T.C. Memo. 2008-101

UNITED STATES TAX COURT

GEORGE AND HAZELANN TATEOSIAN, Petitioners v. 

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 13019-05. Filed April 16, 2008.

Thomas E. Brever, for petitioners.

Lisa R. Woods, for respondent. 

MEMORANDUM OPINION

KROUPA, Judge: Respondent determined a $10,085 deficiency

in petitioners’ Federal income tax and a $2,017 accuracy-related

penalty for 2003. Two issues are presented for our decision. 

The first is whether certain payments that petitioner received

from the Public Employees Retirement Association of Minnesota
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1All section references are to the Internal Revenue Code in

effect for the year at issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure, unless otherwise

indicated.

(PERA) are disability payments and excludable from gross income

or pension payments and includable. We hold that they are

includable in income. The second issue is whether petitioners

are liable for the accuracy-related penalty under section

6662(a).1 We hold that they are not.

Background

This case was submitted fully stipulated pursuant to Rule

122. The stipulation of facts and the accompanying exhibits are

incorporated by this reference. Petitioners resided in St. Paul,

Minnesota at the time their petition was filed. 

George Tateosian (petitioner) was born on October 28, 1927,

and became a member of the Saint Paul Police Department in 1955. 

By reason of an injury sustained in the line of duty, he was

permanently disabled on June 18, 1959, after fewer than 5 years

of service. The St. Paul Police Relief Association (SPPRA)

awarded petitioner an on-duty-disability pension on August 1,

1960. Initially, petitioner’s disability payment was determined

without regard to his age or length of service. Petitioner began

receiving disability benefits in the sum of 40 units per month

under this regimen in 1960. A “unit” was defined as “onehundredth of the current maximum monthly pay of a police officer
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2There has been no question raised in this case concerning

which party bears the burden of proof or the burden of going

forward with the evidence. 

in the police service of the city.” Petitioner’s units were not

recalculated, but they were increased for cost-of-living

adjustments. 

Petitioner initially received his payments from his local

relief association, SPPRA. At some point, SPPRA began treating

petitioner’s payments as taxable. SPPRA then consolidated with

PERA in 1994. At the time of the consolidation, petitioner

signed a form electing PERA to provide his future payments under

the Public Employees Police and Fire Fund Benefit Plan (PEPFF

Benefit Plan), as set forth by Minn. Stat. Ann. ch. 353 (West

2004). 

Petitioner received $37,271 from PERA in 2003. PERA issued

petitioner a Form 1099-R, Distributions From Pensions, Annuities,

Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts,

etc., indicating that petitioner received $37,271 in taxable

income for 2003. Petitioners did not report this amount on their

tax return for 2003.

Discussion2

The question we consider is whether the payments received

are includable in petitioners’ income for 2003. Petitioner

contends that the disputed distributions are excludable from

gross income as disability payments in the same manner as
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worker’s compensation. Respondent argues that the payments are

includable in petitioner’s income because they had been converted

to pension payments. 

Gross income includes all income from whatever source

derived unless excludable by a specific provision of the Internal

Revenue Code. See sec. 61(a). Amounts received as compensation

for personal injuries under worker’s compensation acts and

statutes in the nature of a worker’s compensation act are

excluded from gross income. See sec. 104(a)(1); sec. 1.104-1(b),

Income Tax Regs. Courts have strictly construed this exclusion

so as to conform with the general rule that income is taxable

unless specifically excluded. McDowell v. Commissioner, T.C.

Memo. 1997-500; see also Kane v. United States, 43 F.3d 1446,

1449 (Fed. Cir. 1994).

A statute is in the nature of a worker’s compensation act

only if it provides disability payments solely for servicerelated personal injury or sickness. Take v. Commissioner, 82

T.C. 630, 634 (1984), affd. 804 F.2d 553 (9th Cir. 1986). A

retirement pension that is determined by reference to the

employee’s age or length of service, even though the employee’s

retirement is occasioned by injury, is includable in income. 

Wiedmaier v. Commissioner, T.C. Memo. 1984-540, affd. 774 F.2d

109 (6th Cir. 1985); Sec. 1.104-1(b), Income Tax Regs. 
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3In one instance, the taxpayer’s pension plan labeled his

benefits a “reduced disability allowance”. Wiedmaier v.

