiscal year when combined with the service credit earned in the alternate retirement plan; provides that a teacher who is eligible to participate in TFFR who is also eligible to participate in an alternate retirement system is a member of TFFR for duties covered under TFFR and also a member of the Public Employees Retirement System or Highway Patrolmen's retirement system for duties covered by those alternate retirement systems; updates the benefit limitations under Section 415 of the Internal Revenue Code to those in effect on August 1, 2003; establishes a partial lump sum distribution option; replaces the maximum hours that a retired teacher may return to work with a schedule of from 700 to 1,000 hours based upon the length of the reemployed retiree's contract; updates the rollover provisions under Section 401 of the Internal Revenue Code to those in effect on August 1, 2003; and provides that TFFR may accept eligible rollovers, direct rollovers, and trustee-to-trustee transfers from eligible retirement plans under Internal Revenue Code Section 402 to purchase refunded service credit and additional service credit.

The committee amended the bill at the request of the TFFR Board of Trustees to allow participating employers to purchase additional service credit on behalf of members under certain conditions.

Actuarial Analysis: The consulting actuary reported that there is no measurable actuarial cost to the bill.

Committee Report: Favorable recommendation.

Public Employees Retirement System

The Public Employees Retirement System is governed by NDCC Chapter 54-52 and includes the Public Employees Retirement System main system, judges' retirement system, National Guard retirement system, and an optional defined contribution retirement plan; Highway Patrolmen's retirement system; and retiree health benefits fund. The plan is supervised by the Retirement Board and covers most employees of the state, district health units, and the Garrison Diversion Conservancy District. Elected officials and officials first appointed before July 1, 1971, can choose to be members. Officials appointed to office after that date are required to be members. Most Supreme Court and district court judges are members of the plan but receive benefits different from other members. A county, city, or school district may choose to participate on completion of an employee referendum and on execution of an agreement with the Retirement Board. Political subdivision employees are not eligible to participate in the defined contribution retirement plan. The Retirement Board also administers the uniform group insurance, life insurance, flexible benefits, deferred compensation, and Chapter 27-17 judges' retirement programs. The Chapter 27-17 judges' retirement program is being phased out of existence except to the extent its continuance is necessary to make payments to retired judges and their surviving spouses and future payments to judges serving on July 1, 1973, and their surviving spouses as required by law.

Members of the main system and judges are eligible for a normal service retirement benefit at age 65 or when age plus years of service is equal to at least 85--the Rule of 85. Members of the National Guard retirement system are eligible for a normal service retirement at age 55 and three consecutive years of service. The retirement benefit for a member of the main system is 2.00 percent of final average salary multiplied by years of service. The retirement benefit for a member of the judges' retirement system is 3.50 percent of final average salary for the first 10 years of service, 2.80 percent for the next 10 years of service, and 1.25 percent for service in excess of 20 years. The retirement benefit for a member of the National Guard retirement system is 2.00 percent of final average salary multiplied by years of service. A member of the main system is eligible for an early service retirement at age 55 with three years of service, a member of the judges' retirement system is eligible for early service retirement at age 55 with five years of service, and a member of the National Guard retirement system is eligible for an early service retirement at age 50 with three years of service. The retirement benefit for a member who elects early service retirement is the normal service retirement; however, a benefit that begins before age 65, or Rule of 85, if earlier, is reduced by one-half of 1 percent for each month before age 65. The early service retirement benefit for a member of the National Guard retirement system is the normal service retirement benefit; however, a benefit that begins before age 55 is reduced by one-half of 1 percent for each month before age 55. A member of the main system or National Guard retirement system with six months of service who is unable to engage in any substantial gainful activity is eligible for a disability benefit of 25 percent of the member's final average salary at disability with a minimum of $100 per month. A member of the judges' retirement system with six months of service who is unable to engage in any substantial gainful activity is eligible for a disability benefit of 70 percent of the member's final average salary at disability minus Social Security and workers' compensation benefits paid. A member of the main system or the National Guard retirement system is eligible for deferred vested retirement at three years of service, and a member of the judges' retirement system is eligible for deferred vested retirement at five years of service. For a member of the main system or judges' retirement system, the deferred vested retirement benefit is the normal service retirement benefit payable at age 65 or the Rule of 85, if earlier. Reduced early retirement benefits may be elected upon attainment of age 55. The deferred vested retirement benefit for a member of the National Guard retirement system is the normal service retirement benefit payable at age 55. Reduced early retirement benefits may be elected upon attainment of age 50.

The surviving spouse of a deceased member of the main system or National Guard retirement system who had accumulated at least three years of service before normal retirement is entitled to elect one of three forms of preretirement death benefits. The preretirement death benefit may be a lump sum payment of accumulated contributions, the member's accrued benefit payable for 60 months, or 50 percent of the member's accrued benefit, not reduced on account of age, payable for the spouse's lifetime. If a member of the main system or National Guard retirement system dies in active service after normal retirement age, the benefit is the amount that would have been paid if the member had retired and had elected a 100 percent joint and survivor annuity. The surviving spouse of a deceased member of the judges' retirement system who had accumulated at least five years of service is entitled to elect one of two forms of preretirement death benefits. The preretirement death benefit may be a lump sum payment of accumulated contributions or 100 percent of the member's accrued benefit, not reduced on account of age, payable for the spouse's lifetime. If the deceased member was not vested, or if there is no surviving spouse, a death benefit equal to the member's accumulated contributions is paid in a lump sum.

In lieu of a monthly retirement benefit, a terminating nonvested member and terminated vested member may elect to receive accumulated member contributions with interest. Member contributions through June 30, 1981, accumulate with interest at 5 percent, member contributions from July 1, 1981, through June 30, 1986, accumulate with interest at 6 percent, and member contributions after June 30, 1986, accumulate with interest of .5 percent less than the assumed actuarial rate. The standard form of payment is a monthly benefit for life with a refund of the remaining balance, if any, of accumulated member contributions. Optional forms of payment are a 50 percent joint and survivor annuity; 100 percent joint and survivor annuity, with "popup" feature; five-year certain and life annuity, 10-year certain and life annuity, or a level Social Security income annuity. The standard form of payment for a member of the judges' system is a monthly benefit for life, with 50 percent payable to an eligible survivor. In addition to the optional forms of payment available to members of the main system and National Guard, a member of the judges' system may elect to receive a life annuity. Final average salary is the average of the highest salary received by the member for any 36 months employed during the last 120 months of employment.

Except for the employer contribution rate for the National Guard, contribution rates are specified by statute. The contribution rate for a member of the main system is 4 percent, and the employer contribution is 4.12 percent. The employee contribution for the judges' retirement system is 5 percent and the employer contribution is 14.52 percent. The contribution rate for a member of the National Guard retirement system is 4 percent and the employer contribution is 8.33 percent. A part-time employee in the main system contributes 8.12 percent with no employer contribution. Effective January 1, 2000, a member's account balance includes vested employer contributions equal to the member's contributions to the deferred compensation program under NDCC Chapter 54-52.2. The vested employer contributions may not exceed $25 or 1 percent of the member's salary, whichever is greater, for months one through twelve service credit; $25 or 2 percent of the member's monthly salary, whichever is greater, for months 13 through 24 of service credit; $25 or 3 percent of the member's monthly salary, whichever is greater, for months 25 through 36 of service credit; and $25 or 4 percent of the member's monthly salary, whichever is greater, for service exceeding 36 months. The vested employer contributions may not exceed 4 percent of the member's monthly salary and are credited monthly to the member's account balance. The fund may accept rollovers from other qualified plans under rules adopted by the Retirement Board for the purchase of additional service credit. For many employees, no deduction is made from pay for the employee's share. This is a result of 1983 legislation that provided for a phased-in "pickup" of the employee contribution in lieu of a salary increase at that time.

In 1989 the Legislative Assembly established a retiree health insurance credit fund account with the Bank of North Dakota with the purpose of prefunding hospital benefits coverage and medical benefits coverage under the uniform group insurance program for retired members of the Public Employees Retirement System and the Highway Patrolmen's retirement system receiving retirement benefits or surviving spouses of those retired members who have accumulated at least 10 years of service. The employer contribution under the Public Employees Retirement System was reduced from 5.12 percent to 4.12 percent, under the judges' retirement system from 15.52 percent to 14.52 percent, and under the Highway Patrolmen's retirement system from 17.07 percent to 16.07 percent or 1 percent of the monthly salaries or wages of participating members, including participating Supreme Court and district court judges, and those moneys were redirected to the retiree health insurance credit fund.

The latest available report of the consulting actuary is dated July 1, 2002. According to that report, the combined net assets of the Public Employees Retirement System and Highway Patrolmen's retirement system were $1,083,368,940 at market value. This compares to $1,173,621,357 a year earlier. The combined actuarial value of these funds was $1,189,504,527. Of the combined valuation assets, $1,129,697,099 is allocated to the Public Employees Retirement System main system, $18,998,335 to the judges' retirement system, and $1,305,395 to the National Guard retirement system, and $39,503,698 to the Highway Patrolmen's retirement fund. The return on the actuarial value of assets for 2001-02 for the Public Employees Retirement System fund was 3.91 percent compared to the investment return assumption of 8.00 percent. As a result, the fund experienced an investment loss on an actuarial value basis of approximately $45 million. Return on the market value of assets for 2001-02 for the Public Employees Retirement System fund was minus 6.94 percent compared to minus 4.47 percent for the preceding year. The ratio of the actuarial assets to the market value of assets is 109.8 percent. Last year, this ratio was 98.3 percent. This change is an expected result of the actuarial smoothing technique when significant investment losses are experienced.

The actuarial value of assets is determined by spreading market appreciation and depreciation over five years beginning with the year of occurrence. Interest and dividends are recognized immediately. This procedure results in recognition of all changes in market value over five years. This procedure is applied to the combined assets of the Public Employees Retirement System and the Highway Patrolmen's retirement system retirement income funds to determine the combined actuarial value of the systems. The amount of actuarial write-up or write-down recognizes changing market values and is considered part of the investment income for the year. This procedure treats realized and unrealized capital gains or losses equally. In other words, the sale of a security, either at a gain or loss, has no immediate effect on the value of assets for actuarial purposes. If the market value has gone up, the increase is gradually recognized in the value of the fund's assets, it does not have to be sold for the appreciation to be realized. This automatic recognition of market value appreciation or depreciation eliminates any need for making investment decisions for the explicit purpose of meeting the investment return assumption. The investment returns for the last 10 years for the combined fund are summarized in the following table:

The fund had 17,089 active members on July 1, 2002. Of this total, 17,039 were active members of the main system, 47 were active members of the judges' system, and three were active members of the National Guard system. The total payroll was $461,344,791 and the average salary was $26,998. There were 639 inactive members as of July 1, 2002 with vested rights to deferred retirement benefits. The average deferred monthly benefit for this group was $392. There were also 41 members on leave of absence from the main system and 12 members from the National Guard that were called up for military duty. For these groups, a liability is carried for their deferred retirement benefits.

The contribution requirement consists of the normal cost, and an administrative expense allowance, plus the cost of amortizing the unfunded liability over a scheduled period of years. The Retirement Board has adopted an open amortization schedule of 20 years. The calculated employer contribution requirement is 4.42 percent of payroll. The statutory contribution rate is 4.12 percent of payroll. Thus, statutory contributions are less than the actuarial contribution requirement by .30 percent of payroll, and the margin available in the main system is minus .30 percent of payroll or 4.12% - 4.42% = -.30%.

The report for the judges' retirement system indicated that an employer contribution of 10.29 percent of payroll is required to fund the system. The statutory employer contribution rate is 14.52 percent of payroll. Thus, statutory contributions exceed the actuarial contribution requirement by 4.3 percent of payroll. This results in an actuarial margin of 4.23 percent or 14.52% - 10.29% = 4.23%.

The report for the National Guard retirement system indicated that no employer contribution is required to fund the system. The contribution rate set by the Retirement Board is 8.33 percent of salary. This results in an actual margin of 8.33 percent of salary or 8.33% - 0% = 8.33%.

A member of the Highway Patrolmen's retirement system is eligible for a normal service retirement at age 55 with at least 10 years of eligible employment or with age plus service equal to at least 80--the Rule of 80. The normal service retirement benefit is 3.60 percent of final average salary for the first 25 years of service and 1.75 percent for service in excess of 25 years. A member is eligible for an early service retirement at age 50 with 10 years of eligible employment. The early service retirement benefit is the normal service retirement benefit; however, a benefit that begins before age 55 or the Rule of 80, if earlier, is reduced by one-half of 1 percent for each month before age 55. A member is eligible for a disability benefit at six months of service and an inability to engage in substantial gainful activity. The disability benefit is 70 percent of the member's final average salary at disability less workers' compensation, with a minimum of $100 per month. A member is eligible for deferred retirement benefits upon 10 years of eligible employment. The deferred retirement benefit is the normal service retirement benefit payable at age 55 or the Rule of 80, if earlier. Vested benefits are indexed at a rate set by the Retirement Board based upon the increase in final average salary from the date of termination to the benefit commencement date. Reduced early retirement benefits may be elected upon attainment of age 50.

