PERA phrase. The. New allowable service credit laws to impact contribution reporting process. 3rd Quarter In this issue:

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1 The PERA phrase The employer newsletter of the Minnesota Public Employees Retirement Association 3rd Quarter 2001 In this issue: 1 New allowable service credit law 2 PERA moving its offices 2 Successful audit 2 EFT available during PERA s move 3 DCP information 3 New status reports coming 4 EFT update 5 Eligibility changes 5 Old file format no longer usable 6 Contribution rate increase Employer Line (metro area) (toll-free) Member Line (metro area) (toll-free) Web site New allowable service credit laws to impact contribution reporting process During the special session of the Minnesota legislature, important changes were made to the allowable service credit provisions. Those changes, which will take effect on January 1, 2002, will impact the Salary Deduction Reporting process for all employers. Under the newly enacted laws, PERA must use a new service credit formula to calculate allowable service for employees who first become members or reinstate their membership after January 1, The new formula, which applies to all of PERA's Defined Benefit Plans (Basic, Coordinated, Police and Fire, and Correctional), uses "compensated hours" to determine the allowable service credits that can be used to calculate retirement and disability benefits. The term, "compensated hours," is defined in law as the hours during which an employee performs services in one or more positions for a single governmental subdivision for which the employee receives compensation. The term also includes paid holiday hours for which the employee is not required to work, paid used sick leave hours, paid used personal leave hours and vacation hours, and paid hours drawn from accrued compensatory time. In the future, new or reinstating members will receive one service credit for each month during which the employees have received salary for 80 or more compensated hours, or a fraction of one month of credit for compensated hours under 80. For example, an employee who is compensated for 160 hours in a month will receive one month of service credit. Conversely, an employee who is compensated for 40 hours in a month would receive one-half of a month's allowable credit. Other provisions of the new law require that we use the new service credit formula when calculating the credits given for temporary layoffs beginning on or after January 1, Members will receive fractional layoff credit when they do not earn nine months of service credit for the compensated employment preceding their layoff. Prorating service credit for layoffs applies to all Defined Benefit Plan members, not just those members who join or reinstate after January 1, As a result of the new service credit rules beginning in January 2002, all employers must report the number of compensated hours for all of their employees for each pay period. Over the next two months, PERA staff will work diligently to update the Employer Manual and related workshops, redesign the paper Salary Deduction Report, and update the computer file format covering electronic contribution submission. If you have any questions or wish to offer suggestions regarding the administration of these new laws, please PERA at employer.reps@pera.state.mn.us. 1

2 PERA prepares for move to new building After many years of leasing office space in a building in downtown St. Paul, PERA will be moving its offices to a new location in mid-september. PERA has teamed with the Teacher's Retirement Association and the Minnesota State Retirement System to construct a new office facility just north of the state capital building in St Paul. The new facility, which has four floors, has space that will be leased to other state agencies including the State Board of Investment, the Secretary of State's Office and the Department of Administration's Intertechnologies Group. Prior to construction of the new building PERA and the other state pension plans weighed many options as to the business plans available such as site locations and costs of owning a building versus leasing space. In the end, the choice was made that a new facility best meets the needs of the agencies involved as well as those of employers and our members. We are excited about the upcoming move and are looking forward to our new site, which includes a three-level parking ramp to accommodate employees, free parking outside our entrance for visitors and a conference/meeting room to hold employer and member seminars. While construction and planning for the physical move are still underway, we believe our office will be closed for two working days, tentatively set for Thursday and Friday, September 13th and 14th. Since we must completely shut down our computer and telephone systems, we will not be able to receive any electronic salary deduction report files through our FTP method or receive telephone calls or fax transmissions. If possible, we ask that you alter your usual reporting patterns to allow for this limited interruption in our accessibility through telephone and computer connections. Our new office address will be 60 Empire Drive, Suite 200, Saint Paul 55103, which is one block east of the Rice Street and Pennsylvania Avenue intersection. Please remember though that this relocation does not change the procedure employers follow when mailing paper SDRs or checks to us. Continue to mail completed SDRs and accompanying checks to PO Box 75608, Saint Paul, MN As necessary, additional information relating to our move will be provided through our Web site or through a special mailing notice. Birth date audit lands great results PERA would like to thank all the employers who assisted us with our auditing of member birth dates not in our system. Letters were sent in May to over 800 employers and listed over 7,600 active members for which we did not have birth dates, addresses, or both. Thanks to an outstanding response, all but 1,100 of these member accounts now have proper birth dates listed in our system. Birth dates are a vital component in our data collection process and are required information in order to provide pension estimates on member's Personal Benefit Statements. Although our actuary needed the information to process the 2001 fiscal year-end reports, it s not too late to respond. If you received a letter but did not have an opportunity to send it in by the deadline, and you still have the letter, we urge you to complete it and send it to PERA so that those names can be removed from next year's audit. Thanks again for your cooperation! EFT will be available during PERA's move to new location Because the technology associated with Electronic Funds Transfer is not effected by our move tentatively scheduled for September 13 and 14, 2001 employers will be able to submit EFT payments during our scheduled shutdown. 2

