Merging MERF into PERA

BACKGROUND

The Minneapolis Employees Retirement Fund (MERF) is a defined benefit plan, which means it pays a specified monthly benefit at retirement. It offers members survivor and disability protection during employment and gives them financial security after retirement. MERF is a cost-sharing plan with multiple employers, including the City of Minneapolis, Minneapolis Special School District No. 1, Minneapolis-St. Paul Metropolitan Airports Commission (MAC), Metropolitan Council Environmental Services, the Municipal Building Commission, the Minneapolis Park and Recreation Board, the Metropolitan Council, Minnesota State Colleges and Universities, and Hennepin County. MERF is also a closed plan, which means that no new employees can join the plan; those hired after June 30, 1978 join the statewide Minnesota Public Employees Retirement Association (PERA).

Established in 1919, MERF has 174 active members and is supporting 4,493 retirees and survivors as of June 30, 2009. Of the 174 active employees, 106 are employed by the City of Minneapolis. The average pay of active MERF members from the City of Minneapolis was $60,761 as of June 30, 2009.

Of the 4,493 retirees and survivors, 2,564 are members from the City of Minneapolis; the remaining 1,929 are non-Minneapolis members of MERF. The average benefit of all 4,493 retirees and survivors is $33,096 per year as of June 30, 2009. The average benefit of the 2,564 Minneapolis retirees was $36,288 per year.

THE NEED FOR TRANSITION

While MERF has been an independent pension fund since inception, it now is proposing a merger with the statewide retirement plan for most Minnesota municipal employees, the Public Employees Retirement Association (PERA). A merger with PERA will lower administrative costs, shelter plan members from sustained losses in the financial markets, and pay basic benefits for members.

MERF employers are responsible for the full actuarial value of retirement benefits when an employee retires and for annual mortality adjustments. Minnesota law does not assign responsibility to any party to fund deficiencies from investment losses when they exist. The 2008 financial market losses make merging MERF with PERA an urgent issue as a merger will allow time for asset values to increase as the markets recover.

Due to the recent decline of the stock market, MERF’s funding level was 56 percent as of June 30, 2009. Unless the markets perform much better than is typical, MERF may not be able to pay retirement benefits beginning in 2019.

HOW TO MOVE THE TRANSITION FORWARD AND FUND THE PLAN

MERF, the State, PERA, and MERF employers will need to work together to design a merger plan that is fair to all parties, including PERA’s members and employers. On June 30, 2009, MERF was funded at 56 percent and PERA was funded at 70 percent. While it may appear that PERA is better funded, PERA uses a smoothing technique that only recognizes 20 percent of the plan’s investment changes per year, which means that PERA’s losses aren’t fully reflected in its numbers. With these losses, both MERF and PERA’s funding levels have declined significantly, making a merger more challenging, but all the more urgent.

On December 16, 2008, the MERF Board took two actions that advance a merger of MERF into PERA. MERF authorized its actuary to determine the cost of merging MERF into PERA using PERA’s long-term actuarial assumptions, and authorized the Executive Director to pursue all options to merge the MERF fund into PERA.

The City of Minneapolis supports MERF’s merger into PERA and will participate in legislative and other discussions.

MORE INFORMATION

City of Minneapolis Finance Department
City Hall, 350 S. 5th St.,
Minneapolis, MN 55415 612-673-2918

Last updated Apr 28, 2014