Preretirement death benefits are available to a surviving spouse of a deceased member of the Highway Patrolmen's retirement system who had accumulated at least 10 years of service in one of three forms--a lump sum payment of accumulated contributions, monthly payment of the member's accrued benefit for 60 months, or 50 percent of the member's accrued benefit, not reduced on account of age, for the spouse's lifetime. If the deceased member had accumulated less than 10 years of service or if there is no surviving spouse, then a death benefit equal to the member's accumulated contribution is paid in a lump sum.

The normal form of benefit for the Highway Patrolmen's retirement system is a monthly benefit for life with 50 percent of the benefit continuing for the life of the surviving spouse, if any. Optional forms of payment are a 100 percent joint and survivor annuity, 5-year certain and life annuity, and 10-year certain and life annuity. Final average salary is the highest salary received by the member for any 36 consecutive months employed during the last 120 months of employment and the member's contribution is 10.30 percent of monthly salary. A member contributes 10.30 percent of monthly salary and the state contributes 16.70 percent of monthly salary for each participating member.

The latest available report of the consulting actuary for the Highway Patrolmen's retirement fund is dated July 1, 2002. According to that report, the Highway Patrolmen's retirement fund had net assets with an actuarial value of $39,503,698 and a market value of $35,978,913. Total active membership was 125, and an employer contribution of 14.59 percent of payroll was necessary to meet the normal cost of the Highway Patrolmen's retirement fund. The statutory contribution rate is 16.70 percent of payroll. Thus, the actuarial margin is 2.11 percent of payroll.

The latest available report of the consulting actuary for the retiree health insurance credit fund is dated July 1, 2002. According to that report, the fund had net assets with a market value of $23,652,354 and an actuarial value of $26,402,058. The rate of return on the market value basis was minus 6.68 percent for the year ending June 30, 2002. On an actuarial basis, the rate of return was 3.60 percent for the year ending June 30, 2002. Total active membership was 17,462 (7,000 males and 10,462 females). The statutory contribution rate is 1.00 percent of payroll. An employer contribution of .98 percent of payroll is required to fund the plan. This results in an actuarial margin of .02 percent of payroll. Members are required to participate in the uniform group insurance program and the current benefit amount is $4.50 times years of service.

The following is a summary of the proposals affecting the Public Employees Retirement System over which the committee took jurisdiction and the committee's action on each proposal:

Public Employees Retirement System Main System

Bill No. 28

Sponsor: Senator Elroy N. Lindaas

Proposal: Provides that payments for overtime earned by employees of the North Dakota Mill and Elevator Association must be included as wages and salaries for purposes of calculating benefits under PERS.

The committee amended the bill at the request of the sponsor to provide an appropriation of $205,000 from the Mill and Elevator fund to the North Dakota Mill and Elevator Association to pay the additional retirement contributions required by the bill.

Actuarial Analysis: The reported actuarial cost impact of the proposal, as amended, is .07 percent of payroll. The actuarial cost impact of the proposal, as amended, is summarized in the following table:

Thus, if this bill is enacted, the margin in the Public Employees Retirement System main system will be -.37 percent (4.12 - 4.42 = -.30: -.30 + -.07 = -.37).

Committee Report: Unfavorable recommendation.

Bill No. 53

Sponsor: Retirement Board

Proposal: Changes the definition of governmental unit to exclude the Highway Patrol for members of the Highway Patrolmen's retirement plan; changes the definition of retirement to include termination of participation in the retirement plan and meeting the normal retirement date as well as termination of employment; allows elected officials of participating counties, at their individual option, to enroll in the defined benefit plan within the first six months of their term; allows non-state-appointed officials of participating employers appointed on or after August 1, 1999, who meet the participation requirements of NDCC Chapter 54-52 to enroll in the defined benefit plan effective within the first month of taking office; allows the PERS Board to accept trustee-to-trustee transfers as permitted by Internal Revenue Code Sections 403 and 457 from a Section 403 annuity or Section 457 deferred compensation plan for the purchase of permissive service credit or as repayment of a cashout from a governmental plan; allows the board to establish individual retirement accounts and individual retirement annuities to allow employees to make voluntary employee contributions; provides that for purposes of multiple plan membership, service credit in TFFR, Highway Patrolmen's retirement system, or TIAA-CREF may not exceed 12 months of credit per year; provides that for purposes of determining benefits in multiple plan membership situations an employee may elect to have benefits calculated using the average of the highest salary received by the member for any 36 months employed during the last 120 months of employment in PERS or the average of the highest salary received by the member for any 36 consecutive months during the last 120 months of employment with any of the eligible employers with service credit not to exceed one month in any month when combined with the service credit earned in the alternate retirement system; provides that employees who have dual membership rights may elect to begin participation in an alternate plan or continue participation in PERS; clarifies that a member or a surviving spouse is entitled to receive retiree health benefits beginning on the date retirement benefits are effective unless the premium is billed to the member's employer; and establishes standards for apportioning deferred compensation assets under qualified domestic relations orders.

The committee amended the bill at the request of the Retirement Board to clarify that the purchase provision is available to vested members instead of members with five years of service and to change the reference to prior service to other eligible service; to amend the bill as a result of a July 12, 2002, Attorney General's opinion stating that certain provisions of the retirement statutes are in conflict with the Uniformed Services Employment and Reemployment Rights Act of 1994 to bring the retirement statutes into compliance with federal law; to allow participating employers to purchase additional service credit on behalf of members under certain conditions; to amend the confidentiality provisions of the retirement statutes to allow the Retirement Board to publish the names of members the Retirement Board has been unable to contact; to provide that former participating members of the defined contribution retirement plan who are receiving retirement benefits or the surviving spouse of a former participating member who is eligible to receive or was receiving defined contribution retirement plan benefits is eligible to receive retiree health benefits; to extend the time period within which a member of the defined contribution retirement plan may waive a refund of the member's vested account balance from 30 days after termination to 120 days after termination; to allow employers of employees participating in the defined contribution retirement plan to make contributions for the conversion of sick leave and for the equivalent of up to five years of service credit unrelated to any other eligible service; and to add a provision to the deferred compensation authorization statute to require alternate payees to transfer to their own plan under a qualified domestic relations order.

The committee amended the bill at the request of the Retirement Board to add a provision clarifying the pretax purchase of service credit to address concerns of the Internal Revenue Service relating to the issuance of a letter ruling on the pretax purchase of service credit.

Actuarial Analysis: The consulting actuary reported that the actuarial impact of the proposal, as amended, is minimal.

Committee Report: Favorable recommendation.

Bill No. 54

Sponsor: Retirement Board

Proposal: Provides a postretirement adjustment of 2 percent of an individual's present benefits on August 1, 2003, and again on August 1, 2004; and provides a prior service retiree adjustment of 2 percent on August 1, 2003, and again on August 1, 2004.

Actuarial Analysis: The reported actuarial cost impact of the proposal to the main system is .22 percent of payroll and 0 percent of payroll for the National Guard retirement system. The actuarial cost impact of the proposal is summarized in the following tables:

Thus, if this bill is enacted, the margin in the Public Employees Retirement System main system will be -.52 percent (4.12 - 4.42 = -.30: -.30 + -.22 = -.52).

Committee Report: No recommendation as the Retirement Board withdrew the proposal from further consideration by the committee.

Bill No. 55

Sponsor: Retirement Board

Proposal: Provides that participants in the judges' retirement system are entitled to receive a 2 percent postretirement adjustment in their present monthly benefit beginning January 1, 2004, and again on January 1, 2005.

Actuarial Analysis: The reported actuarial cost impact of the proposal is .42 percent of payroll. The actuarial cost impact of the proposal is summarized in the following table:

Thus, if this bill is enacted, the margin in the judges' retirement system will be 3.81 percent (14.52 - 10.29 = 4.23 - .42 = 3.81).

Committee Report: No recommendation as the Retirement Board withdrew the proposal from further consideration by the committee.

Bill No. 56

Proposal: Provides that for National Guard security officers and firefighters, unless a member specifically requests another option, all retirement benefits must be in the form of an unreduced level Social Security option.

Actuarial Analysis: The reported actuarial cost impact of the proposal is 0 percent of payroll. The consulting actuary noted that if the July 1, 2002 actuarial valuation results required contribution had not been limited to $0, the required contribution increase would have been $12,787, or 12.27 percent of payroll. The actuarial cost impact of the proposal is summarized in the following table:

Committee Report: No recommendation as the Retirement Board withdrew the proposal from further consideration by the committee.

Bill No. 60

Sponsor: Job Service North Dakota

Proposal: Transfers administration of the retirement plan established in 1961 and frozen to new entrants in 1980 for employees of Job Service North Dakota under NDCC Chapter 52-11 from Job Service North Dakota to the PERS Board.

The committee amended the bill at the request of the Retirement Board to add a full-time equivalent (FTE) position to the Public Employees Retirement System to administer the bill's provisions.

Actuarial Analysis: The consulting actuary reported that the proposal would not have an actuarial impact on the Public Employees Retirement System main system.

Committee Report: Favorable recommendation.

Highway Patrolmen's Retirement System

Bill No. 57

Sponsor: Retirement Board

Proposal: Allows the PERS Board to accept trustee-to-trustee transfers as permitted by Internal Revenue Code Sections 403 and 457 from a Section 403 annuity or Section 457 deferred compensation plan for the purchase of permissive service credit or as repayment of a cashout from a governmental plan under Section 415; allows the board to establish individual retirement accounts and individual retirement annuities as permitted under Section 408 of the Internal Revenue Code to allow employees to make voluntary employee contributions; replaces the Rule of 80 with a service requirement of 25 years for normal retirement benefits; requires the board to administer the Highway Patrolmen's plan in compliance with Sections 415 and 401 of the Internal Revenue Code; provides that for the purpose of determining eligibility for benefits in instances of multiple plan membership, a member's years of service is the years of service credit earned in the TIAA-CREF, as well as PERS and TFFR, the total of which may not exceed 12 months of credit per year; provides that in instances of multiple plan membership an employee may elect to have benefits calculated by using the average of the highest salary received by the member for any 36 months employed during the last 120 months of employment in PERS or using the average of the highest salary received by the member for any 36 consecutive months during the last 120 months of employment with service credit not to exceed one month in any month when combined with the service credit earned in the alternate retirement system; provides that certain Highway Patrolmen's retirement system records relating to the retirement benefits of a member or a beneficiary may be disclosed to a member's participating employer, the administrative staff of the Retirement and Investment Office for purposes relating to membership and benefits determination, state or federal agencies, member interest groups approved by the board, the member's spouse or former spouse, legal representative, and judge presiding over the member's dissolution proceeding for purposes of aiding the parties in drafting a qualified domestic relations order, and designated beneficiaries after the member's death; and provides a postretirement increase in benefits equal to 2 percent of the individual's present benefit with the increase payable beginning August 1, 2003, and again on August 1, 2004.

The committee amended the bill at the request of the Retirement Board to clarify that the purchase provisions are available to vested members; to allow employers to purchase additional service credit on behalf of contributors under certain conditions; to delete the benefit enhancement provisions from the bill; and to add a provision clarifying the pretax purchase of service credit to address concerns of the Internal Revenue Service relating to the issuance of a letter ruling on the pretax purchase of service credit.

Actuarial Analysis: The reported actuarial cost impact to the original proposal is 19.69 percent of payroll. The statutory contribution rate is 16.70 percent of payroll, and the cost of the current plan is 14.59 percent of payroll. Thus, if the proposal is enacted, the margin of the Highway Patrolmen's retirement system will be minus 17.58 percent (16.70 - 14.59 = 2.11: 2.11 - 19.69 = -17.58). As amended, however, the proposal has no actuarial cost.

The actuarial cost impact of the proposal is summarized in the following tables:

Committee Report: Favorable recommendation.

Defined Contribution Retirement Plan

Bill No. 18

Sponsor: Representative Francis J. Wald

Proposal: Provides that all state employees except Supreme Court or district court judges or employees of the State Board of Higher Education and state institutions under the jurisdiction of the board who are eligible to participate in the alternative retirement program established under NDCC Section 15-10-17(13) are eligible to participate in the defined contribution retirement plan.

