SF5220

Purpose

This bill modifies Minnesota's statewide volunteer firefighter retirement system (the Public Employees Retirement Association) to change coverage options, funding rules, and how service is counted and verified. It introduces new definitions, tightens cost-analysis requirements, shifts how benefits are funded and reported, and plans to phase out certain benefit options over time.

Key Provisions

• New and clarified terms

  • Lumpsum division: retirement benefits can be paid as a single lump sum (defined in 353G.14).
  • Oncall basis: a volunteer firefighter is paid per call or per hour and can choose when to be available.
  • Volunteer basis: a volunteer firefighter may not be paid per call/hour but may be reimbursed for expenses and can choose availability.

• Coverage and plan choices

  • Eligible entities (relief associations, municipalities, or firefighting corporations) can elect to have their volunteer firefighters covered by the retirement plan.
  • After December 31, 2026, entities affiliated with a defined benefit relief association that provides a monthly pension may not elect coverage for their volunteers under the retirement plan.
  • When requesting coverage, entities must choose between:
  • Defined benefit plan (with either lumpsum division or monthly division; monthly division limited by the above 2026 rule).
  • Defined contribution plan.
  • If choosing defined contribution, relief associations affiliated with a defined benefit relief association must complete a conversion process.

• Benefit levels

  • For defined benefit with lumpsum division, the minimum benefit is 500 per full year of service; benefits must progress in 100 increments.
  • For defined benefit with monthly division (still possible before 2027), the benefit level follows the plan document for the fire department.
  • After the transition period, monthly division is generally not available for new coverage.

• Cost analyses and funding

  • If coverage is requested under the defined benefit plan, a cost analysis must be prepared before transfer (cost analyses are not required for defined contribution coverage).
  • For monthly-division requests, a cost analysis must be prepared before transfer.
  • The cost analyses must be prepared by an actuary and use a 6% investment return assumption, among other standards; they must reflect vesting options chosen.
  • Funding for the lumpsum division is reviewed through biennial or annual funding reports. The executive director determines funding requirements using actuarial methods and present-value calculations, with notice provided to the relevant entities.
  • State aid and investment earnings assumptions affect required contributions. If the account has a deficit, the following year’s requirements include a deficit portion; if surplus, adjustments are made accordingly.
  • Contributions must be paid by December 31 with interest if late. The plan administrator can collect unpaid amounts.

• Transfers, approvals, and timing

  • Transfers to either the defined benefit or defined contribution plan are only approved within specified timeframes (e.g., 120 days or by November 1, depending on the trigger) and require action by both the relief association’s board and the governing body of the affiliated entity.
  • If approvals are not completed within the required windows, the transfer can be denied for the year.
  • If a transfer is approved, coverage becomes effective January 1 of the following year, with specific rules if approvals are filed late.

• Service credit and vesting

  • Fire chiefs must certify service credit for active volunteers by March 31 each year; if missing, the most recent certification is used for funding and compliance calculations.
  • Fire departments must notify firefighters of their service credits and provide a process to challenge the chief’s determination.
  • Service credit can be recognized for vesting purposes, including certain past service not previously covered by the plan, if properly documented.
  • Military service credit is allowed under federal laws, with rules about returning to civilian service.

• Funding reports and allocations

  • Biennial (every other year) funding reports determine funding requirements for lump-sum division accounts, using actuarial methods and six percent return assumptions.
  • The bill lays out how to determine assets, liabilities, surpluses/deficits, and how to allocate state aid and employer contributions.
  • End-of-year allocations to individual firefighter accounts reflect state aid, employer contributions, and any forfeitures, with a method for fractional year service.
  • Administrative and investment expenses are deducted from accounts, and reconciliations are provided to each fire department.

• Disbursements and distributions

  • Assets may be disbursed as lump sums, monthly retirement benefits, or individual accounts; disbursements also cover administrative and investment expenses, survivor benefits, and certain tax-related or other required disbursements.
  • For defined contribution plan distributions, service credit certification must be processed before distributions are made.

• Defined contribution plan distributions

  • Special provisions ensure that distributions from the defined contribution plan follow the service credit certification timeline and process.

Significant Changes to Existing Law

• Phasing out monthly division for new defined benefit coverage after 2026 (with limited exceptions tied to specific relief associations) and emphasis on defined contribution or lumpsum options.
• Introduction of new oncall and volunteer basis definitions to classify how volunteers are compensated and how their availability is managed.
• Requirement for formal, actuarially certified cost analyses before coverage changes, including for monthly-division scenarios, with specific cost-analysis methodologies and timeframes.
• Shift to biennial funding valuations and updated funding rules, including the use of a six percent investment return rate and adjustments for assets vs. liabilities.
• New or strengthened requirements for service-credit certification, vesting, and the ability to count prior service (including certain past service not previously covered) toward vesting.
• Detailed procedures for transfers of coverage, including explicit deadlines, board/governing body approvals, and consequences for inaction.
• More explicit linkage between state aid, employer contributions, and investment earnings in determining annual funding requirements.
• Introduced or expanded requirements around cost analyses, conversions when moving from defined contribution to defined benefit (and related relief association relationships), and how changes affect final benefit levels.

What This Means for Fire Departments and Volunteers

• Fire departments and relief associations must carefully plan coverage choices and understand that some options (notably monthly division under defined benefit) may be limited or unavailable after 2026.
• Any proposal to change benefit levels or move between plan types requires formal cost analyses and tight timing to be approved.
• Annual or biennial funding planning will be more formal and transparent, with stricter timelines and reporting to the retirement plan.
• Service credit, vesting, and past service recognition will require documentation and potentially new paperwork or hearings for adjustments.

Relevant Terms - lumpsum division - monthly division - defined benefit plan - defined contribution plan - oncall basis - volunteer basis - relief association - governing body - board of trustees - cost analysis - actuarial valuation - six percent investment return - funding requirements - fire state aid - police and firefighter retirement supplemental state aid - vesting - service credit - certification - transfer of coverage - conversion (relating to relief associations) - administration/financial reconciliation - assets and liabilities - fractional year service - administrative expenses - investment expenses - beneficiary/disbursement