Minneapolis closes in on pension deal

Minneapolis and its closed police pension fund are near a deal that could lower the city's pension costs by millions of dollars annually and merge the aging fund into a statewide public safety operation.

"We've got a tentative deal, but we've got pieces of the puzzle we need to figure out," Larry Ward, president of the police fund, said Monday.

Details haven't been released and any agreement faces several obstacles. Not the least is that it would need legislative approval and the Legislature must complete its regular session by Monday.

"You wait 'til the last minute for this stuff, and it gets a little hairy," Ward said.

The pension funding issue has been the city's biggest financial headache in recent years, and Mayor R.T. Rybak has made a merger with the state fund a part of his push for property tax relief. He blamed this year's levy increase on pension costs.

A pension deal could potentially save the city money in two ways. First, the annual payment would be reduced -- even if the total police pension deficit isn't -- if the city has until 2031 to fully meet its obligations, as it would if the police fund were merged into the statewide fund. Police pensions now must be fully funded by 2020. Stretching things out would be like extending a mortgage.

Second, if the Minneapolis fund used the less conservative assumptions about investment gains and salary growth that the state fund uses, it could virtually wipe out the current police fund deficit of $151 million.

These changes would be important to the city because the police fund and its smaller, better-funded cousin serving older firefighters have been a weight on the Minneapolis budget. The amount the city paid into the police fund jumped almost fourfold to nearly $11.8 million this year because of investment losses in 2008 when the market collapsed. The city said that closed pension funds consumed all of the 2011 property tax increase.

Minneapolis officials were mum Monday on reports of a deal. Ward said he was hoping to gather his board for a special meeting on Tuesday. Walter Schirmer, executive secretary of the fire fund, said that he was in the dark on the police developments, and that they did not include his fund, which the city also wants to merge.

The police and fire relief associations in Minneapolis date to the 19th century and were closed to new members in 1980. Only eight officers and 23 firefighters still work and make their 8 percent payroll deductions into the funds, while 561 retired officers and 370 retired firefighters draw benefits, along with 392 widows.

Hires since then have joined the police and fire pension plan run by the Public Employees Retirement Association (PERA).

The Minneapolis funds previously passed on joining PERA when the Legislature put local police and fire plans on a path to voluntarily join that fund. Forty-four local plans did so, but merger never came to a member vote in Minneapolis.

The Minneapolis funds have resisted a merger in part because the PERA police and fire fund is capped at 1.5 percent annual cost-of-living increases until it hits full funding. City police and fire pensions rise with the increase in compensation negotiated by labor unions for cops and firefighters. They also get a lump-sum payment when investment returns exceed salary increases by 2 percentage points, and greater distributions if they exceed full funding.

One potential path to a deal outlined earlier would offset the lower cost-of-living feature by giving police and fire pensioners a larger salary base for calculating future pensions. That would be done by having the city give back some of the estimated $10 million in annual savings it won in a lawsuit that challenged the salary base used by the funds for calculating pensions. That ruling has been appealed and a decision is expected by mid-June.