Actuarial Analysis: The consulting actuary reported that the past two years of economic downturn changes the picture significantly compared to a study conducted by the firm on a similar proposal in 2000. The contribution rate for the defined benefit retirement plan climbs above 4.12 percent with or without enactment of the optional defined contribution retirement plan, the unfunded actuarial accrued liability of the defined benefit retirement plan increases in either case, and the funded ratio of the defined benefit retirement plan levels out at around 90 percent. Based on assumptions and methods, the defined benefit plan is not harmed by the optional defined contribution program. The contribution rates for the defined benefit plan must increase to a higher level with the optional defined contribution plan, 8.25 percent versus 7.28 percent, but total contributions are somewhat less with a defined contribution plan, 6.86 percent versus 7.28 percent. External cashflow may become an issue in 15 to 20 years but still will not force significant changes to allocation or assumed investment returns in the near future. This picture would not have been as pessimistic if the firm had not assumed 2.0 percent annual ad hoc postretirement benefit increases for the defined benefit plan. However, the consulting actuary identified several issues in technical comments prepared for the bill and recommended that the administrative provision should be modified or additional administrative costs should be appropriated and the eligibility date should be moved up to August 1, 2003, allowing all employees after that date the normal six months to make a decision. The consulting actuary noted that under the present defined contribution retirement plan, Public Employees Retirement System administrative costs are reimbursed in one of two ways--an administrative assessment against assets or nonvested employer contributions. Recognizing that 25 percent of members have 50 percent of the assets, this results in those members paying a higher proportion of the cost. A more equitable method would be to spread the cost against all members by having a portion of the contribution go to paying the administrative assessment. The consulting actuary noted that during the last two offerings of the defined contribution retirement program, one element of determining the actuarial present value was to determine the plan earnings factor. The plan earnings factor, used in increasing the present value of accrued benefits, is the ratio of the market value of assets to the entry age normal assumed liabilities. In the past this has always been positive. Given the present market performance it is possible that the ratio could be negative. The present statute does not anticipate this, and it may be desirable to amend the statute to allow for reducing the present value based upon this ratio. The consulting actuary recommended that the sponsor consider amending the statute to allow for reducing the present value based upon the plan earnings factor if it is negative. The consulting actuary recommended that a disability benefit other than the member's account balance should be considered. The consulting actuary noted that the existing legislation provides that Public Employees Retirement System administrative costs are charged against the plan investments. At present the Retirement Board has set this amount at .03 percent of assets yearly. This amount is then assessed quarterly. The consulting actuary noted that this process means that larger accounts end up paying a greater share of the costs versus smaller accounts. Consequently, the assessment methodology results in longer-term employees paying more and shorter-term employees paying less and recommended that the sponsor consider an alternative methodology. One such methodology would be to pay administrative costs out of contributions instead of account assets. For example, pursuant to this methodology, the employer contribution would remain at 4.12 percent, but .12 percent would be deposited into the administrative account and the remaining 4.00 percent would go to the employee's account. This methodology would distribute administrative costs to all members.

Committee Report: Favorable recommendation.

Bill No. 26

Sponsor: Representative Duane DeKrey

Proposal: Provides that members of the Legislative Assembly are entitled to participate in the defined contribution retirement plan.

Actuarial Analysis: The consulting actuary reported that by allowing members of the Legislative Assembly to participate in the defined contribution retirement plan, members of the Legislative Assembly would also be allowed to participate in the retiree health benefits fund. The overall impact to the system would be minimal.

The actuarial cost impact of the proposal is summarized in the following table:

Thus, if this bill is enacted, the margin in the retiree health benefits fund will be .01 percent (.02 - .01 = .01).

Bill No. 58

Sponsor: Retirement Board

Proposal: Provides that former participating members of the defined contribution retirement plan who are receiving retirement benefits or the surviving spouse of a former participating member who was eligible to receive or was receiving defined contribution retirement plan benefits is eligible to receive retiree health benefits; allows temporary employees who previously elected to join the defined contribution retirement plan to elect to participate in the defined contribution retirement plan; allows participating members to elect to make voluntary contributions to the defined contribution retirement plan; and extends the time period within which a member may waive a refund of the member's vested account balance from 30 days after termination to 120 days after termination.

Actuarial Analysis: The consulting actuary reported that it does not appear that the proposal would have an actuarial impact on the defined benefit plan. However, it appears that this proposal would have an actuarial impact on the retiree health benefits fund. The sponsor withdrew the bill before the committee requested the full actuarial cost analysis of the proposal.

Committee Report: No recommendation as the Retirement Board withdrew the proposal from further consideration by the committee.

Uniform Group Insurance Program

Bill No. 25

Sponsor: Senator Rich Wardner

Proposal: Allows retirees who have accepted a retirement allowance from a political subdivision's retirement plan to elect to participate in the uniform group insurance program without meeting minimum requirements at age 65, when the employee's spouse reaches age 65, upon the receipt of a benefit, or when the spouse terminates employment.

Actuarial Analysis: The consulting actuary reported that it did not have sufficient data to determine the detailed financial impact to the state for this proposed bill. However, the bill could subject the Public Employees Retirement System plan to significant adverse selection depending on the level of benefits and premium cost available to retirees under the political subdivisions' plans compared to those offered through the Public Employees Retirement System plan. To the extent this proves true, the premiums for all participants that remain in the plan will increase. This occurs because if the retirees of the affected political subdivisions have the option of two different plans, they are likely to choose that which benefits them the most. It is likely that those who choose the Public Employees Retirement System plan will have greater than average claims thereby increasing the overall claims cost for all participants. An additional adverse financial impact to the state identified by the consulting actuary occurs as a result of the premium structure. The current premium structure is such that the non-Medicare retiree individual rate is equal to 1.5 times the active rate. Expected actuarial experience would indicate the actual claim relativity of non-Medicare retirees to actives to be approximately 2:1. The implication is that the actives are currently subsidizing the non-Medicare retirees. The proposed bill allows for the retirees of political subdivisions to join the Public Employees Retirement System plan without also requiring the actives of the political subdivisions to join as well. Due to the inherent subsidization in the current rating structure and the potentially substantial increase in the number of retirees, the rates of the current active population would need to increase to reflect the additional costs not fully reflected in the retiree premiums. One potential approach to permitting this additional group of retirees to participate in the Public Employees Retirement System plan identified by the consulting actuary could be accomplished by amending the proposed bill to require that all members of the political subdivisions, including both actives and retirees, participate in the plan. Such a requirement should minimize any potential adverse financial impact to the Public Employees Retirement System plan. The consulting actuary noted that the adverse selection due to the benefit level differences between the political subdivisions' plans and the Public Employees Retirement System plan could still be present but should be greatly reduced.

Committee Report: No recommendation, but the committee recommended that the sponsor amend the bill to address the concerns of the Retirement Board.

Bill No. 59

Proposal: Requires permanent employees after August 1, 2003, to be employed at least 20 hours per week as opposed to 17.5 hours per week for those employed before August 1, 2003, to participate in the uniform group insurance program; provides that retirees who have met the initial eligibility requirements for participation in the uniform group insurance program remain eligible as long as they pay the required premium; and deletes the provision that political subdivisions may determine the amount of the employer's monthly contribution toward the total monthly premium amount required of each eligible participating employee under the uniform group insurance program.

The committee amended the bill at the request of the Retirement Board to change the definition of eligible employee to match the definition of eligible employee used for purposes of the retirement plans; to change the bidding statutes to allow the Retirement Board to contract for the providing of hospital benefits coverage, medical benefits coverage, life insurance benefits, and employee assistance program services; to clarify that it is only intended to apply to hospital and medical benefits coverage and not to life insurance benefits, employee assistance program services, vision plans, dental plans, or long-term care plans and the bidding process would still apply to those plans; to allow for self-administration of the uniform group insurance program; to allow the Retirement Board to develop an independent provider network; to authorize the Retirement Board to establish incentives for employer-based wellness programs; to amend the uniform group insurance program confidentiality statutes to comply with the federal Health Insurance Portability and Accountability Act; and to appropriate $132,561 from the general fund to the Retirement Board to implement the bill and authorize the Public Employees Retirement System one additional full-time employee to implement the bill.

Actuarial Analysis: As originally proposed, the consulting actuary did not believe the bill would have any significant adverse financial impact on the program. Under the amended bill, the actuarial consultant identified the self-administration of a self-insured health program, development and maintenance of a provider network, and implementation of an employer-based wellness program as issues to be considered by the Retirement Board.

Committee Report: Favorable recommendation.

Bill No. 69

Sponsor: Senator Tim Mathern

Proposal: Allows any person who is without health insurance coverage to participate in the uniform group insurance program subject to minimum requirements established by the PERS Board.

Actuarial Analysis: The actuarial consultant identified adverse risk selection as an issue that must be considered when changing eligibility requirements but noted that the bill provides for a number of safeguards against adverse risk selection, including minimum requirements as established by the Retirement Board and a minimum participation period of 60 months for private sector employer groups.

Committee Report: Unfavorable recommendation.

Old-Age and Survivor Insurance System

Bill No. 61

Sponsor: Job Service North Dakota

Proposal: Increases primary insurance benefits under the Old-Age and Survivor Insurance System (OASIS) fund and appropriates $3,800 from the general fund to Job Service North Dakota to pay Old-Age and Survivor Insurance System benefits to remaining beneficiaries.

The committee amended the proposal at the request of Job Service North Dakota to transfer administration of the Old-Age and Survivor Insurance System from Job Service North Dakota to the Retirement Board and to remove the appropriation.

Actuarial Analysis: Job Service North Dakota reported the fund has sufficient assets to pay for the proposed increase.

Committee Report: Favorable recommendation.

ADDITIONAL COMMITTEE RESPONSIBILITIES

The Public Employees Retirement System Board reported that no action on the part of the committee was required pursuant to NDCC Section 54-52.1-08.2, which requires the committee to approve terminology adopted by the Retirement Board to comply with federal requirements. The committee was not notified by any firefighters relief association pursuant to Section 18-11-15(5) that requires the Employee Benefits Programs Committee to be notified by a firefighters relief association if it implements an alternate schedule of monthly service pension benefits for members of the association. The Teachers' Fund for Retirement reported that both conditional annual benefit adjustments authorized by Section 15-39.1-10.11 became effective, one payable July 1, 2001, and the second payable on July 1, 2002. The committee was not notified by the Public Employees Retirement System Board that it received a letter ruling from the Internal Revenue Service that the section allowing a member to purchase service credit with pretax or aftertax money does not jeopardize the qualified status of the Highway Patrolmen's retirement system, nor that the board received a letter ruling from the Internal Revenue Service that the section allowing a member to purchase service credit with pretax or aftertax money does not jeopardize the qualified status of the Public Employees Retirement System.

LAW ENFORCEMENT AND CORRECTIONAL OFFICER RETIREMENT PROGRAM STUDY

Senate Concurrent Resolution No. 4017 directs a study of the feasibility and desirability of implementing a retirement program for all law enforcement and correctional officers within the state of North Dakota which provides retirement benefits similar to those provided to the members of the Highway Patrolmen's retirement system pursuant to NDCC Chapter 39-03.1. The resolution noted that recruiting and retaining quality law enforcement and correctional officers within the state of North Dakota are integral to maintaining the safety and quality of life of all North Dakota residents; that the nature of the work performed by law enforcement and correctional officers takes a physical toll on those officers which exceeds that experienced by workers in the vast majority of occupations and necessitates that law enforcement and correctional officers leave their employment at a younger age than for most occupations; and that other than for members of the Highway Patrolmen's retirement system, a retirement program does not exist that is uniform across the state which allows law enforcement and correctional officers to retire at an age at which they might enjoy their retirement prior to experiencing the physical effects of their work as law enforcement and correctional officers.

North Dakota Highway Patrolmen's Retirement System

The North Dakota Highway Patrolmen's retirement system is governed by NDCC Chapter 39-03.1. A member of the Highway Patrolmen's retirement system is eligible for a normal service retirement at age 55 with at least 10 years of eligible employment or with age plus service equal to at least 80--the Rule of 80. The normal service retirement benefit is 3.6 percent of final average salary for the first 25 years of service and 1.75 percent for service in excess of 25 years. A member is eligible for an early service retirement at age 50 with 10 years of eligible employment. The early service retirement benefit is the normal service retirement benefit; however, a benefit that begins before age 55 or the Rule of 80, if earlier, is reduced by one-half of 1 percent for each month before age 55. A member is eligible for a disability benefit at six months of service and an inability to engage in substantial gainful activity. The disability benefit is 70 percent of the member's final average salary at disability less workers' compensation, with a minimum of $100 per month. Members are eligible for deferred retirement benefits upon 10 years of eligible employment. The deferred retirement benefit is the normal service retirement benefit payable at age 55 or the Rule of 80, if earlier. Vested benefits are indexed at a rate set by the Public Employees Retirement System Board based upon the increase in final average salary from the date of termination to the benefit commencement date. Reduced early retirement benefits may be elected upon attainment of age 50.