Commissioner, T.C. Memo. 1984-540, affd. 774 F.2d 109 (6th Cir.

1985). The Court nevertheless held that the reduced disability

allowance was taxable. Id. Petitioner’s disability/retirement

fund treated his payments during 2003 as taxable and nothing in

the record indicates that the fund labeled them “disability”

payments.

In another case, the Court of Appeals for the Ninth Circuit

considered whether certain payments were taxable. Picard v.

Commissioner, 165 F.3d 744 (9th Cir. 1999), revg. T.C. Memo.

1997-320. The Court of Appeals distinguished the holdings in

Mabry v. Commissioner, T.C. Memo. 1985-328, and Wiedmaier v.

Commissioner, supra, in reversing this Court. That situation

involved an Oakland police officer who sustained injuries while

on duty. Picard v. Commissioner, supra at 744. The disability

retirement plan provided that the amount the taxpayer received

would be reduced on the date on which he would have completed 25

(continued...)

This Court has previously considered the nature of payments

under certain State disability and/or pension programs. Levesque

v. Commissioner, T.C. Memo. 1999-57; Picard v. Commissioner, T.C.

Memo. 1997-320, revd. 165 F.3d 744 (9th Cir. 1999); Mabry v.

Commissioner, T.C. Memo. 1985-328; Wiedmaier v. Commissioner,

supra. Mabry and Wiedmaier involved payments to disability

retirees that were initially excludable but became includable in

income when the disabled taxpayers would have qualified for a

service retirement if they had continued in active work status. 

This Court held in both instances that payments under those

circumstances did not meet the requirements for exclusion under

section 104(a)(1) because benefits were formally transformed into

service retirement when the disabled employee reached a certain

age and/or completed a certain number of years of service.3 It
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3(...continued)

years of service, which was when he would have qualified for

retirement if he had never become disabled. Id. The Court of

Appeals held that the payments were disability benefits and

excludable, reasoning that at the time the police officer’s

pension was reduced, he was not transferred from a disability

pension to a general pension. Id. at 746-747. The Court of

Appeals also distinguished Picard from Mabry and Wiedmaier

because the taxpayer’s benefits were determined by the date of

hire rather than reference to age or length of service.

4The provision states, in part, as follows:

If the date of such retirement [for physical

(continued...)

was explained in Mabry that to be excludable, payments may be

based only on disability and that when other factors, including

age and length of service, are taken into account, the payments

will not fall within section 104(a)(1). 

Determination of Petitioner’s Benefits

We look to State law in our consideration of whether the

payments received are disability or retirement payments. 

Accordingly, we must examine the bylaws of petitioner’s local

relief association and the applicable Minnesota statutes to

determine whether petitioner must include the payment in income.

 The SPPRA bylaws define a “Duty Disability Pensioner” as a

member who has been permanently disabled so as to render

necessary his retirement from active police service because of an

injury received while on duty. A duty disability pensioner

receives 40 units per month if the retirement occurs during the

first 20 years of service.4 Under this regimen, petitioner began
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4(...continued)

or mental disability because of injury

received or suffered while on duty] is

subsequent to January 1, 1949, he/she shall

receive the sum of 40 units per month if the

retirement is necessary during the first 20

years of his/her service * * *.

5The texts of Minn. Stat. Ann. secs. 423A.11 and 423A.15

(West 2001) are reproduced in the appendix to this opinion. 

receiving disability benefits in the sum of 40 units per month in

1960. 

The same bylaws define a service pensioner as a member who

retires after having attained a minimum age of 50 and having at

least 20 years of service in the police department. Notably,

service pensioners also receive a basic pension of 40 units per

month under the SPPRA bylaws. The bylaws do not provide for the

conversion of disability benefits into retirement benefits. 

Legislative Changes Affecting SPPRA

In 1982 Minnesota enacted statutes that affected many

recipients of disability pensions. Minn. Stat. Ann. secs.

423A.11, 423A.15 (West 2001). Minn. Stat. Ann. sec. 423A.11

affects individuals receiving a disability benefit from a local

relief association on March 24, 1982. Minn. Stat. Ann. sec.

