HF4724

Purpose

The bill aims to gradually shorten the time needed for firefighters relief associations to become fully vested in their retirement benefits. It applies to two types of relief associations (defined contribution and defined benefit) and would set phased vesting schedules so members can receive increasing portions of their pensions sooner. Vesting determines how much of a member’s pension benefit they are entitled to based on years of active service and the association’s vesting schedule.

Key terms and concepts

• vesting schedule
• vesting / vested
• nonforfeitable
• unconditional
• legally enforceable right
• service pension (defined contribution relief associations)
• accrued service pension (defined benefit relief associations)
• minimum age and service requirements
• articles of incorporation or bylaws
• completed years of active service
• vested percentage of pension amount

Main Provisions

• For defined contribution relief associations (Section 1):

  • The articles of incorporation or bylaws may set a vesting schedule that allows a reduced service pension to a retiring member, as long as the member is vested according to the schedule.
  • A member vests in the member’s account per the vesting schedule. If the member meets minimum age and service requirements, they are entitled to a service pension equal to the vested portion of the member’s account.
  • The schedule must not require more than 20 years of active service to reach 100% vesting in the 2027 baseline.
  • Vesting percentages by completed years are:
  • 5 years: 40%
  • 6 years: 52%
  • 7 years: 64%
  • 8 years: 76%
  • 9 years: 88%
  • 10+ years: 100%
  • Phased changes by date:
  • Through December 31, 2027: 20 years to 100% vesting (4% more vesting per completed year starting at 5 years).
  • January 1, 2028 through December 31, 2029: 15 years to 100% vesting, with 6% increments per year (starting at 40% after 5 years).
  • Beginning January 1, 2029: 10 years to 100% vesting, with 12% increments per completed year (starting at 40% after 5 years).

• For defined benefit relief associations (Section 2):

  • The articles of incorporation or bylaws may set a vesting schedule that allows a reduced service pension to a retiring member, as long as the member is vested according to the schedule.
  • A member vests in the member’s accrued service pension per the schedule. If the member meets minimum age and service requirements, they are entitled to the accrued service pension only to the extent vested.
  • The schedule must not require more than 20 years of active service to reach 100% vesting in the 2027 baseline.
  • Vesting percentages by completed years are identical to the defined contribution track:
  • 5 years: 40%
  • 6 years: 52%
  • 7 years: 64%
  • 8 years: 76%
  • 9 years: 88%
  • 10+ years: 100%
  • Phased changes by date (same structure as above):
  • Through December 31, 2027: 20 years to 100% vesting with 4% increments per year.
  • January 1, 2028 through December 31, 2029: 15 years to 100% vesting with 6% increments per year.
  • Beginning January 1, 2029: 10 years to 100% vesting with 12% increments per year.

• Common implementation details:

  • The vesting schedule must be implemented via the relief association’s articles of incorporation or bylaws.
  • The vesting definitions apply to the member’s accounts (defined contribution) or accrued service pension (defined benefit).
  • No provision may require more active service than the applicable vesting schedule allows.
  • A member’s pension or accrued pension is only the portion that is vested.

Significant changes to existing law

• The bill creates a structured, phased approach to shorten the time needed to become 100% vested for both defined contribution and defined benefit firefighters relief associations.
• It updates Minnesota Statutes to establish explicit vesting schedules with staged deadlines (2027 baseline, then 2028–2029, then 2029 onward) and corresponding yearly vesting increments (4%, 6%, 12%).
• It allows reduced service pensions to be paid only to the extent vested, aligning benefit payments with the new vesting timelines.
• It codifies the maximum active service required for full vesting at different dates (20 years through 2027, 15 years for 2028–2029, 10 years starting 2029), while keeping the requirement that vesting occurs through the schedule defined in the association’s governing documents.

Implications and potential considerations

• Members may become fully vested and eligible for full pension benefits sooner, potentially affecting retirement planning and funding needs of relief associations.
• Relief associations must adjust their governing documents (articles of incorporation or bylaws) to adopt the new vesting schedules.
• The changes are designed to give a clear, predictable path to full vesting over time for both types of relief associations.

Summary of scope

• Applies to both defined contribution relief associations and defined benefit relief associations.
• Establishes three phased vesting frameworks tied to dates (through 2027, 2028–2029, and 2029 onward) and corresponding milestones (years of active service and percent vesting).

Relevant Terms - defined contribution relief association - defined benefit relief association - vesting schedule - vesting - vested - nonforfeitable - unconditional - legally enforceable right - service pension - accrued service pension - minimum age - minimum service - articles of incorporation - bylaws - completed years of active service - vest percentage - 40 percent - 5 years - 6 percent - 12 percent - 20 years - 15 years - 10 years - January 1, 2028 - December 31, 2029