Preretirement death benefits are available to a surviving spouse of a deceased member of the Highway Patrolmen's retirement system who had accumulated at least 10 years of service in one of three forms--a lump sum payment of accumulated contributions, monthly payment of the member's accrued benefit for 60 months, or 50 percent of the member's accrued benefit, not reduced on account of age, for the spouse's lifetime. If the deceased member had accumulated less than 10 years of service or if there is no surviving spouse, then a death benefit equal to the member's accumulated contribution is paid in a lump sum.

The normal form of benefit for the Highway Patrolmen's retirement system is a monthly benefit for life with 50 percent of the benefit continuing for the life of the surviving spouse, if any. Optional forms of payment are a 100 percent joint and survivor annuity, 5-year certain and life annuity, and 10-year certain and life annuity. The monthly benefit amount is adjusted under the optional forms of payment so the total value of benefits is actuarially equivalent. Final average salary is the highest salary received by the member for any 36 consecutive months employed during the last 120 months of employment, and the member's contribution is 10.30 percent of monthly salary. The state contributes 16.70 percent of the monthly salary for each participating member.

Law Enforcement and Correctional Officer Retirement Programs in Surrounding States

South Dakota

The laws governing the South Dakota retirement system are codified in South Dakota Codified Laws Annotated Chapter 3-12. The South Dakota retirement system is composed of Class A members and Class B members. Class A members are all members other than Class B members, and Class B members are justices, judges, state law enforcement officers, magistrate judges, municipal police officers, municipal firefighters, county sheriffs, deputy county sheriffs, Penitentiary correctional staff, parole agents, air rescue firefighters, campus security officers, court services officers, conservation officers, and park rangers.

Air rescue firefighters are employees of the Department of Military and Veterans Affairs who are stationed at Joe Foss Field, Sioux Falls, and who are directly involved in firefighting activities on a daily basis. Campus security officers are employees of the South Dakota Board of Regents whose positions are subject to the minimal educational training standards established by the South Dakota Law Enforcement Standards Commission and who satisfactorily complete the training required within one year of employment and whose primary duty as sworn law enforcement officers is to preserve the safety of the students, faculty, staff, visitors, and property of the University of South Dakota and South Dakota State University. Conservation officers are employees of the South Dakota Department of Game, Fish and Parks and the Division of Wildlife or Division of Custer State Park. Deputy county sheriffs are employees of a county that is a participating governmental unit, appointed by the board of county commissioners, who are permanent full-time employees and whose positions are subject to the minimum educational training standards established by the South Dakota Law Enforcement Standards Commission. Deputy county sheriffs do not include jailers or clerks unless the participating governmental unit has requested that the jailer be considered as a deputy county sheriff and the South Dakota Retirement System Board of Trustees has approved the request. Law enforcement officers are agents of the State Division of Criminal Investigation, officers of the South Dakota Highway Patrol, municipal policemen, county sheriffs, deputy county sheriffs, or municipal firemen. Park rangers are employees of the Department of Game, Fish and Parks within the Division of Parks and Recreation, whose positions are subject to the requirements as to education and training provided by South Dakota law, and whose primary duty is law enforcement in the state park system. Parole agents are employees of the South Dakota Department of Corrections who are actually involved in direct supervision of parolees on a daily basis. Penitentiary correctional staff include the warden, deputy warden, guards, correctional supervisors, correctional officers, and their immediate supervisors of the South Dakota State Penitentiary and any other classification of Penitentiary employees approved by the South Dakota Retirement System Board of Trustees. Policemen are employees of the police department of a participating municipality holding the rank of patrolman, including probationary patrolmen, or higher rank, and whose position is subject to the minimum educational and training standards established by the South Dakota Law Enforcement Officers Standards Commission. A policeman does not include any person employed by a municipality whose service as a policeman requires less than 20 hours per week and six months per year. If a municipality that is a participating governmental unit operates a city jail, the participating unit may request that jailers be considered policemen, subject to the approval of the board of trustees.

The required member contribution for Class B members is 8 percent of compensation which is matched by the employer. However, the employer is required to pay the member's contribution. The normal retirement age for a Class B member is age 55. The normal retirement allowance for a Class B member other than a justice, judge, and magistrate judge is 2.325 percent of final compensation for each year of Class B credited service other than as a justice, judge, or magistrate judge before July 1, 2002, plus 2 percent of final compensation for each year of Class B credited service other than as a justice, judge, or magistrate judge after July 1, 2002. The normal retirement allowance for a Class A member is the larger of 1.625 percent of final compensation for each year of Class A credited service before July 1, 2002, plus 1.3 percent of final compensation for each year of Class A credited service after July 1, 2002, or 2.325 percent of final compensation for each year of Class A credited service before July 1, 2002, plus 2 percent of final compensation for each year of Class A credited service after July 1, 2002, less other public benefits.

For purposes of determining the benefits of Penitentiary correctional staff for credited service earned prior to July 1, 1978, benefits are calculated the same as for Class A members, and for credited service after July 1, 1978, benefits are calculated the same as for Class B members. For purposes of determining the benefits of county sheriffs and deputy county sheriffs for credited service earned before January 1, 1980, benefits are calculated the same as for Class A members, and for credited service after January 1, 1980, benefits are calculated using the formula for Class B members. For purposes of determining the benefits of parole agents for credited service earned before July 1, 1991, benefits are calculated using the formula applicable to Class A members, and for credited service after June 30, 1991, benefits are calculated using the formula applicable to Class B members. For purposes of determining the benefits of air rescue firefighters for credited service earned before July 1, 1992, benefits are calculated the same as for Class A members and for credited service after June 30, 1992, benefits are calculated using the formula applicable to Class B members.

South Dakota Codified Laws Annotated Section 3-12-92.6 provides for adjustments in allowance for retirees based on time and circumstances of retirement. Each member who retired before July 1, 2000, and each beneficiary of a deceased member who retired before July 1, 2000, is entitled to receive a retirement allowance based on the current law as applicable based on the member's final compensation, credited service, and other public benefits at retirement and the benefit formulas contained in current law when improved by the improvement factor from the date of retirement to July 1, 2000. In addition, each member or beneficiary of a member who retired before July 1, 1974, who is receiving benefits pursuant to a prior consolidated system is entitled to have that person's benefit increased by an additional 2 percent on July 1, 2000, in lieu of the increase provided in Section 3-12-92.6.

South Dakota Codified Laws Annotated Section 3-12-99 provides that the disability allowance for the first 36 months of the period of disability is 50 percent of the highest annual compensation earned in any one of the three years immediately preceding the date of disability, increased by 10 percent of compensation for each child to a maximum of four children. Beginning with the 37th month of disability, if the member is eligible for and receiving disability benefits from Social Security, the disability allowance is equal to the greater of the amount paid during the first 36 months less the amount of primary Social Security or the amount of a member's unreduced accrued retirement allowance as of the date of disability. The annual amount of a disability allowance may not be less than 20 percent of the compensation on which the initial disability allowance was based. Beginning with the 37th month of disability, if the member is not eligible for and receiving disability benefits from Social Security, the disability allowance is equal to the greater of 20 percent of the compensation on which the initial disability allowance was based or the amount of the member's unreduced accrued retirement allowance as of the date of disability.

Final compensation is the highest average annual compensation earned by a member during any period of 12 consecutive calendar quarters during the member's last 40 calendar quarters of membership in the system, including time during which the member was not a member but for which the member received credit under the system. However, if the compensation received in the last calendar quarter considered exceeds 125 percent of the amount in the highest previous calendar quarter or if the average compensation received in the last four calendar quarters exceeds 115 percent of the amount earned in the highest calendar quarter prior to the last four calendar quarters considered, only the lesser amount may be considered in computing the final compensation and the excess must be excluded in the computation.

Montana

The Montana Public Employees Retirement Board administers eight separate and distinct retirement systems. Four of the systems, excluding two firefighters' systems, may be characterized as public safety retirement systems--the Game Wardens' and Peace Officers' Retirement System, the Sheriffs' Retirement System, the Highway Patrol Officers' Retirement System, and the Municipal Police Officers' Retirement System.

The Sheriffs' Retirement System is governed by Montana Code Annotated Chapter 19-7. The Sheriffs' Retirement System is a multiple-employer, cost-sharing defined benefit plan that covers all Montana sheriffs and Department of Justice criminal investigators hired after July 1, 1993. The plan was established in 1974. Member rights are vested after five years of service.

For purposes of the Sheriffs' Retirement System, a sheriff is any elected or appointed county sheriff or undersheriff or any appointed, lawfully trained, appropriately salaried, and regularly acting deputy sheriff. An investigator is a person who is employed as a criminal investigator or as a gambling investigator for the Department of Justice. Each member is required to contribute 9.245 percent of the member's monthly compensation, and each employer is required to contribute monthly 9.535 percent of each member's gross compensation. However, the employer is required to pick up and pay the contributions for the member. A member who has completed at least 20 years of membership service may retire on a service retirement benefit. The amount of the service retirement benefit granted to a member is 2.5 percent of the member's final average salary for each year of service credited.

A member is entitled to a disability benefit based on the actuarial equivalent of the member's service retirement benefit standing to the member's credit at the time of the member's disability retirement. However, if the disability is a direct result of the member's service as a member in the line of duty, then the member is entitled to a benefit of one-half of the member's final average salary. A member is entitled to a postretirement annual benefit adjustment of 1.5 percent of the member's permanent monthly benefit.

The Game Wardens' and Peace Officers' Retirement System is governed by Montana Code Annotated Chapter 19-8. The Game Wardens' and Peace Officers' Retirement System is a multiple-employer, cost-sharing defined benefit plan that covers state game wardens and state peace officers not eligible to join the Public Employees Retirement System, Sheriffs' Retirement System, Highway Patrol Officers' Retirement System, or the Municipal Police Officers' Retirement System. This plan was established in 1963. Member rights are vested after five years of membership service.

Eligible members of the Game Wardens' and Peace Officers' Retirement System include game wardens who are assigned to law enforcement in the Department of Fish, Wildlife, and Parks; motor carrier officers employed by the Department of Transportation; campus security officers employed by the University System; wardens and deputy wardens employed by the Department of Corrections; corrections officers employed by the Department of Corrections; probation and parole officers employed by the Department of Corrections; stock inspectors and detectives employed by the Department of Livestock; motor vehicle inspectors employed by the Department of Justice; and drill instructors employed by the Department of Corrections. Game wardens include state fish and game wardens hired by the Department of Fish, Wildlife, and Parks and include all warden supervisory personnel whose salaries or compensation is paid out of Department of Fish, Wildlife, and Parks money. Motor carrier officers are defined as employees of the Department of Transportation appointed as a peace officer, and a peace officer or a state peace officer is defined as a person who by virtue of that person's employment with the state is vested by law with a duty to maintain public order or make arrests for offenses while acting within the scope of that person's authority or who is charged with specific law enforcement responsibilities on behalf of the state.

Each member is required to contribute 8.5 percent of the member's monthly compensation between July 1, 2001, and September 30, 2001. Beginning October 1, 2001, the member contribution is increased to 10.56 percent of the member's monthly compensation. State employers are required to contribute 9 percent of the total compensation paid to their covered employees. However, the employer is required to pick up and pay the member's contribution. A member who has completed at least 20 years of membership service and reached age 50 is entitled to a service retirement benefit of 2.5 percent of the member's final average salary for each year of service credit. A member who is determined by the Montana Public Employees Retirement Board to be disabled is entitled to a disability retirement benefit in an amount calculated based on the actuarial equivalent of the service retirement benefits standing to the member's credit at the time of the member's disability retirement. However, if the disability is a direct result of service to the state in the line of duty and the member has at least five years of membership service, the member who is disabled must be retired on a disability retirement benefit of not less than one-half of the member's final average salary. An eligible recipient is entitled to a guaranteed annual benefit adjustment of 1.5 percent of the member's permanent monthly benefit.

The Municipal Police Officers' Retirement System is governed by Montana Code Annotated Chapter 19-9. The Municipal Police Officers' Retirement System is a multiple-employer, cost-sharing defined benefit plan that covers police officers employed by first-class and second-class cities and other cities that wish to adopt the plan. The plan was established in 1975. Membership rights are vested after five years of membership service.

