Police and firefighter pension fund could be underfunded by a billion dollars as exodus continues

As the number of Minnesota law enforcement officers retiring early due to disabilities continues an upward trend this year, the state’s police officers and firefighters may be required to pay more down the road to shore up their state retirement fund. 

After George Floyd was killed by Minneapolis police in May 2020, there was a surge in disability retirements sought by Minnesota police officers — most of them due to post-traumatic stress disorder — that increased the fund’s liability by $73 million this year.

As of August, 180 disability retirement claims had been filed, compared to 307 last year and 241 in 2020.

Since August 2020, about 90% of the disability claims have been made by police officers — about 33% of them from Minneapolis — and about 80% said they have PTSD. 

Under the Public Employees Retirement Association police and fire retirement plan, workers who retire early due to disability get at least 60% of their salary tax-free for five years or until they turn 55, when it converts to a regular retirement. Their employer must continue paying for their health insurance until they turn 65, when they’re eligible for Medicare.  

PERA Executive Director Doug Anderson said after the upward trend in retirements continued this year, the plan could be underfunded by about $1 billion, requiring the annual contribution to help fund the plan to increase about 4%. After a push to shore up the pension fund, employees already have the highest contribution rates in the plan’s history, at 11.8% of their pay, while their employers contribute 17.7%. 

The fund has a cushion, but poor investment returns combined with the increase  in disability pensions could mean future funding increases may need to be considered. A year ago, the retirement plan was healthy and could withstand the increase in disability retirements, Anderson said, but investment returns have since been volatile, with a 30% return last year and negative 6% return this year.

“Right now we just need to monitor the situation,” Anderson said. “When it becomes very obvious that we’re heading in a poor direction, then we want to take action but we’re not there right now. But it’s concerning.”