3 Help your employees get the most from DCP PERA would like to remind all employers who employ elected officials, physicians, or ambulance service personnel that there is no minimum salary required to participate in PERA's Defined Contribution Plan. Unlike the Defined Benefit Plan that, under current laws, requires an employee to earn $425 in a calendar month in order to participate, the Defined Contribution Plan (DCP) has no minimum salary. The DCP does not allow participants to make retroactive contributions for their current employment, so if a DCP participant is not enrolled immediately upon hire, the individual does not have the option of making contributions for the time between the employment start date and PERA enrollment date. For example, if a person is elected to an office and begins serving his or her term on January 1, but does not elect DCP coverage and have DCP deductions withheld from salary until June 1, his or her DCP membership is effective June 1. The contributions that could have been submitted for January through May and subsequent investment results are lost and cannot be made up. Further, physicians only have a 90-day period in which they can elect DCP coverage. Physicians that do not elect to participate in the DCP within 90 days of commencing public employment must become members of the Coordinated Plan if salary requirements are met. PERA urges all employers who have employees eligible to participate in the DCP - elected officials, physicians in governmental service or ambulance service personnel - to get the appropriate information to them as soon as possible after their employment begins to provide the full extent of the investment opportunity. PERA Working to Clean-up Members without Activity Do you remember the annual "Q" Status Report? It was a report last generated in 1999 that contained the names of active employees for whom PERA contributions had not been submitted for one or more months. Its purpose was to confirm that the employees were still employed in public service and had not terminated or gone on a leave of absence. Historically, this report was a good tool in uncovering termination dates that had gone unreported. We recently moved this programming logic from our mainframe to our Collect and Manage Information (CAMI) system and ran a query to determine if we should pick up where we left off in To our surprise, we discovered that just over 10,000 members are listed as active in our system, but PERA contributions have not been submitted on their behalf for six months or more. Due to this high number, we will restart this employment verification process and mail these reports in late July. If you receive this report for your agency, we will appreciate your cooperation in promptly completing it. The revised report, now titled the Member Status Verification Report, has three sections. Section A contains the names of any active employees who have a period of six or more months without salary. We ask that you verify that the employees listed have truly not had any earnings for the period shown or to provide the current employment status information. To report a status change, you may either insert the status code and effective date directly on the report, or send the status data electronically in a demographic record. Sections B and C will include the names of any employees who have been reported on a leave of absence for 13 months or more and employees whose periods of layoff have exceeded 8 months. Again, we ask you to verify whether the employee is still on leave continued on page 4 3

4 Can EFT participation stay voluntary? In February, PERA introduced its latest enhancement to make working with us easier and more cost effective - Electronic Funds Transfer (EFT). This convenient new feature allows you, as a PERA-covered employer, to send your PERA contributions directly from your bank account to PERA's without writing a check. Through the services provided by our contracted vendor, all you need is a telephone to create an ACH debit or a computer to create an electronic data file to send an ACH Credit. Both methods are provided at no cost to you. program's administration costs. EFT is a voluntary payment option at the present time, but we feel an obligation to consider requiring participation by all or some employer groups as early as this winter. Before making a decision of this nature, we will conduct a survey to measure employers' readiness and ability to use the features of our program. We will keep you informed if the decision to require EFT is made. If you are interested in signing up for EFT now, please contact us at (651) , or 1 (888) , option '7,' or us at employer.reps@pera.state.mn.us. EFT offers several features making it a simpler alternative to conventional checks. For example, it allows you to choose the day in which your account is debited - you know exactly when the funds are sent to PERA. Likewise, it eliminates the need to send a paper check to PERA. For those employers who report electronically, it makes paperless communication with PERA one step closer. We added EFT services in response to high interest that was expressed by employers a few years ago. At that time, we surveyed PERA-covered employers and learned that 63% of them were already using EFT to send payments to other organizations, such as tax payments to the state and federal governments. Many employers reported that they were finding EFT payments to be less expensive to process than checks and indicated that implementing EFT for PERA payments would be fairly simple to do. When asked in our survey to indicate support for EFT for PERA payment purposes, 71% of the employer respondents looked favorably at the change. Members without activity (continued) or layoff, or to provide updated employment status data. Your participation in this verification process is very important. The precision of the actuarial work that forecasts our funding needs depends greatly on the degree of completeness and accuracy of the employment information in our database. Accurate employment information also helps to ensure that your employees receive accurate pension estimates. Your return of the completed Member Status Verification report within days of its receipt will be appreciated so that the 2001 Personal Benefit Statements reflect the most complete service data possible. If you have any questions regarding the Member Status Verification, please feel free to call us at (651) or 1 (888) , and select option '2.' Based on our survey, it appeared that adding EFT services would benefit both you and PERA. Yet, participation levels are low. Currently, approximately 350 employers (17% of all PERA-covered employers) are utilizing the EFT option. Although we appreciate the initiative taken by those employers, we need to increase usage to offset this 4

