How Does the Minnesota State Retirement System Work?

FT Contributor  | 

The Minnesota State Retirement System (MSRS) is extensive and includes most state employees, regardless of the field or industry they work in. The system is broken down into specific programs to help employees with retirement benefits.

With several retirement and pension programs, state employees are bound to qualify for enrollment in a state retirement system. As a Minnesota state employee, you may be eligible to contribute to one of these retirement systems, which provides you with retirement benefits when you stop working.

When you begin to save for retirement, it’s important to understand how your pension program works so you can plan your savings strategy. By understanding your contribution responsibilities, the retirement income taxes that apply to your distributions, and eligibility factors that relate to the MSRS, you’ll adhere to a realistic retirement savings plan that allows you to live comfortably when you stop working.

Types of Retirement Systems

There are several retirement plans available to Minnesota state workers. As a state employee, the retirement saving plan you’re eligible to participate in depends on your occupation. Your eligibility to participate and the retirement benefits you qualify to receive also depend on when you started working for the state, how long you work for the state, and your retirement age.

If you were hired on July 1, 2010 or later, you:

  • Are only eligible for retirement benefits if you’ve worked for the state for at least five years;
  • May receive reduced monthly retirement benefits if you retire at 55;
  • May receive full pension benefits if you wait to retire until you’re 66.

If you were hired between July 1, 1989 and June 30, 2010, you:

  • Are only eligible for retirement benefits if you’ve worked for the state for at least three years;
  • May receive reduced monthly retirement benefits if you retire at 55;
  • May receive full pension benefits if you wait to retire until you’re 66.

If you were hired by the state before July 1, 1989, you:

  • Will receive full retirement benefits if your age plus the years you worked for the state add up to 90 or more and you wait to retire until you’re 60;
  • Will receive reduced monthly retirement benefits if you’ve worked for the state for at least 30 years but you retire at 55.

In addition to your hire date, the number of years you worked, and your retirement age, the retirement plan you’re eligible to enroll in is also dependent on your occupation. The following plans are available to qualifying workers through the MSRS:

Minnesota State Retirement System: General Plan

The MSRS General Plan is the largest state worker pension plan available. Most state employees qualify for this retirement plan, including:

  • University of Minnesota civil service employees;
  • Public safety personnel;
  • Metropolitan Council employees;
  • Workers specializing in inmate care;
  • Judges;
  • Elected officials;
  • Other unclassified state employees.

You must contribute at least 6% of your paycheck to the plan. The amount of retirement benefits you’re awarded when you stop working is determined by the number of years you worked for the state and your average salary throughout your career.

Minnesota State Retirement System: Correctional Plan

State employees who spend at least 75% of their working hours dedicated to inmate care are eligible to contribute to the MSRS Correctional Plan. This includes correctional officers and employees who work for the Minnesota Department of Corrections and Human Services.

You must contribute at least 9.6% of your salary to participate in this retirement savings plan. It’s important to continue working for the state and avoid switching jobs frequently because the retirement benefits you receive are based on the number of years you remain employed and the average salary you earn.

Minnesota State Retirement System: Unclassified Plan

You may be eligible for the MSRS Unclassified Plan if you’re appointed a political position and expected to serve a short period of time. You’re required to either contribute to the Unclassified Plan or the General Plan as an unclassified state employee.

You must contribute at least 6% of your pay to the pension plan. The funds you contribute are invested into a target retirement fund, which is designed to specifically target your retirement age.

Minnesota State Retirement System: State Patrol Plan

You’re eligible to participate in the MSRS State Patrol Plan if you’re a:

  • Crime bureau agent;
  • Conservation officer;
  • State trooper;
  • Gambling enforcement agent;
  • Fraud investigator with the Department of Commerce;
  • Member of the fugitive apprehension unit with the Department of Corrections.

You must contribute 14.9% of your pay to this pension retirement plan and wait until you’re 60 to stop working in order to receive full benefits.

Minnesota State Retirement System: Judges Plan

The MSRS Judges Plan is a pension plan reserved for judges or justices who serve in state courts. Eligible state employees who were elected before July 1, 2013 must contribute 9% of their pay to the plan and those elected after June 30, 2013 must contribute 7%.

When judges or justices retire, they receive monthly retirement payments, which may increase throughout the years. Retirement benefit amounts are dependent on retirement age, salary, contributions, and benefit options.