423A.15.5 This provision terminated the disability benefit of a

member of a local police relief association when that member’s

years of service credited for active duty coupled with his/her

years of receipt of a disability benefit equaled the number of
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years of service that would entitle him/her to a service pension

of the disability benefit. See Minn. Stat. Ann. sec. 423A.11,

subd. 1(b). This provision applies if the member does not have

enough active-duty credit to entitle him/her to a service pension

in an amount equal to the disability benefit when he/she attains

the minimum age for retirement provided by the relief

association’s bylaws. See id. The disabled member is deemed a

service pensioner after the disability benefit terminates and is

entitled to receive a service pension in an amount equal to the

disability benefit. Minn. Stat. Ann. sec. 423A.11, subd. 2. The

disability benefit that was transformed into a service pension is

then subject to any annual automatic adjustments applicable to

any other service pension payable by the relief association. Id.

Relief association members who meet the age and service

requirements for termination of their disability benefits become

ineligible for a disability benefit. Minn. Stat. Ann. sec.

423A.11, subd. 3.

Petitioner was receiving disability payments from SPPRA, a

local relief association, on March 24, 1982; therefore, Minn.

Stat. Ann. secs. 423A.11 and 423A.15 applied to him. Minn. Stat.

Ann. secs. 423A.11, subd. 1(b), 423A.15. By March 24, 1982, the

length of time that petitioner worked combined with the length of

time that he received disability benefits was long enough to

entitle him to a service pension in the amount of 40 units under
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Minn. Stat. Ann. sec. 423A.11. He also had reached 50 years of

age, the minimum age for receipt of retirement as provided by the

SPPRA bylaws. Accordingly and consistent with the provisions of

Minn. Stat. Ann. secs. 423A.11 and 423A.15, petitioner’s

disability benefits terminated on March 24, 1982. Moreover, the

same statute that terminated his disability benefit specifically

deemed him to be a service pensioner. See Minn. Stat. Ann. sec.

423A.11, subd. 2. 

Because Minn. Stat. Ann. sec. 423A.11 “terminated”

petitioner’s disability benefits and deemed him a service

pensioner, his payments could no longer be characterized as

compensation for personal injuries under a statute in the nature

of a worker’s compensation act. See sec. 104(a)(1); sec. 1.104-

1(b), Income Tax Regs. Petitioner’s benefits became taxable when

they were legally and formally transformed into a service

retirement upon petitioner’s attaining a certain age and/or

completing a certain number of years of service. See Mabry v.

Commissioner, T.C. Memo. 1985-328; Wiedmaier v. Commissioner,

T.C. Memo. 1984-540. 

These circumstances offer more persuasive support for

treating petitioner’s payments as retirement payments than the

circumstances presented in Picard, Mabry, or Wiedmaier. Minn.

Stat. Ann. sec. 423A.11 explicitly terminates the disability

benefit and deems the payments a retirement pension. Moreover,
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6Petitioner’s election was consistent with the terms of

Minn. Stat. Ann. sec. 353A.08 and Minn. Stat. Ann. sec. 353.659

(West 2004), which were enacted in 1987 to allow for a benefit

recipient to elect to have his plan administered by the Public

Employees Police and Fire Fund Benefit Plan (PEPFF Benefit Plan)

under PERA or to continue coverage with his local relief

association. Petitioner chose to have his plan administered by

PEPFF and PERA in 1994 because that is when his local relief

association consolidated with PERA. 

petitioner’s benefits were determined by reference to his age and

length of service, as distinguished from those at issue in

Picard. See Picard v. Commissioner, 165 F.3d at 746.

Minn. Stat. Ann. sec. 423A.11 changed petitioner’s payment

from a disability benefit into a retirement benefit, which was

determined with respect to his age and length of service. 

Because petitioner elected PERA coverage under Minn. Stat. ch.

353 in 1994, we now address the effect, if any, of that

election.6 

In an attempt to overcome the effects of Minn. Stat. Ann.

sec. 423A.11, petitioner makes three arguments with respect to

his PERA election. Petitioner first argues that his benefits are

not within the statutory scheme of Minn. Stat. Ann. sec. 423A.11

because his benefits are under the statutory scheme of PERA. 