A member's contribution is based upon the date the member was first employed as a police officer. For members first employed on or before June 30, 1975, the contribution rate is 5.8 percent; for members first employed after June 30, 1975, the contribution rate is 7 percent; for members first employed after June 30, 1979, but before July 1, 1997, the contribution rate is 8.5 percent; and for members first employed on and after July 1, 1997, the contribution rate is 9 percent. The employer contribution is 14.41 percent of the compensation paid to all active members. The employer is required to pick up and pay the member contributions. In addition to the member and employer contribution, the state of Montana contributes 29.3 percent of compensation paid to members of the Municipal Police Officers' Retirement System. A member is eligible to receive a service retirement benefit when the member has completed 20 years or more of membership service and has terminated service. A member who terminates service after completing at least five years of membership service but before completing 20 years of membership service is eligible to receive a service retirement benefit when the member has reached age 50. The monthly benefit formula is 2.5 percent of final average compensation for each year of service credit. If a member is determined by the Montana Public Employees Retirement Board to be disabled, the member is entitled to a disability retirement benefit regardless of the length of the member's service, commencing on the day following the member's termination from service. A member who becomes disabled before earning 20 years of service credit is entitled to receive a disability retirement benefit equal to one-half of the member's final average compensation. A member who becomes disabled but who, at the time of the member's injury or disability, was eligible at the member's option to be retired but had elected to serve years in excess of 20 years of service credit and was then serving additional years is entitled to be paid for the additional years. A retiree is entitled to a guaranteed annual benefit adjustment of 1.5 percent of the retiree's permanent monthly benefit.

The Highway Patrol Officers' Retirement System is governed by Montana Code Annotated Chapter 19-6. The Highway Patrol Officers' Retirement System is a single-employer, defined benefit plan that covers all Montana Highway Patrol officers, including supervisory personnel. The plan was established in 1971. Member rights are vested after five years of membership service.

All members of the Montana Highway Patrol, including the supervisor and assistant supervisors, are required to be members of the Highway Patrol Officers' Retirement System. Members hired before July 1, 1997, are required to contribute 9 percent of the member's monthly compensation, and members hired after June 30, 1997, are required to contribute 9.05 percent of the member's monthly compensation. The state is required to contribute 36.33 percent of the total compensation paid to the members, 26.15 percent of this amount is payable from the same source that is used to pay compensation to the members, and 10.18 percent is payable from a portion of the fees from driver's licenses and duplicate driver's licenses. However, the state is required to pick up and pay the member contributions. A member is eligible to receive a service retirement benefit after completing 20 years or more of membership service. The service retirement benefit is 2.5 percent of the member's final average salary for each year of service credit. A member is entitled to a disability retirement benefit that is the actuarial equivalent of the service retirement benefit standing to the member's credit at the time of the member's disability retirement. However, if the disability is a direct result of service to the Montana Highway Patrol in the line of duty, then the member who is disabled must be retired on a disability retirement benefit of one-half of the member's final average salary regardless of the member's length of service. A retiree is entitled to a guaranteed annual benefit adjustment of 1.5 percent.

Minnesota

Minnesota has several retirement systems governing various categories of public safety personnel. These include the correctional plan within the Minnesota state retirement system, the State Patrol plan within the Minnesota state retirement system, the police and fire plan within the Minnesota Public Employees Retirement Association, and the correctional plan within the Minnesota Public Employees Retirement Association.

The Minnesota correctional plan within the Minnesota state retirement system is governed by Minnesota Statutes Sections 352.90 through 352.97. Section 352.90 outlines the legislative policy concerning correctional employees. This section states that it:

Employees employed at a state correctional facility, the Minnesota security hospital, or the Minnesota sexual psychopathic personality treatment center as a corrections officer 1, corrections officer 2, corrections officer 3, corrections officer supervisor, corrections officer 4, corrections captain, security counselor, or security counselor lead are eligible members. In addition, employees employed at correctional facilities as maintenance or trade personnel, special teachers, security guards, nursing personnel, and various other classifications of employment are members.

Employees are required to contribute 5.69 percent of salary and employers are required to contribute 7.98 percent of salary. Employees who have reached age 55 and have credit for at least three years of covered correctional service are entitled to a retirement annuity based on covered correctional service. The monthly annuity is determined by multiplying the average monthly salary by the number of years or completed months of covered correctional service by 2.4 percent. A covered correctional employee who is at least 50 years old and who has at least three years of allowable service is entitled to early retirement at a retirement annuity reduced by two-tenths of 1 percent for each month that the correctional employee is under age 55 at the time of retirement. A covered correctional employee who has become disabled and physically unfit to perform the duties of the position as a direct result of injury, sickness, or other disability incurred in or arising out of an act of duty is entitled to a disability benefit based on covered correctional service. The disability benefit is 50 percent of the average salary plus an additional percent equal to 2.4 percent for each year of covered correctional service in excess of 20 years, 10 months, prorated for completed months. A covered correctional employee who has at least one year of covered correctional service and who becomes disabled and physically or mentally unfit to perform the duties of the position because of sickness or injury occurring while not engaged in covered employment is entitled to a disability benefit based on covered correctional service only.

The Minnesota State Patrol plan is governed by Minnesota Statutes Chapter 352B. Eligible members include state troopers, conservation officers currently employed by the state, crime bureau officers, certain employees of the Department of Public Safety, and public safety employees defined as peace officers and employed with the Division of Alcohol and Gambling Enforcement. Members are required to contribute 8.40 percent of salary while employers are required to pay 12.60 percent of salary. Members who are credited with three or more years of allowable service are entitled to normal retirement at age 55. The normal retirement annuity is determined by multiplying the average monthly salary of the member by 3 percent for each year and pro rata for completed months of service. A member who is age 50 and who has at least three years of allowable service is entitled to an early retirement benefit equal to the normal retirement annuity reduced by one-tenth of 1 percent for each month the member is under age 55 at the time of retirement. A member who becomes disabled and physically or mentally unfit to perform duties as a direct result of an injury, sickness, or other disability incurred in or arising out of an act of duty is entitled to receive a disability benefit while disabled. The disability benefit is equal to the member's average monthly salary multiplied by 60 percent, plus an additional 3 percent for each year and pro rata for completed months of service in excess of 20 years. If a member with at least one year of service becomes disabled because of sickness or injury occurring while not on duty and not engaged in state work, the member is entitled to a disability benefit based upon the normal retirement annuity. However, if the member with a non-work-related disability has less than 15 years of service, the disability benefit must be computed as though the member had 15 years of service.

The Minnesota Public Employees Retirement Association includes a police and fire retirement plan and a correctional plan. The police and fire plan is governed by Minnesota Statutes Sections 353.63 through 353.88. Section 353.63 outlines the policy of the state regarding retirement benefits for public safety personnel. This section provides that it:

The police and fire plan was established in 1959. Beginning in 1980, all new police officers and firefighters in Minnesota were automatically enrolled in the police and fire plan. In 1987 the Public Employees Retirement Association police and fire consolidated plan was formed, and most of Minnesota's local police and fire relief associations joined. This plan was merged into the Public Employees Retirement Association police and fire plan in 1999. The Public Employees Retirement Association police and fire plan has more than 10,000 members.

Full-time police officers or persons in charge of a designated police or sheriff's department who by virtue of that employment are required by the employing governmental subdivision to be and are licensed by the Minnesota Peace Officer Standards and Training Board and who are charged with the prevention and detection of crime, who have the full power of arrest, who are assigned to a designated police or sheriff's department, and whose primary job is the enforcement of the general criminal laws of the state, and full-time firefighters or persons in charge of a designated fire company or companies who are engaged in the hazards of firefighting are eligible to join the police and fire plan. Other employees that may be eligible to be members of the police and fire plan include certain public safety employees of the Metropolitan Airports Commission, certain metropolitan transit police officers, certain State Military Affairs Department firefighters, certain sheriffs' association employees, Hennepin County paramedics and emergency medical technicians, and certain tribal police officers exercising state arrest powers.

Employees are required to contribute 6.2 percent of total salary, and employers are required to contribute 9.3 percent of the total salary of each member. Upon separation from public service, a police officer or firefighter member who has attained age 55 and who has received credit for not less than three years of allowable service is entitled to a normal retirement annuity. The normal retirement annuity is the average salary multiplied by 3 percent per year of allowable service. A police officer or firefighter who is at least 50 years old and who has at least three years of allowable service is entitled to an early retirement annuity equal to the normal annuity reduced by one-tenth of 1 percent for each month that the member is under age 55 at the time of retirement. If a member becomes disabled in the line of duty, the member is entitled to a disability benefit of 60 percent of the average salary plus an additional 3 percent of average salary for each year of service in excess of 20 years. However, if the disability occurs before the member has at least five years of allowable service credit in the police and fire plan, the disability benefit is computed on the average salary from which deductions were made for contributions to the police and fire fund.

Recognizing the special, demanding nature of the work correctional officers perform every day in inmate facilities across the state of Minnesota, the Minnesota Legislature created a new Public Employees Retirement Association plan for correctional officers in 1999. This plan has over 2,500 members. The correctional plan is governed by Minnesota Statutes Chapter 353E. The Public Employees Retirement Association correctional plan covers local government correctional service employees. Eligible members are employees employed in a county correctional institution as a correctional guard or officer, a joint jailer/dispatcher, or as a supervisor of correctional guards or officers or of joint jailers/dispatchers; directly responsible for the direct security, custody, and control of the county correctional institution and its inmates; expected to respond to incidents within the county correctional institution as part of that person's regular employment duties and is trained to do so; and is a public employee but not a member of the public employees police and fire fund. A county correctional institution is defined as a jail administered by a county, a correctional facility administered by a county, or regional correctional facility administered by or on behalf of multiple counties.

Members are required to contribute 6.01 percent of salary, and employers are required to contribute 9.02 percent of salary. Employees who have attained at least age 55 and have credit of not less than three years of coverage in the local government correctional service plan are entitled to a normal retirement annuity. The normal retirement annuity is the employee's average salary multiplied by 1.9 percent for each year of allowable service. An employee who has attained at least age 50 and has credit for not less than three years of coverage in the local government correctional service plan is entitled to a reduced retirement annuity equal to the normal annuity amount reduced so that the reduced annuity is the actuarial equivalent of the annuity that would be payable if the employee deferred receipt of the annuity from the day the annuity begins to accrue until age 55. A member who becomes disabled and physically or mentally unfit to perform the duties of the position as a direct result of an injury, sickness, or other disability that was incurred or arose out of any act of duty entitled to a disability benefit. The disability benefit is based on covered service and is an amount equal to 47.5 percent of the average salary plus an additional 1.9 percent for each year of covered service in excess of 25 years. A local government correctional employee who has at least one year of covered service and who becomes disabled and physically or mentally unfit to perform the duties of the position because of sickness or injury that occurs while not engaged in covered employment is also entitled to a disability benefit. This disability benefit must be computed in the same manner as the normal retirement annuity as though the employee had at least 10 years of covered correctional service.

Kansas

Kansas has one retirement plan that may be characterized as a law enforcement retirement plan. Kansas Statutes Annotated Section 74-49-51 provides that the purpose of the Kansas Police and Firemen's Retirement System is to provide an orderly means whereby police and firemen employed by participating employers and who have attained retirement age or who have become disabled may be retired from active service without prejudice and without inflicting a hardship on the employees retired and to enable them to accumulate reserves for themselves and their dependents to provide for old age, disability, death, and termination of employment, and for the purpose of effecting economy and efficiency in the administration of governmental affairs.

Employees of the Kansas Highway Patrol and Kansas Bureau of Investigation are required to be members of the Kansas Police and Firemen's Retirement System. Board of Regents institutions and any county, city, township, or other political subdivision of the state which employs one or more employees as police officers, firefighters, emergency medical technicians, or campus police are eligible to affiliate with the system. The system currently has 10,175 members from 69 state and local agencies. For purposes of the system, police officer means an employee assigned to a police department whose principal duties are engagement in the enforcement of law and maintenance of order within the state and its political subdivisions, including sheriffs and sheriffs' deputies, and who has successfully completed the required course of instruction for law enforcement officers approved by the Kansas Law Enforcement Training Center. In addition, members are classified as either Tier I or Tier II members. Tier I members are members who were employed prior to July 1, 1989, and who did not elect Tier II coverage. Tier II members are members who were employed prior to July 1, 1989, who did elect Tier II coverage as well as all members employed on or after July 1, 1989. Finally, some current members may also be considered either Tier I or Tier II transfer or Brazelton members. Transfer members are members who are former members of a local plan who elected to participate in the Kansas Police and Firemen's Retirement System. Brazelton members are members who participated in a class action lawsuit, Brazelton v. Kansas Public Employees Retirement System, 227 K.443, 607 P.2d 510 (1980), whose contributions are lower and whose benefits are offset by Social Security. Corrections employees are members of the Kansas Public Employees Retirement System, but their benefits are calculated differently from those of noncorrections employees.

