The proposed PERA legislation is a serious blow to any duty-disabled first responder who returns to work in a new profession.
There are three important parts to HF 1234 / SF 1959:
(1) The bill severely penalizes duty disabled first responders who return to work in a new profession by introducing two new penalties that would have a catastrophic impact on those who are trying to rebuild their lives.
(2) The bill requires a member who was previously approved for duty disability benefits for any type of injury (physical or mental) to *reapply* every year for the first five years and every three years thereafter, putting their duty-disability benefits and 299A health insurance at risk.
(3) The bill requires a member to treat for 24-32 weeks before applying for duty disability benefits based on a psychological injury. It complicates an already complicated process by adding more time and more steps for applicants.
Overview of proposed offsets
Basically, the proposed legislation states that a duty-disabled police officer, firefighter, correctional officer, and paramedics who returns to work in a new profession is subject to two offsets to their PERA duty disability benefits:
- Offset #1: 100% of their earnings from their new job will be used to offset their PERA duty disability benefits, in an amount up to 11.8% of the income they were earning at the time they were injured.
- Offset #2: 100% of their earnings from a combination of their PERA duty disability benefits and their earnings from a new job, above the amount they were earning at the time they were injured.
This is complicated, so here’s an example of how it would work:
Assume that your PERA benefits are based on pre-injury earnings of $100,000 per year. Assume that you contributed to PERA for 20 years and are entitled to duty-disability benefits equal to 60% of pre-injury earnings. Here is how the offsets would work.
Scenario #1 (higher-wage earner)
| Pre-injury earnings used to calculate your PERA benefits | $100,000 per year |
| PERA benefits: | $60,000 per year (tax-free) |
| Earnings from new job: | $80,000 per year (taxable) |
| Offset #1: | $11,800 per year: 11.8% of the pre-injury earnings |
| Offset #2: | $40,000 per year: $140,000 per year (PERA benefits + new job) less $100,000 per year (pre-injury earnings) |
| Net income after offsets: | $88,200 per year |
Scenario #2 (lower-wage earner)
| Pre-injury earnings used to calculate your PERA benefits: | $100,000 per year |
| PERA benefits: | $60,000 per year (tax-free) |
| Earnings from new job: | $20,000 per year (taxable) |
| Offset #1: | $11,800 per year: 11.8% of the pre-injury earnings |
| Offset #2: | Does not apply, because you are not receiving more that your pre-injury earnings from a combination of PERA and your new job |
| Net income after offsets: | $68,200 per year, which accounts for $20,000 per year from your new job (taxable) + $48,200 per year from PERA benefits (tax-free) |
Under both scenarios, you would effectively receive ½ (or less!) of the actual earnings from your new job. The negative impact of these offsets is compounded by the fact that you would be losing out on the tax preferred status of a significant portion of your PERA benefits.
And, if you are earning less than $11,800 per year from a new job (based on these assumptions), then you would be working for free, because 100% of your earnings would offset your PERA duty disability benefits. In fact, you would be effectively “paying” to work, because the amount used to calculate your offset is taxed and is applied against your PERA benefits, which are tax-free.
If you have questions about how the proposed PERA legislation might impact you, then contact us at 952-234-7594 or use our contact form.