5 Membership eligibility rules will change in July 2002 As a result of the laws passed by the Minnesota Legislature during the special session, significant changes related to membership eligibility will take effect July 1, Foremost among the changes is the elimination of the $425 per month threshold that helps determine if an employee is eligible to participate in PERA. Effective July 1, 2002 all employees, regardless of their monthly salary - with the exception of some excluded employee types - must be enrolled in PERA. This includes both employees hired after that date and employees already in your service. With the elimination of the $425 threshold, the Annual Earnings Stipulation has also been eliminated. The Annual Earnings Stipulation allows an employer to exclude an employee who make less than $5,100, or $425 times the number of months in an employment period. The most significant changes to the list of excluded positions under the new law include adding elected officials whose term of office first begins on or after July 1, 2002 and seasonal employees hired after June 30, 2002 to fill positions limited to 185 consecutive calendar days or less (with a new definition for seasonal employee). The exclusion of full-time students remains but the law now clarifies that the individuals can only be excluded from membership if their employment is predicated on their student status. Look to our Web site and upcoming issues of the PERAphrase for more details regarding the membership eligibility changes. Out with the old...in with the new That's the message we need to communicate to those employers sending their contribution data using PERA's "old" computer file format. If you are one of those agencies, you must convert from PERA's old file format to the new file format before December 31, 2001, or move to our manual paper reporting method. This requirement is due to new PERA reporting provisions that were enacted into law during the 2001 Special Legislative Session. Some of you may be surprised to learn that anyone is still using the old computer file format. We unveiled the new data format in January 1999 announcing that this format needed to be implemented by July 1, Overall, most employers were able to accommodate this changeover within a timely manner. For a few agencies, though, our conversion deadline conflicted with other significant computer system changes they had underway. These agencies indicated that it would be more cost effective if they could complete their internal computer system projects before reprogramming for our Collect and Manage Information (CAMI) system file format. We listened to them and extended the CAMI formatting deadline, which had been set by PERA management, not PERA law. Reporting Spotlight to an end due to new legal obligations. As explained in the article on page 1 of this newsletter, PERA must begin to prorate service credits awarded to certain current and new members. Under the new laws, beginning January 1, 2002, we must use members' compensated hours to determine service credits for certain new and reinstating members, members who are temporarily laid off during the year, and members who purchase credit for unpaid leaves of absence. Further, Minnesota Statutes , subdivision 4, now requires every employer to report compensated hours along with employees' salary data reported each pay period. Since our old file format does not contain a field for hours, but our CAMI file format does, we can no longer allow employers to remain under the old format after December 31, If your agency is one of the remaining ones that must now complete this transition, please contact our office at (651) or 1 (888) , option '2,' so we can work together to establish target dates for testing and implementing the CAMI file format. Our ability to accept the old file format is quickly coming 5

6 Contribution rate increases take effect January 1, 2002 The 2001 Minnesota Legislature, during its special session, passed legislation that increases employer and employee contributions by 0.35% for both the Coordinated and Basic Plans. You may recall that PERA proposed a contribution rate increase for the Coordinated Plan after an actuarial evaluation had determined that plan was under-funded. Our proposal to the Legislature also requested state aid to help offset some of the increased cost to local governments; however, the Legislature declined to make any financial commitment at this time. Additionally, the Legislature did not modify the provisions of Minnesota Statutes 353E that set the contribution rates for the approximately 3,300 members of PERA's Local Government Correctional Service Retirement Plan. In the absence of any new law, the contribution rate increase that was passed into law during the 2000 legislative session also takes affect on January 1, Coordinated Employer Employee Basic Employer Employee Correctional Employer Employee Current rate New rate 5.18% 5.53% 4.75% 5.10% 11.43% 11.78% 8.75% 9.10% 8.75% 9.02% 5.83% 6.01% We are still working out some of the administrative details related to implementing the rate increases through payroll reporting. Please watch for further information through special notices, our Web site, and future issues of the PERAphrase. Due to the variety of topics covered in this edition of the PERAphrase, we would like to remind recipients to circulate it to other personnel, such as Human Resources, Accounting and IS. Important information for personnel in each of these departments is included in this issue. Public Employees Retirement Association 514 St. Peter St., Suite 200 St. Paul, MN Prsrt Std U.S. POSTAGE PAID Permit No. 171 St. Paul, MN ADDRESS SERVICE REQUESTED