Contribution rates vary according to the classification of membership. Tier I and Tier II members contribute 7 percent of compensation, except in the case of a member whose employment is covered by Social Security and the member is a member of the class certified in the case of Brazelton v. Kansas Public Employees Retirement System, 227 K.443, 607 P.2d 510 (1980), the employee contribution is reduced by the amount of the member's contribution to Social Security. The current contribution rate for Brazelton members is .008 percent. Also, the employee contribution for Tier I and Tier II members is reduced to 2 percent after attaining 32 complete years of service.

Employer contribution rates fluctuate and are determined separately for each employer. Kansas Statutes Annotated Section 74-49-67 provides that upon the basis of an annual actuarial valuation and appraisal of the system, the Kansas Public Employees Retirement System Board of Trustees shall certify, on or before July 15 of each year, to each participating employer an actuarially determined estimate of the rate of contribution that is required to be paid by each participating employer to pay all the liabilities that are to accrue under the system from and after the entry date as determined by the board upon recommendation of the actuary. The rate must be uniform for all participating employers and must be comprised of a rate for benefits accruing after June 30, 1993, and a rate for amortization of the additional liability for benefits provided by the system which is attributable to service rendered before July 1, 1993. Additional liability must be amortized over a period of 40 years commencing on July 1, 1993, by annual payments that increase 4 percent for each year remaining in the amortization. The employer's rate of contribution determined under this section does not include the cost of administration of the system. For fiscal year 2002, July 1, 2001, through June 30, 2002, the employer contribution rates are 9.13 percent for the Kansas Highway Patrol, 7.76 percent for the Kansas Bureau of Investigation, 6.65 percent for the Kansas Board of Regents, and various rates for local employers.

Tier I members vest after 20 years of service credit, and Tier II members vest after 15 years of service credit. The retirement benefit is calculated using a formula of final average salary times a statutory multiplier times years of service. The current statutory multiplier is 2.5 percent. Final average salary for members who were hired before July 1, 1993, is the average of the three highest years of the last five years of employment, including additional compensation such as sick leave and annual leave. Final average salary for members hired on or after July 1, 1993, is the average of the three highest of the last five years of employment with no additional compensation included.

A member is not permitted to retire for age and service and receive retirement benefits before having contributed to the retirement system for at least 12 months. Age and service retirement benefits cannot exceed 80 percent of final average salary. The normal retirement age and service requirement for a Tier I member is 55 years with 20 years of service credit, and the early retirement date for a Tier I member is 50 years with 20 years of service credit. The normal retirement date for a Tier II member is 50 years with 25 years of service credit, 55 years with 20 years of service credit, or 60 years with 15 years of service credit. The early retirement date for a Tier II member is 50 years with 20 years of service credit. The retirement date for a transfer member is age 50 with 25 years of service and reduced benefits are available at age 50 with 20 years of service.

A member may choose several retirement options, including a maximum benefit with no survivor, joint and survivor, life certain, and partial lump sum options. Disability benefits are based upon whether the disability was job-related, the classification of the member, and whether the member has children. For a Tier I member whose disability is job-related, the disability benefit is 50 percent of final average salary plus 10 percent for each eligible dependent to a maximum benefit of 75 percent of final average salary. If there is no dependent, the disability benefit is the higher of 50 percent of final average salary or 2.5 percent for each year of service credit, to a maximum of 80 percent of final average salary. For a Tier II member, the disability benefit is 50 percent of final average salary with service credit to normal retirement. However, benefits are offset $1 for every $2 of earnings over $10,000.

Death benefits are based upon whether the member was active or inactive, whether the death was service or non-service-connected, and whether the member was receiving disability benefits at the time of death. If the death was job-related and there is a surviving spouse or children, the spouse receives 50 percent of final average salary until death. Each child, up to age 18 or up to age 23 if a full-time student, receives 10 percent of final average salary. The total may not exceed 75 percent of final average salary. If the death was non-job-related and there is a surviving spouse or children, the spouse receives a lump sum payment of 100 percent of final average salary plus a monthly benefit of final average salary times 2.5 percent times years of service up to a maximum of 50 percent of final average salary. If there is no surviving spouse or child, the death benefit is 100 percent of current annual salary less refundable contributions and interest to a named beneficiary.

Correctional officers are members of the Kansas Public Employees Retirement regular system, but their benefits are calculated differently. For purposes of determining benefits, correctional officer members are classified as either Group A or Group B members. Group A members are persons certified to the board of trustees by the Secretary of Corrections and who are employees of the Department of Corrections and who are in a position in a job class in the corrections officer class series, including corrections officer I, corrections officer II, corrections supervisor I, corrections supervisor II, and corrections supervisor III or in a position in the corrections counselor I, corrections counselor II, unit team supervisor, or corrections classification administrator job class, or who are promoted from one of these positions to a position in a job class of warden or deputy warden of a correctional institution, work release supervisor, training officer correctional institutions, or corrections administrator security specialist if the person was employed and had at least three consecutive years of service in any one or more positions in the job classes described above immediately preceding promotion to the position in a job class of warden, deputy warden, work release supervisor, training officer, or corrections administrator security specialist. Group B members are persons certified to the board by the Secretary of Corrections who are employed by the Department of Corrections and who are in a position for which the duties and responsibilities directly and primarily involve operation of power plant facilities within a correctional institution and involve regular contact with inmates, who are in a position for which the duties and responsibilities directly and primarily involve the operation of the correctional industries activity of the Department of Corrections within a correctional institution and involve regular contact with inmates, who are in a position for which the duties and responsibilities directly and primarily involve supervision of food service operations within a correctional institution and involve regular contact with inmates, or who are in a position for which the duties and responsibilities directly and primarily involve supervision of maintenance operations within a correctional institution and involve regular contact with inmates.

A member is required to contribute 4 percent of gross earnings and, as with the Police and Firemen's Retirement System, the employer contribution rate is set by the board. For fiscal year 2002, the employer rate is 7.44 percent for Group A members and 6.27 percent for Group B members. The retirement benefit formula is final average salary times a statutory multiplier times years of service. The statutory multiplier is 1.75 percent for participating service and 1 percent for prior service. For members hired on or after July 1, 1993, final average salary is the average of the three highest years of employment excluding additional compensation such as sick leave and annual leave. For members hired before July 1, 1993, final average salary is the greater of either a four-year final average salary, including additional compensation, such as sick leave and annual leave, or a three-year final average salary excluding additional compensation.

A Group A member is entitled to a normal retirement benefit at age 55 or at any age when the member's age and years of service combined equal 85. An early retirement benefit is available at age 50 with 10 years of service. The early retirement reduction factor is .2 percent for each month under age 55. A member must have been employed for three years immediately before retirement to receive a benefit. A Group B member is entitled to normal retirement benefits to age 60 or at any age when the member's age and years of service combined equal 85. An early retirement benefit is available at age 55 with 10 years of service. The early retirement reduction factor is .2 percent for each month under age 60. A Group B member must have been employed for three years immediately before retirement.

Disability benefits are available to members who are totally disabled for 180 consecutive days and who no longer receive compensation from their employer. The annual benefit is equal to two-thirds of the member's annual salary less Social Security and any other employer-provided disability benefits. The minimum monthly benefit is $100. The member is also entitled to service credit for the period of approved disability, and when determining retirement benefits, the final average salary is recalculated if the member is disabled for at least five years.

If death is not job-related, the named beneficiary is entitled to the actual contributions and interest and employer-provided life insurance equal to 150 percent of the member's salary at the time of death. If the member met the age and service requirements to retire at the time of death and the spouse is the sole named beneficiary, the spouse may elect to receive monthly benefits under a survivor option in lieu of receiving a return of the contributions plus interest in a lump sum. If a member with 15 or more years of service dies and was not of retirement age and the spouse is the sole beneficiary, then the spouse can elect one of the survivor options at the time the member would have first been of retirement age. If the death is job-related, the spouse and children under age 18, or up to age 23 if full-time students, or dependent parents, in this order of preference, are entitled to a $50,000 lump sum payment and a monthly amount based on 50 percent of the member's final average salary subject to reduction for benefits received under workers' compensation. This benefit is in addition to the insured death benefit and the return of contributions plus interest as for non-job-related deaths. The minimum job-related death benefit is $100 per month.

Effective July 1, 2001, at retirement, a member may elect to receive a lump sum payment of up to 50 percent of the actuarial present value of the member's monthly retirement benefit. The monthly retirement benefit is then reduced accordingly. There are six different survivor options available at retirement, with "pop-up options" to the maximum amount allowed when a survivor predeceases the retired member. If survivor benefits are not payable, the named beneficiary is entitled to the return of any contributions and interest remaining in the member's account.

There is a 30-day waiting period following a member's effective date of retirement before the member may go back to work for a participating employer. If a retired member returns to work for the same employer for whom the member worked during the last two years of participation, the retired member may continue to receive retirement benefits and continue to work until earnings equal $15,000 in a calendar year. At that point, the retired member must either forfeit retirement benefits for the remainder of the calendar year or stop working for the remainder of the calendar year.

Nebraska

The Nebraska Public Employees Retirement Systems administers five statewide retirement plans and one deferred compensation plan for the state of Nebraska. Three of the five statewide plans are defined benefit plans and the other two are defined contribution plans. However, only one of the plans may be characterized as a law enforcement retirement plan--the Nebraska State Patrol Retirement System.

The Nebraska State Patrol Retirement System is a defined benefit retirement plan. Every sworn officer of the Nebraska State Patrol who is employed on or after September 7, 1947, is a member of the system. Employees are required to contribute 11 percent of their gross salary which is matched by the state. The maximum retirement benefit payable is 75 percent of the retiree's final average monthly salary. Therefore, 25 years is the maximum number of years that apply toward retirement benefit calculations. If employees work more than 25 years, the extra years do not increase retirement benefits, but if during those years the salary increases, the final average monthly salary used to calculate benefits increases.

Members are entitled to a normal retirement at age 55 with 10 or more years of service. The retirement formula is 3 percent times years of service equals percent of final average monthly salary (or 3% x service = % of final average salary). Members are entitled to early retirement if they are at least age 50 but not yet age 55 and if they have 10 or more years of service. Benefits are calculated using the normal formula reduced by five-ninths of 1 percent for each month the member's age precedes age 55 or five-ninths of 1 percent for each month the member's years of service precedes 25 years, whichever provides the member with the greater benefit.

Members who are disabled are entitled to a disability retirement benefit. Disability is defined as the complete inability of the patrol officer, for reasons of accident or illness, to perform the duties of a patrol officer. There is no age reduction for disability benefits, and the disability retirement benefit is 50 percent of the member's regular monthly salary at the date the member became disabled if the member had 17 years of service or less. If the member had more than 17 years of service at the time of disability, the amount of the disability benefit is calculated based upon a formula of years of service times 3 percent times salary at date of disablement equals the calculated benefit amount (or service x 3% x salary = benefit). However, by law, the calculated benefit amount may not exceed 75 percent of the final average monthly salary, which is the maximum benefit for a normal retirement.

Members are also entitled to death benefits. If death occurs before retirement, benefits are calculated as if the member had retired under disability. The surviving spouse and dependent children under age 19, in the spouse's care, are entitled to receive 100 percent of the member's benefit as calculated for disability retirement until the youngest dependent child reaches age 19. At that time the spouse's benefit is reduced to 75 percent of the member's benefit for the spouse's life or until the spouse remarries. If the spouse remarries or dies before the youngest dependent child reaches age 19, the child's benefit is reduced to 75 percent of the member's benefit until age 19. If there is no spouse living at the date of the member's death, either because of death or divorce, the member's children under age 19, if any, are entitled to receive 75 percent of the member's benefit until the youngest child attains the age of 19. If there is more than one child under age 19 at the date of the member's death, the benefit is divided equally among the children. If there are no children under age 19 living at the time of the member's death, the surviving spouse receives 75 percent of the member's benefit for life or until remarriage. If there is no spouse or children under age 19, a lump sum payment of the member's contributions and interest is paid to a designated beneficiary, or the member's estate if there is no designated beneficiary. If death occurs after retirement, the member's regular benefit continues to the member's spouse and or children at the same percentages that apply to death before retirement. A surviving spouse is eligible to receive benefits only if married to the member at the time the member retires. If the member does not have a spouse or children under age 19, the balance is paid to the member's beneficiary or estate. Members are not covered by Social Security.

