Major Positive Changes to Deferred Compensation in the MMA Contract

It is that time of the fiscal year to remind MMA members of the steps necessary to receive the $400 deferred compensation match or the vacation conversion for eligible supervisors of up to 40 hours of vacation to deferred compensation. This article is also going to share two positive changes to the conversion of vacation to deferred compensation that could impact your decision to convert vacation to deferred compensation this fiscal year and will be available next fiscal year and ongoing after that.

Before getting into the changes, it is extremely important under both the previous and new language you must make the affirmative action to sign up for and complete the process. You can make the election electronically through Self-Service or on forms provided to you by your agency’s human resources office. Currently, deferred compensation is either choosing the $400 employer match or, if eligible, the conversion of vacation hours to deferred compensation. You must make an election. It will not be made for you.

Changes were bargained into the 2021 -2023 MMA/State of Minnesota Contract involving deferred compensation. These changes enhance for the membership the existing provisions in the 2019 - 2021 Contract.

Specifically, two provisions were changed regarding your ability to convert vacation hours to deferred compensation.

• The requirement of having to use 3 hours of vacation for every hour of vacation you want to convert has been removed. This is significant for two reasons. One, it increases the amount of money going into deferred compensation and may make the difference in your decision to choose the $400 match or convert vacation. Second, previously you may not have been able to take off vacation (enough to make the conversion worthwhile) which limited the number of hours in a fiscal year you could convert. Now, you can convert up to 40 hours which may help keep under the 275 hour vacation balance cap and still allow you to have a vacation balance allowing you to take vacation.

This provision is in effect now so if you are eligible and have not yet made the decision to take the match or do the conversion, you may want to consider converting vacation up to 40 hours into deferred compensation.

• Beginning July 1, 2022, all supervisors will be eligible to convert up to 40 hours of vacation into deferred compensation. Previously only supervisors who were at the top of their pay range were allowed to convert vacation.

Advantages of the $400 match.

1. This is the highest match of any of the bargained agreements with the State.
2. If divided over 26 pay periods, you would only have to put in $16 a pay period to get the full match or you could make a one-time $400 deposit to get the match.
3. You are not forced to use your vacation so you can get the match one year and convert vacation the next year. You may be in the process of building up your vacation balance and/or may be planning to use a lot of your vacation in the near future so taking the match may be the better option for you.

Advantages of converting vacation to deferred compensation.

1. MMA is the only bargaining unit that has the vacation conversion to deferred compensation as a regular provision of its contract. With the new changes, the MMA vacation conversion provisions are equivalent to the provisions found in the Commissioner’s Plan.
2. The dollar amount, even if converting less than 40 hours of vacation, can be significantly more than the $400 match. If you are making $40 an hour and convert 20 hours of vacation you still will have $800 going into your deferred compensation account versus the $400 match.
3. If you have a vacation balance near or over 275 hours, converting 40 hours will lower that balance reducing the chance of you losing the amount you are over 275 hours and could be significantly more going into your deferred compensation account.
4. Converting vacation can increase your “high five” for retirement purposes. Under MSRS rules, the 40 hours of vacation conversion per fiscal year is considered the “53^rd week of pay” when calculating your earnings toward your highest paid consecutive 60 months for retirement.

As an example, the author of this article retired from State service over 2 years ago. He converted 40 hours of vacation in all of his last 5 years of employment prior to retirement. Here is the scenario and calculation showing the impact on his monthly retirement pay.

• Average hourly rate of pay for the 5 years = $45.
• Convert 40 hours per year x 5 years = 200 hours.
• Retirement multiplier (length of service of 31.2 years at the time of retirement x 1.7% MSRS multiplier for every year minus the 5% reduction for retiring prior to retirement age) = 48%.
• Converting High 5 years to months 5 x 12 = 60 months.
• $45 x 200 = $9000 converted to deferred compensation x 48% retirement multiplier = $4320 divided by 60 months = +$72 per month for the rest of his life.

MMA wants to make sure you know about this bargained benefit and encourages you to take advantage of the match or the vacation conversion!