Deferred Interest Type and Credit Methods

Administering interest during periods of deferral can be complicated. Generally, deferred service pensions must be calculated based on both state law and relief association bylaw provisions in effect on the date that each member separated from active service and membership. Deferred members of the same relief association could have interest that is calculated differently depending on when they separated from service.

Rules regarding interest earnings for deferred members depend, in part, on the type of pension plan the relief association administers. Relief associations need to make three decisions when deciding whether to credit interest to deferred members in their bylaws. The first decision is to choose the deferred interest type. The next decision is to define a deferred interest credit method. The last decision is to choose the types of deferred members that are eligible for deferred interest.

Defined Benefit Plans - Deferred Interest Types

Deferred interest types and credit methods are defined in State law. Minnesota Statutes provide various options for how interest will be credited, i.e., the “interest type.” Relief associations with defined benefit plans are not required to provide interest to deferred members. The deferred interest types available to defined benefit relief associations are:

  1. Setting up a separate investment account;
  2. Setting up a separate investment vehicle; or
  3. Allowing the board to set interest, up to five percent, compounded annually.

Defined Contribution Plans - Deferred Interest Types

Beginning January 1, 2021, all relief associations with a defined contribution plan are required to credit interest or additional investment performance to all deferred members. The deferred interest types available to defined contribution relief associations are:

  1. Setting up a separate investment account;
  2. Setting up a separate investment vehicle; or
  3. Crediting full investment gains and losses, allocated in the same manner as for active member.

Deferred Interest Credit Methods

Relief associations that elect to credit interest to a deferred member must decide on an interest credit method, including the interest credit starting date and ending date. Default credit methods for each deferred-interest type are set in statute, if a credit method is not defined in the relief association’s bylaws. A relief association may choose to define a different credit method in its bylaws, but if a method is not defined in the bylaws, or if the bylaw definition does not include the payment starting date and ending date, the default established in statute applies. There are three different credit methods for a relief association to choose from:

  1. Full calendar years
  2. Full calendar months
  3. Full period

Timing of Interest Rates

Interest rates set by a relief association’s board of trustees become payable beginning on January 1 following the date on which the rate was ratified by the municipality or independent nonprofit firefighting corporation. For example, a relief association’s board of trustees sets an interest rate of three percent on December 15, 2024. The affiliated city council ratifies the interest rate at its council meeting on January 20, 2025. The interest rate will become effective on January 1, 2026.

Additional Resources

More information can be found in a Statement of Position that provides additional information regarding statutory requirements for deferred interest types, credit methods, membership eligibility and the timing of deferred interest rates. Relief associations can refer to our Bylaw Guides for language on each of the deferred interest types and credit methods identified above. Training videos regarding deferred interest types and credit methods for defined benefit plans and for defined contributions plans are also available.

Last Updated April 2025