The Minneapolis Police Department responds to a car crash on the evening of February 5, 2020. Photo by Tony Webster/Minnesota Reformer.
Minneapolis cops who are raking in big time overtime bucks could also pump up their pensions when they retire.
Due to a staffing shortage, Minneapolis police officers have been putting in a lot of overtime. About 72% of MPD cops made six figures last year. Thirteen MPD employees made more than $200,000; 89 made more than $150,000 and 466 made more than $100,000.
Minnesota police and firefighter pensions are based on the average of their five highest-earning years, including overtime, which means big paychecks now equals rich retirement checks later.
That in turn could put pressure on a pension fund that is already dealing with a surge in duty disability retirements, which have increased the fund’s liability by $70 million.
If officers are spiking their pay on a broad scale, that’s a problem for the fund, said Doug Anderson, executive director of the Minnesota Public Employees Retirement Association. “It could create some long-term sustainability problems for the fund if this was a widespread issue,” he said.
Pension benefits work like this: They are 3% of the average of those “high five” years, multiplied by their years of service. So if a cop puts in 30 years, they get 90% of their “high five” years.
The IRS caps pension benefits at 99% of salary as well as the amount of compensation that can be considered in someone’s “high five” years, Anderson said.
Andersen said he’s not sure of the exact cap amount, but he’s certain it’s below the $376,000 that went last year to MPD’s highest-paid employee, Sgt. Stephen McBride.
The ballooning overtime also means ballooning pension contributions by both police and employers (the city of Minneapolis, in this case).
The police and firefighter contribution rates are big to begin with: Employees contribute 11.8% of their pay into the pension plan, and employers contribute 17.7% for a nearly 30% combined contribution, which was instituted to better fund the plan. In other words, nearly 30% of every dollar of overtime goes toward the officer’s pension.
Police and firefighters don’t participate in Social Security.
Andersen said the health of the pension fund depends on whether the overtime is being logged only by officers at or near retirement. If younger officers are racking up as much overtime as older officers, it’s not harmful to the plan and can actually help the fund because it translates into big contributions from workers who are far from retirement.
Anderson acknowledged some workers purposely “spike,” or pump up their pay, in their last years of service to get bigger pension payments.
Before the pandemic hit in 2020 and George Floyd’s murder, Anderson examined overtime to see if spiking was happening, but found overtime was distributed pretty evenly over all ages, so it wasn’t a major concern.
Overall, MPD overtime ballooned from $6.4 million in 2019 to $10.3 million in 2020, to $12.8 million last year.
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