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INFORMATION BRIEF
Research Department
Minnesota House of Representatives
600 State Office Building
St. Paul, MN 55155
Mark Shepard, Legislative Analyst
651-296-5051 Updated: October 2009
Minnesota Public Pensions
Calculation of Retirement Benefits
This information brief describes the eligibility requirements and the method of
calculating retirement benefits for Minnesota public employee pension plans.
A public employee must have a minimum amount of service and must reach a
certain age to receive retirement benefits.
Generally, a public employee must have at least three years of service credit in a Minnesota
public pension plan to be eligible for retirement benefits. An employee who has met this three-
year minimum, known as the vesting period, also must reach a certain age before beginning to
receive benefits. The normal retirement age is 65 for most people who started public
employment before July 1, 1989, and 66 for most people who started on or after that date.
However, members may choose to receive a reduced level of benefits at age 55. Some public
safety employees can receive full benefits at age 55 and reduced benefits as early as age 50.
There are various formulas for calculating initial retirement benefits for
members of Minnesota public pension funds.
Most retirement benefits are based on a percentage of a person’s average salary for the five
highest-paid years of successive service (known as the high-five average salary).
House Research Department Updated: October 2009
Calculation of Retirement Benefits Page 2
The most common formula for determining the annual benefit is:
1.7% x years of service x high-five average salary
For example, a person with 20 years of service and a high-five average salary of $40,000 would
have an annual benefit calculated as follows:
1.7% x 20 years x $40,000 = $13,600/year, for life
There are numerous variations on this common formula. The most significant of these are the
following:
` For most teachers, the multiplier formula is 1.9 percent, instead of 1.7 percent, for
years of service after July 1, 2006.
` Employees who use certain early retirement options receive only 1.2 percent credit
for each of their first ten years of service (1.4 percent for most teachers for service
after July 1, 2006).
` The percentages used to calculate retirement benefits for certain law enforcement
personnel are higher. Employees in these plans are not covered by Social Security.
As a result, the plans are designed to provide somewhat higher benefits to
compensate.
Other factors can affect initial benefit levels.
Some employees retire early.
Public pension plans have a normal retirement age at which the full retirement benefit is payable.
This age is 65 for most employees first hired before July 1, 1989, and 66 for most employees
first hired after that date. For many public safety personnel, 55 is the normal retirement age.
The plans permit receiving retirement benefits before the normal age, but generally at a reduced
level, so the arrangement is cost neutral to the plan; that is, the plan pays a reduced level of
benefits but for a longer period of time. For example, a person who would receive $10,000 per
year for life if the person retired and began drawing benefits at age 65 might receive only $9,000
per year for life if the person retired and began drawing benefits at age 63. The exact amount of
the reduction is based on calculations by the plan’s actuary.
There are some special early retirement provisions under which people may retire early without
the reduction in benefits that usually applies to early retirement. One of these provisions is
House Research Department Updated: October 2009
Calculation of Retirement Benefits Page 3
known as the Rule of 90. The Rule of 90 refers to a person whose age and years of service totals
90 or more.
Some people leave public employment having met the vesting requirement but not the
minimum age requirement for retirement benefits.
These employees are entitled to deferred benefits and can begin to receive these benefits when
they reach the minimum age. When a person defers receipt of benefits, the amount of the benefit
is augmented from the time the person leaves public service until the person begins receiving the
benefit. The augmentation rate is 3 percent of the benefit amount per year until age 55, and 5
percent from age 55 until the time the person begins drawing benefits. (For persons first
employed after July 1, 2006, the rate is 2.5 percent both before and after age 55.)
Most Minnesota public pension plans offer retiring employees different options for
structuring retirement benefits.
A retiree may decide to receive benefits only for the remainder of his or her life. Under these
single-life payment forms, all benefits stop when the former employee dies. A common
alternative is a joint and survivor option. Under this option, payments in a reduced amount are
made for the life of the retired employee and for the life of a designated survivor. All optional
forms of benefits are of equal expected value at the time the option is selected, because the
periodic payment amount is adjusted to account for the probability of a longer payment period.
For example, if a person picks a survivor option, the person’s annual benefit will be lower than if
the person picked a single-life option to account for the longer life expectancy of two people
instead of one. If a person is married, the law requires that the spouse sign the retirement
application.
Retired employees receive annual benefit increases of 2.5 percent.
The formulas described so far apply to the initial calculation of a person’s retirement benefit.
Each retiree receives a benefit increase of 2.5 percent each January 1. The first increase paid to a
retiree is prorated, depending on the month when the person retired.
For more information about public employees, visit the state government operations area of our
web site, www.house.mn/hrd/hrd.htm.