Wyoming

Wyoming has two retirement plans that apply to law enforcement officers. Certain law enforcement officers are entitled to enhanced benefits under the Wyoming Retirement Act, and law enforcement officers employed as highway patrolmen, game and fish wardens, and criminal investigators may be members of the Wyoming State Highway Patrol, Game and Fish Warden, and Criminal Investigator Retirement System. For purposes of the enhanced benefits under the Wyoming Retirement Act, law enforcement officers are members who are employed as county sheriffs, deputy county sheriffs, municipal police officers, University of Wyoming campus police officers, jailers, or dispatchers for law enforcement agencies. Law enforcement members pay an additional 3.73 percent of their salary in addition to the 5.57 percent contribution rate required by the Wyoming retirement system. The additional 3.73 percent is an employee-only contribution not matched by the employer and is refundable along with regular contributions and interest if the member chooses to withdraw from the retirement system at termination. The employer contribution is 5.68 percent of salary. In addition, the state is required to pick up and pay the employees' contributions, and political subdivisions may pay their employees' contributions.

Normal retirement benefits for a law enforcement officer are payable when the officer has at least four years of service credit as a law enforcement officer and is at least 60 years of age, has at least 25 years of service credit as a law enforcement officer and is at least 50 years of age, or is at least 55 years of age and has a combined total years of service credit and years of age that equals at least 75. Early retirement benefits are payable to a law enforcement officer who has at least four but less than 25 years of service credit and is at least age 50 but not yet 60 years of age or is less than 50 years of age and has at least 25 years of service credit as a law enforcement officer.

The normal retirement benefit for a member who first becomes covered under the Wyoming Retirement Act after June 30, 1981, is equal to 2.125 percent of the highest average salary multiplied by the member's years of service credit for the first 15 years of service credit and 2.25 percent of the highest average salary multiplied by the member's years of service credit for any years of service credit exceeding 15 years. The retirement benefit for a member with service after March 31, 1953, but before July 1, 1981, is equal to a monthly benefit amount based on the actuarial equivalent of double the member's account with any applicable increase or 2.125 percent of the member's highest average salary multiplied by the member's years of service credit for the first 15 years of service credit and 2.25 percent of the member's highest average salary multiplied by the member's years of service credit for years of service credit exceeding 15 years.

The Wyoming Retirement Act also provides for retirement benefit adjustments. Effective July 1, 2001, and on each July 1 thereafter, any retirement benefit, survivor benefit, or disability benefit received by eligible individuals is to be adjusted. Before each July 1, the Retirement Board is to determine the percentage increase in the cost of living for the preceding calendar year. The percentage increase in the cost of living for a calendar year is equal to the annual percentage increase in the cost of living as of the immediately following January 1 as shown by the Wyoming cost-of-living index as determined by the Division of Economic Analysis of the Department of Administration and Information. The benefits existing on each July 1 for each eligible individual must be increased by the lesser of the percentage increase in the cost of living as determined by the board or 3 percent. The amount of any percentage increase in the cost of living that exceeds 3 percent must be accumulated and added to the percentage increases in the cost of living for future years. An individual who has been receiving applicable benefits, for at least two years, either alone or in combination with a member, if the individual is a survivor, is eligible for these benefits. An increase in benefits under this provision is effective only upon a determination by the system's actuary that the increase is actuarially sound. The actuary must annually report its determination pursuant to this provision to the Governor and the joint appropriations interim committee, and the total benefit adjustment under this provision may not exceed 3 percent in any one year.

If a member dies before retirement under the system, the member's account plus an additional amount equal to the member's account must be paid to the member's designated beneficiaries or in the absence of designated beneficiaries to the member's estate. If the member is vested, instead of a lump sum payment, a beneficiary may elect to receive the actuarial equivalent of the lump sum of any benefit for life which is available to a retired member. A beneficiary who is the surviving spouse of the deceased member and who elects to receive the actuarial equivalent of the lump sum as a life benefit may, within 18 months of the death of the member, elect to receive the lump sum death benefit otherwise provided plus interest accumulated on that account less any payments received by the surviving spouse. If a member receiving benefits or the member's beneficiary receiving retirement benefits dies before the total amount of benefits paid to either the member or the member's beneficiary or both equals the amount of the member's account at retirement, then the excess, if any, must be paid to any other named beneficiary, if any, or to the member's estate.

A member in service who has 10 or more years of service credit during which contributions have been paid because of illness or injury outside of or in the scope of employment or any law enforcement officer in service for whom contributions have been paid because of injury in the scope of employment may retire on account of a total or partial disability in accordance with rules adopted by the board. Upon retirement for a total disability, a member is entitled to receive a monthly disability retirement benefit for the period of the member's disability equal to 100 percent of the member's service retirement benefit as if the member were eligible for normal retirement benefits. Upon retirement for a partial disability, a member is entitled to receive a monthly disability retirement benefit for the period of disability equal to 50 percent of the normal retirement benefit payable to the member as if the member were eligible for normal retirement benefits. Disability benefits are payable for the life of the member or until the member is no longer disabled.

Persons employed by the Wyoming State Highway Patrol Division as sworn law enforcement officers, persons commissioned as full-time law enforcement officers of the Wyoming State Game and Fish Department, criminal investigators, and persons designated and appointed as capitol police are entitled to participate in the Wyoming State Highway Patrol, Game and Fish Warden, and Criminal Investigator Retirement System. For purposes of this plan, criminal investigator means a full-time special agent employed by the Division of Criminal Investigation of the Attorney General's office who is a sworn peace officer. Employees covered by this plan contribute 11.02 percent of salary. However, contributions are picked up by the member's employer. Employers are required to contribute 11.33 percent of all salaries paid to their employees.

Employees retiring with 25 or more years of service may elect to retire and receive a benefit upon attaining age 50. Employees in service who have attained age 65 must be retired not later than the last day of the calendar month in which their 65th birthday occurs.

The service retirement allowance payable to an employee at age 50 is equal to 2.5 percent of the employee's highest average salary for each year of credited service in the program, provided the retirement allowance does not exceed 75 percent of the highest average salary. Effective July 1, 2001, and on each July 1 thereafter, any service retirement allowance, survivor benefit, or disability benefit received by eligible individuals under the Wyoming State Highway Patrol, Game and Fish Warden, and Criminal Investigator Retirement System must be adjusted. Before each July 1, the board is required to determine the percentage increase in the cost of living for the preceding calendar year. The percentage increase in the cost of living for a calendar year is equal to the annual percentage increase in the cost of living as of the immediately following January 1 as shown by the Wyoming cost-of-living index as determined by the Division of Economic Analysis of the Department of Administration and Information. The benefits existing on each July 1 for each eligible individual must be increased by the lesser of the percentage increase in the cost of living as determined by the board or by 2.25 percent. The amount of any percentage increase in the cost of living that exceeds 2.25 percent must be accumulated and added to the percentage increases in the cost of living for future years. Individuals who have been receiving applicable benefits for at least two years, either alone or in combination with an eligible employee if the individual is a survivor, are eligible for the increased benefit. An increase in benefits under this provision is effective only upon a determination by the actuary of the Wyoming retirement system that the increase is actuarially sound. The actuary is required to report its annual determination under this provision to the Governor and joint appropriations interim committee. The total benefit adjustment under this provision may not exceed 2.25 percent in any one year.

A member who suffers a partial or total disability resulting from an individual and specific act, the type of which would normally occur only while employed as an employee, is eligible for a duty-connected disability allowance. If the specific act involves a traumatic event that directly causes an immediate cardiovascular condition resulting in partial or total disability, the employee is eligible for a partial or total duty-connected disability allowance. An employee with 10 years of credited service who suffers a partial or total disability and who is not eligible for a duty-connected disability allowance is eligible for an ordinary partial or total disability allowance. The determination of disability and its cause must be made by the board after receiving the recommendation of its medical committee. A disability allowance is 50 percent of the highest average salary for duty-connected or ordinary total disability, 35 percent of the highest average salary for duty-connected partial disability, or 25 percent of the highest average salary for ordinary partial disability.

If a member of the State Highway Patrol, Game and Fish Warden, and Criminal Investigator Retirement System dies as a result of an activity related to official duty as an employee prior to retirement, a monthly death benefit equal to 50 percent of the member's final actual salary at the time of death is paid to the surviving spouse. In addition, an amount equal to 5 percent of the final actual salary is paid as a benefit for each unmarried child under age 18, provided the total death benefit paid to the surviving spouse and children does not exceed the employee's final actual salary.

If a member dies before retirement and the member's death is not related to official duty as an employee, a monthly nonduty death benefit is paid to the surviving spouse, equal to 2 percent of the member's final actual salary at the time of death for each year of credited service. The maximum nonduty death benefit payable to a spouse may not exceed 50 percent of the member's final actual salary. In addition, an amount equal to 5 percent of the final actual salary must be paid as a benefit for each unmarried child under age 18. The total nonduty death benefit paid to the surviving spouse and children may not exceed 60 percent of the employee's final actual salary.

If a retired member of the retirement program dies, the spouse of the deceased member is entitled to receive a benefit equal to 50 percent of the retirement allowance. In determining the benefit to be paid to the spouse, no reduction due to Social Security may be taken into account. In addition, an amount equal to 5 percent of the final actual salary is paid as a benefit for each unmarried child under the age of 18 years. The total benefit paid to the surviving spouse and children on the death of the retired member in accordance with this provision may not exceed 60 percent of the employee's final actual salary.

Testimony and Committee Activities

The committee surveyed state agencies with law enforcement and corrections responsibilities to determine the number of employees who may be eligible to participate in a separate law enforcement and correctional officer retirement program. The committee learned that 37 employees of the Attorney General, three employees of the Highway Patrol, 71 employees of the Field Services Division of the Department of Corrections and Rehabilitation, 257 employees of the Prisons Division of the Department of Corrections and Rehabilitation, 12 employees of Roughrider Industries, and 31 employees of the Game and Fish Department--a total of 411 state employees--would be eligible to participate in a separate law enforcement and correctional officer retirement program.

The committee surveyed counties and cities to determine whether they participate in Social Security, whether they have an existing retirement plan separate from the Public Employees Retirement System, whether they would consider merging their plan with a new state law enforcement and correctional officer retirement plan, and the number of peace and correctional officers employed by that political subdivision. The committee learned that most counties participate in the Social Security system but not nearly as many cities participate, that most counties do not have an existing retirement plan separate from the Public Employees Retirement System, that whether a political subdivision would merge its retirement plan with a new state plan depends upon the cost of the plan and the benefits available under that plan, and that there are approximately 755.25 peace and correctional officers employed by political subdivisions who may be eligible to participate in a law enforcement and correctional officer retirement plan. However, the survey results were incomplete.

The Attorney General testified that the state must take steps to retain well-qualified and experienced peace officers in North Dakota. North Dakota law enforcement officials are well-respected in the law enforcement community, and out-of-state law enforcement agencies are actively recruiting North Dakota peace officers, often using better benefit packages to do so. The Attorney General testified that this actually increases law enforcement costs to North Dakota residents because of the training costs that are spent on officers who later leave the state. The Attorney General testified that providing additional salaries for law enforcement officers may be difficult, but that one solution to the recruitment and retention problem would be to review enhanced retirement benefits for law enforcement personnel in North Dakota.

The warden and director of the Prisons Division of the Department of Corrections and Rehabilitation testified that a retirement system that allows employees to retire after 20 years of service would increase public safety and aid the public safety agencies in the recruitment and retention of employees. Even though corrections officers must stay in good physical condition, a 60-year-old officer is no physical match for a young inmate. The committee received testimony that an earlier retirement age would permit older staff to retire once their physical skills diminish and would allow correctional and law enforcement agencies to replenish their workforce and keep it physically strong. The warden and director testified that the Department of Corrections and Rehabilitation has had 11 correctional officers retire during the past five years, with their average age at retirement being 62.9 years. Most of these employees remained in the workforce in order to attain the Rule of 85 and be able to retire with full retirement benefits. The average age of the inmate population is 29 years. The warden and director testified that the Prisons Division is having a difficult time attracting and retaining correctional officers at state facilities and a better retirement package would help in recruiting and retaining officers. Testimony indicated that an enhanced retirement program would also allow the Prisons Division to compete with other prison systems to keep their younger trained staff within the state system as it is losing employees to the Federal Bureau of Prisons and other state prison systems. Also, testimony indicated that older than average workers bring, on average, more workers' compensation claims for employment at the Prisons Division.

