SF4373

Purpose

• This bill changes how “salary” is defined for Minnesota’s state retirement systems. It aims to exclude certain kinds of pay from being counted as salary when calculating retirement benefits. It also adds conditions for when payments from settlements or grievances count as salary.

Main Provisions

• Changes to definitions in multiple statutes (Minnesota Statutes 2024 sections 352.01 subd 13; 353.01 subd 10; 354.05 subd 35; 354A.011 subd 24.1.8) related to the Minnesota State Retirement System, Public Employees Retirement Association, Teachers Retirement Association, and St. Paul Teachers Retirement Fund Association.
• Salary is defined as wages or other periodic compensation paid to an employee before deductions for deferred compensation, supplemental retirement plans, or other voluntary salary reduction programs.
• Items that do not count as salary (excluded from salary) include:
  • Lump-sum sick leave payments
  • Severance payments
  • Lumpsum annual leave payments and overtime payments made at the time of separation from state service
  • Payments in lieu of employer-paid group insurance coverage (including the difference between single and family insurance rates for single coverage)
  • Employer-paid fringe benefits
  • Workers’ compensation payments
  • Employer contributions to a deferred compensation or tax-sheltered annuity program
  • Amounts contributed under a benevolent vacation and sick leave donation program
  • Payments from the family and medical benefit insurance account for Minnesota paid leave (under chapter 268B)
• Payments made by an employer through a grievance process or a legal settlement are considered salary only if:
  • The grievance or settlement agreement is received by the executive director at least 14 days before payment, and
  • The agreement specifies the period(s) worked or not worked for which the payments are compensation, and
  • The amounts are salary as defined (consistent with a prior determinations).

Effects and Rationale

• Purpose is to narrow what counts as salary for retirement calculations, which can affect how much retirement benefits and contributions are based on certain earnings.
• The bill adds a procedural safeguard for grievance/settlement payments to determine whether they should be treated as salary for retirement purposes.

Significant Changes to Existing Law

• Re-defines “salary” to exclude multiple categories of pay that were previously included, such as certain lump-sum payments, insurance-related adjustments, and specific fringe benefits.
• Specifies new conditions for treating grievance or settlement payments as salary, tying eligibility to timing (14 days before payment) and documentation (describes periods worked; aligns with prior determinations).

Practical Takeaway

• If enacted, retirement benefit calculations may use a smaller base (salary) because many forms of pay will no longer count toward salary for benefit computations. The handling of certain settlement or grievance payments will depend on the timing and details of the agreement.

Relevant Terms salary family and medical benefit insurance account for Minnesota paid leave Minnesota paid leave lumpsum sick leave payments severance payments lumpsum annual leave payments overtime payments made at the time of separation payments in lieu of employer-paid group insurance coverage difference between single and family rates employer-paid fringe benefits workers compensation payments employer contributions to a deferred compensation program tax-sheltered annuity program benevolent vacation and sick leave donation program grievance proceeding legal settlement executive director prior determinations Minnesota Statutes 2024 sections 352.01 subd 13; 353.01 subd 10; 354.05 subd 35; 354A.011 subd 24.1.8