SF4588

Purpose

This bill changes how retirement plans calculate joint and survivor annuities by establishing a formal process to set and update the investment return assumption used in those calculations. It creates a default value, sets a path to change that value, and requires updates to the actuarial standards when changes occur.

Main Provisions

• Default investment return assumption: For computing joint and survivor annuities in covered retirement plans, the applicable investment return assumption is set at 6.5 percent unless a different percentage is approved or deemed approved under the bill.
• Change process for the assumption: A governing board of a covered retirement plan may propose a change to the investment return assumption. The change can be approved by the Legislative Commission on Pensions and Retirement (LCPR) or, if no action is taken by LCPR within one year after the proposal is received, the change is deemed approved.
• Administrative update to actuarial standards: The executive director of the Legislative Commission on Pensions and Retirement must update the appendix to the standards for actuarial work whenever a change to the assumption is approved or deemed approved.
• Scope of applicability: The changes apply to computing joint and survivor annuities under each covered retirement plan referenced in the statute (subdivision 2).

Significant Changes to Existing Law

• Establishes a formal, timer-based process to alter the investment return assumption used for joint and survivor annuity calculations, instead of leaving changes entirely to discretionary timing.
• Sets a default 6.5% rate for these calculations.
• Requires official updating of the actuarial standards appendix whenever a change is approved or deemed approved, tying actuarial practices to legislative action.

Key Mechanisms and Roles

• Governing board of a covered retirement plan: May propose changes to the investment return assumption.
• Legislative Commission on Pensions and Retirement (LCPR): Holds the authority to approve proposed changes.
• Executive director: Responsible for updating the appendix to the standards for actuarial work after changes are approved or deemed approved.

Potential Impacts

• The amount used to calculate future joint and survivor benefits could change if a plan gets an approved (or deemed approved) update to the investment return assumption.
• Many pension calculations and funded status estimates tied to joint and survivor annuities may be affected by changes in the assumed rate of return.

Definitions (in Context)

• Joint and survivor annuity: A payout structure where benefits continue to a survivor after the member’s death.
• Investment return assumption: The assumed rate of return used to project investments when calculating pension liabilities and annuities.
• Covered retirement plan: The pension plans to which this calculation rule applies.
• Appendix to the standards for actuarial work: A formal addendum that guides how actuarial calculations are performed for these plans.
• Deemed approved: A change becomes effective if the approving body does not act within one year of receiving the proposal.

Relevant Terms - joint and survivor annuity, investment return assumption, 6.5 percent, covered retirement plan, governing board, Legislative Commission on Pensions and Retirement, LCPR, executive director, appendix to the standards for actuarial work, approved, deemed approved, proposed assumption change, actuarial standards, Minnesota Statutes 356.461 subdivision 1