Minnesota State Retirement System: Legislators Plan

State legislators are required to contribute to the MSRS Legislators Plan if they were elected to serve before June 30, 1997. They must contribute 9% of their gross salary to the plan while serving.

Legislators receive full benefits if they retire at 62 and reduced benefits if they retire at 55. The monthly retirement payment depends on salary, the number of years served, and benefit options they chose when enrolling in the plan.

Teachers Retirement Association (TRA)

Teachers may participate in the Teachers Retirement Association (TRA) pension plan to ensure they’re prepared for retirement. They must contribute 7.5% of their pay to the plan. The retirement benefits distributed vary depending on retirement age, number of years worked as a teacher, and the average salary earned.

Public Employees Retirement Association (PERA): General Plan

Non-elected public employees who work in Minnesota counties, cities, and school districts are required to contribute 6.5% of their pay to the PERA General Plan. The retirement benefit amounts they qualify for when they stop working depend on the age they retire, the number of years they worked, and when they were hired by the state.

Public Employees Retirement Association (PERA): Correctional Plan

Public correctional facility employees, including workers in charge of inmate security, control, and custody, must contribute 5.83% of their pay to the PERA Correctional Plan. This plan eventually pays these public employees back during their retirement years. The benefit amounts they receive depend on their retirement age, the number of years they served, and the average salary they earned while working.

Public Employees Retirement Association (PERA): Police and Fire Plan

Law enforcement officers and local governmental firefighters considered public employees and hired after 1980 contribute to the PERA Police and Fire Plan. They must contribute 10.8% of their pay and will receive full retirement benefits when they retire at 55. The amount of benefits they’re entitled to depends on their salary and the number of years they served.

Public Employees Retirement Association (PERA): Statewide Volunteer Firefighter Retirement Plan (SVFRP)

Volunteer firefighters who work for independent nonprofit firefighting corporations or municipal fire departments may choose to contribute to the PERA SVFRP pension retirement plan. These workers may choose how much to contribute. To receive retirement benefits, a volunteer firefighter must be at least 50 years old, have served for at least five years, and must have stopped working for the fire department for at least 30 days.

Employer-Sponsored Health Care Savings Plan (HCSP)

Through the Health Care Savings Plan (HCSP), employees contribute tax-free money to a medical savings account. The funds an employee contributes may be used for eligible medical expenses, even after they retire from public service.

Minnesota Deferred Compensation Plan (MNDCP)

The Minnesota Deferred Compensation Plan (MNDCP) allows full-time, temporary, and part-time state employees an alternative option to save for retirement. Employees choose how much to contribute and the specified amount is automatically taken from their paychecks and placed into their MNDCP account. Withdrawals may be taken from the account once the employee retires or if their employment with the state is terminated.

Retirement Taxes in Minnesota

It’s important to take into account Minnesota state taxes and federal taxes as they apply to retirement income. When planning for retirement, taxes can put a wrench in your plans by lowering the retirement benefit amounts you receive when you stop working.

Federal

You must pay federal income taxes on your retirement income to the Internal Revenue Service (IRS) since your contributions were made pre-tax. The amount of taxes you owe depends on the benefits you receive.

State

Unfortunately, Minnesota isn’t one of the states that doesn’t tax retirement income. You must pay state taxes on your pension, 401(k), and IRA distributions after you retire and begin to withdraw funds. There are no deductions or exemptions available for pension income, so it’s important to take these taxes into consideration when planning for retirement.

Financial Health of the Minnesota Retirement System

The MSRS Board Chairperson’s Report released on June 1, 2017 stated that the retirement system currently holds $23.9 billion in assets. While the financial health of the state retirement system is strong, it’s important to ensure your retirement investments are diversified.

Tips for Retirement

Preparing for Retirement

  • Diversify your retirement savings strategy to include different types of investments;
  • Pay off debts as soon as possible;
  • Eliminate unnecessary expenses so you can save more aggressively;
  • Calculate how much you need in order to retire comfortably;
  • Take advantage of employer-sponsored retirement accounts.

During Retirement

  • Consider a side gig or part-time job to supplement your fixed income;
  • Create a budget that keeps your expenses below your income;
  • Review your health insurance so you understand out-of-pocket expenses;
  • Avoid taking on debt.

As a Minnesota state employee, you may be eligible to participate in one of several pension plans offered through the MSRS. While the financial health of this system is favorable, it’s important to create a realistic retirement savings plan and utilize other investments to meet your retirement goals.


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