Representatives of the Game and Fish Department testified that game wardens perform physically demanding work, much of it outdoors and in inclement weather. Two game wardens have suffered fatal heart attacks while on the job in the last 10 years. Testimony indicated that a separate retirement system with a lower normal retirement age for law enforcement officers would enhance the morale and efficiency of the Game and Fish Department.

A representative of the North Dakota Sheriffs and Deputies Association testified that it is becoming increasingly difficult to attract quality applicants and to retain these individuals once they are employed in North Dakota, and a representative of the North Dakota Chiefs of Police Association testified that allowing law enforcement officers to retire earlier would result in lower workers' compensation rates because of fewer injuries on the job and also lessen a political subdivision's liability because older law enforcement officers are more likely to cause liability problems for political subdivisions.

The committee received testimony from the president of the North Dakota County Commissioners Association that a law enforcement and correctional officer retirement program may result in increased costs to counties and that the state should not mandate participation by political subdivisions without providing the financial resources to do so.

The committee reviewed the existing Public Employees Retirement System retirement plans to determine whether peace officers and correctional officers could be included in an existing plan. The committee determined the main system is not appropriate because the normal retirement age is 65 or the Rule of 85. The committee determined that the Highway Patrolmen's retirement system is not appropriate because members of the Highway Patrolmen's retirement system do not participate in the federal Social Security system, and thus their benefits as well as contributions are much higher than for the main system. The committee noted the normal retirement age for the National Guard retirement system is 55 and that these members participate in the federal Social Security system, the same as state law enforcement and correctional officers who would be eligible for a separate plan.

The committee considered a bill draft relating to participation by peace officers and correctional officers in the defined benefit retirement plan and the defined contribution retirement plan. The bill draft provided that peace officers and correctional officers participating in the defined benefit retirement plan or the defined contribution retirement plan who have completed at least three consecutive years of employment as a peace officer or correctional officer immediately preceding retirement would be able to retire at age 55. Under the bill draft, peace officers and correctional officers would be included in the National Guard retirement plan because members of the National Guard retirement plan have a normal retirement age of 55 and they participate in the federal Social Security system. The multiplier would be the same as that for other members of the defined benefit retirement plan, 2.0 percent. Participants would be required to contribute 4 percent of monthly salary and employers would be required to contribute an amount determined by the Retirement Board to be actuarially required to support the level of benefits provided. Employers would be authorized to "pick up" and pay the employee's assessment. For purposes of the bill draft, peace officer is defined as a participating member who is a peace officer as defined in NDCC Section 12-63-01 and is employed as a peace officer. Section 12-63-01(4) defines a peace officer as a public servant authorized by law or by a government agency or branch to enforce the law and to conduct or engage in investigations of violations of the law. The bill draft defined a correctional officer as a participating member who is certified by the Department of Corrections and Rehabilitation or the Peace Officer Standards and Training Board as a correctional officer and is employed by the Department of Corrections and Rehabilitation or a political subdivision. The bill draft provided that political subdivisions, on behalf of their peace officers and correctional officers separately from their other employees, may enter an agreement with the Retirement Board for the purpose of extending the benefits of the Public Employees Retirement System to those employees. In addition, political subdivisions having existing police pension plans may merge those plans into the Public Employees Retirement System under rules adopted by and in a manner determined by the Retirement Board. Eligible employees could join the defined contribution retirement plan with the same contributions that apply to the defined benefit retirement plan.

The consulting actuary for the Public Employees Retirement System determined the value of the current benefits of the 411 members of the Public Employees Retirement System who would become peace officer or correctional officer members of the National Guard retirement system. The consulting actuary then determined the normal cost and accrued liability, as of July 1, 2001, for these members under both plans. The following table sets forth these calculations:

The table shows there is an increase in both the normal cost and accrued liability for the participants affected. This is due to the earlier retirement eligibility provisions of the National Guard retirement plan.

The consulting actuary reported that assuming all eligible members participate in the National Guard retirement plan and that all past service is credited under the plan, an asset transfer representing the value of service accrued under the main system would occur. The consulting actuary reported there are two methods commonly used when determining the value of this asset transfer. The first considers a transfer equal to the actuarial accrued liability of the group transferring to the National Guard retirement plan. Of the 411 participants identified by the Public Employees Retirement System staff, the consulting actuary found 381 members with benefits accrued under the main system as of July 1, 2001. Under the first asset transfer calculation method, the asset transfer equals the actuarial accrued liability for the eligible group, that is $15,915,203 as of July 1, 2001. This amount would need to be adjusted for the actual transfer date as well as any changes in the eligible group. Under the alternative method an amount equal to the accrued liability adjusted by the current funded ratio would be transferred. As of July 1, 2001, the plan had a funded ratio of 110.6 percent, resulting in a transfer amount of $17,602,215. The consulting actuary reported that it is important to note, due primarily from investment performance, that the funded ratio of the system at the actual date of the transfer may be materially different. Under the second method the consulting actuary said it would recommend that either the transfer coincide with the next actuarial valuation, when a full remeasurement of the funded ratio would occur, or that the latest valuation liabilities be rolled forward to the transfer date and used with the latest asset information to develop an interim estimate of the funded position as of the transfer date.

The consulting actuary reported that under either of the asset transfer methods, the transfer is less than the value of the benefits accrued under the National Guard retirement plan and results in an unfunded actuarial accrued liability. The following table shows the contributions required of employers of the transferring participants under both asset transfer calculation methods and varying amortization periods. These rates are determined without reflecting the current surplus position of the National Guard retirement plan and assuming the administrative expense allowance of the main system.

This table demonstrates that the Public Employees Retirement System Retirement Board mandated employer contribution rate of 8.33 percent is sufficient to meet the funding requirements under all variations except that using the first asset transfer calculation method and the 10-year amortization of the resulting unfunded liability. These results reflect an approach that would differentiate future employer costs between the current membership and the transferring group. This approach results in additional administrative work, data, and actuarial expense due to developing two specific employer contribution requirements, one for the current participants, and one for the transferring group.

The consulting actuary reported that if the transfer occurs without regard to the difference in normal costs and accrued liabilities of the current and transferring groups, the resulting employer-required contribution rate determined using the current funding policy is 7.32 percent of payroll under the first asset transfer calculation method and 6.35 percent of payroll under the second asset calculation method. These results are comparable to item 12 in the previous table as all reflect a 20-year amortization of unfunded liabilities. The consulting actuary reported this approach would prospectively treat all employers the same as it is similar to a weighted average cost of current and transferring participants. Regardless of the asset transfer calculation method, a funding margin would exist as of July 1, 2001. The consulting actuary reported that a criticism of this approach is that the surplus position of the pretransfer plan is subsidizing some of the cost of the transfer. However, payroll of the current plan members is only 4.0 percent of the total payroll of both groups and the consulting actuary expects this percentage to decrease in the future. On a prospective basis there would be no material impact to the main system due to the proposal as reflected by the match of the normal cost rates of the transferring group to the main system as a whole. Depending upon the asset transfer calculation method utilized and the funded status of the main system, a small gain or loss may result at the transfer date. The magnitude of this gain or loss would likely be immaterial to the system. Finally, the consulting actuary reported the earlier retirement eligibility of the transferring participants also results in increased retiree health liabilities. The consulting actuary did not determine the impact of this increase in the scope of its review, however, because of the relatively small number of participants affected; the consulting actuary estimated the impact to the overall program to be minimal.

The executive director of the Public Employees Retirement System testified that one issue that should be addressed by the committee is whether the employer contribution rate for the law enforcement and correctional officer retirement program should be blended with the National Guard employer contribution rate or whether a separate rate should be established. If a separate rate is established, two additional issues are whether the assets should be transferred based upon the accrued liability for the member or whether the assets should be transferred based upon the accrued liability for the member plus any gains. One reason not to blend the contribution rate with the National Guard rate is because National Guard employer contributions are paid by the federal government, and if the contribution rates were blended, the issue of whether the federal government is subsidizing the state employees in the system would be raised. If the National Guard and law enforcement rates are blended and only accrued liability is transferred, the employer contribution rate would be 7.32 percent. If accrued liability plus gains based upon last year's actuarial report are transferred, the employer contribution rate would be 6.35 percent as compared to 4.12 percent for the main system under current law. If a separate rate is established and accrued liability only is transferred, the contribution rate would be 8.54 percent using a 10-year amortization period, 7.52 percent using a 20-year amortization period, and 7.20 percent using a 30-year amortization period. If accrued liability and gain is transferred, the contribution rate would be 6.80 percent using a 10-year amortization period, 6.51 percent using a 20-year amortization period, and 6.42 percent using a 30-year amortization period. The cost increase for the state would be $1,066,000 if the employer contribution rate is 8.33 percent, $861,100 if the employer contribution rate is 7.52 percent, $810,400 if the employer contribution rate is 7.32 percent, $678,700 if the employer contribution rate is 6.8 percent, and $582,500 if the employer contribution rate is 6.42 percent. Representatives of the Public Employees Retirement System testified that it will probably employ a blended employer contribution rate and use the asset transfer method. The committee agreed that the asset transfer methodology should be determined by the Public Employees Retirement System Board.

A representative of the North Dakota Sheriffs and Deputies Association testified the bill draft contained a normal retirement date of age 55 with at least three consecutive years of employment as a peace officer or correctional officer immediately preceding retirement. Many law enforcement and correctional officers are eligible to retire under the Rule of 85 under the current retirement system before they reach age 65. Thus, if this system becomes law, members may actually have to work longer than they would under current law. The representative suggested the committee include a Rule of 85 and a normal retirement date of age 50 with 20 years of service in the bill draft.

The director of the Bureau of Criminal Investigation testified that several Bureau of Criminal Investigation employees will reach the Rule of 85 before age 55. Thus, if this bill draft is enacted with a normal retirement age of age 55, these employees will have to work longer than they would have under the existing system to receive a normal retirement benefit. The director proposed the committee include a Rule of 85 along with the normal retirement age of 55 to solve this problem.

The consulting actuary reported that using asset transfer method 1 and a 20-year amortization schedule the Rule of 85 will cost an additional $91,473 or .79% of compensation, a normal retirement date of age 50 with 20 years of service will cost an additional $230,923 or 1.99 percent of compensation, a multiplier of 2.20 percent will cost an additional $336,111 or 2.89 percent of compensation, a multiplier of 2.50 percent will cost an additional $774,933 or 6.66 percent of compensation. The actuarial results for the Rule of 85 are summarized in the following table:

Representatives of the City of Minot testified that the City of Minot offers a defined benefit retirement program for all city employees which provides a fair and equal retirement benefit for all employees regardless of profession. The representatives testified that to single out law enforcement employees and to provide a separate and different retirement benefit would create an inequity among the city's employees. They testified that another concern is funding such a program while still providing for current retired personnel.

A representative of the North Dakota League of Cities testified that if one group of employees receives an improved benefit, other employee groups will also want it. The representative noted that improved benefits result in increased costs, and cities should not be given an unfunded mandate. Finally, the representative testified that city officials are in the best position to determine the type of employee benefits that can be provided within a city's budget limitations.

Recommendation

The committee recommends Senate Bill No. 2033 to include peace officers and correctional officers in the National Guard retirement plan. Peace officers and correctional officers would be assessed 4 percent of their monthly pay and employers would be required to contribute an amount determined by the Retirement Board to be actuarially required to support the level of benefits specified by law. The multiplier is the same as that for other members of the defined benefit retirement plan, but the normal retirement date for a peace officer or correctional officer is the first day of the month next following the month in which the peace officer or correctional officer attains the age of 55 years and has completed at least three consecutive years of employment as a peace officer or correctional officer immediately preceding retirement or when the peace officer or correctional officer has a combined total of years of service credit and years of age equal to 85 and has not received a retirement benefit. Political subdivisions, on behalf of their peace officers and correctional officers separately from their other employees, may enter agreements with the Retirement Board for the purpose of extending the benefits of the National Guard retirement system to those employees. Political subdivisions having an existing police pension plan may merge that plan into the Public Employees Retirement System under rules adopted by and in a manner determined by the Retirement Board. Under the bill, members eligible to transfer to the National Guard retirement system may elect to transfer to the defined contribution retirement system. The bill appropriates $126,096 to the Attorney General, $10,272 to the Highway Patrol, $817,632 to the Department of Corrections and Rehabilitation, and $107,136 to the Game and Fish Department to defray the cost of participation by peace officers and correctional officers in the defined benefit retirement plan and the defined contribution retirement plan for the 2003-05 biennium. Of these funds, $878,526 are general fund money and $182,610 are other fund money.