Petitioner’s argument is not factually or legally supported by

the record. Petitioner elected PERA coverage in 1994 after his

annuity payments had already been deemed to be retirement

payments under Minn. Stat. Ann. sec. 423A.11 in 1982. See Minn.
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7The text of Minn. Stat. Ann. sec. 353.659 is reproduced in

the appendix to this opinion.

8The text of Minn. Stat. Ann. sec. 353.656 (West 2004) is

reproduced in the appendix to this opinion.

9Petitioner has not suggested that there exists, nor have we

found, any statutory directive automatically converting his post1994 payments from retirement into disability payments.

Stat. Ann. sec. 353.659.7 Accordingly, as of 1994 when he

elected PERA coverage under Minn. Stat. Ann. ch. 353,

petitioner’s payments were retirement payments, and neither party

has presented any evidence or law that the characterization

changed after 1982.

Petitioner next argues that his payments were normal

disability benefits as described by Minn. Stat. Ann. sec.

353.656, subd. 6a.8 To that end, petitioner relies upon the

language of Minn. Stat. Ann. sec. 353.656, subd. 6a, which

provides that a member receiving a disability benefit “may

continue to receive a normal disability benefit” if he/she is

living at age 65.9 

To thoroughly address this argument, we look to the complete

text of Minn. Stat. Ann. sec. 353.656. Two provisions within

Minn. Stat. Ann. sec. 353.656 provide for members receiving

disability payments to make an election to continue to receive

disability payments in lieu of other forms of payment. 

Minn. Stat. Ann. sec. 353.656 subd. 1a provides that a

disabled member of the PEPFF may elect to receive a normal
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disability benefit. Minn. Stat. Ann. sec. 353.656, subd. 6a,

allows a member who receives a disability benefit to elect to

continue to receive a normal disability benefit if he or she is

living at age 65. Petitioner provided no evidence that he made

such an election.

Minn. Stat. Ann. sec. 353.656, subd. 6a, allows a member who

receives a disability benefit to elect to continue to receive

that benefit at age 65. Petitioner presented no evidence of an

election under this subdivision, either. Also, Minn. Stat. Ann.

sec. 353.656, subd. 6a, would not have applied to him because he

was not receiving a disability benefit at the time this statute

became applicable to PERA members. He was already receiving a

retirement benefit. Moreover, PERA treated petitioner’s benefits

as taxable, and presumably PERA would not have done so had he

made an election to receive normal disability benefits. 

Petitioner’s third argument is that Minn. Stat. Ann. sec.

423A.11 is being retroactively applied to him because he began

receiving payments earlier than 1982. The only tax year in this

case is 2003. Petitioner’s retroactivity argument thus misses

the mark. 

We are sympathetic to petitioner, a police officer disabled

in the line of duty. Under the facts and circumstances of this

case, however, petitioner’s payments remained retirement payments

once he elected PERA, and they are treated as retirement payments
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under PERA and Minn. Stat. Ann. ch. 353. Accordingly, we must

hold that the payments are subject to tax.

Whether Petitioner Is Liable for the Accuracy-Related Penalty

Respondent determined that petitioners are liable for the

accuracy-related penalty under section 6662(a) with respect to

the underpayment attributable to petitioners’ omission of the

payments from PERA from their income. Petitioners contend that

they should not be liable for this penalty. We agree with

petitioners.

Respondent has the burden of production and must come

forward with sufficient evidence that it is appropriate to impose

the penalty. See sec. 7491(c); Higbee v. Commissioner, 116 T.C.

438, 446-447 (2001). Section 6662(a) imposes an accuracy-related

penalty on any portion of an underpayment of tax required to be

shown on a return if that portion is attributable to negligence

or disregard of rules or regulations or any substantial

understatement of income tax. See sec. 6662(a) and (b)(1) and

(2); sec. 1.6662-2(a)(1) and (2), Income Tax Regs.

Negligence is the lack of due care or failure to do what a

reasonable and ordinarily prudent person would do under the same

circumstances. Neely v. Commissioner, 85 T.C. 934 (1985).

Disregard is characterized as any careless, reckless, or

intentional disregard. See sec. 6662(c); sec. 1.6662-3(b)(2),

Income Tax Regs. Negligence is strongly indicated where a
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taxpayer fails to include on an income tax return an amount of

income shown on an information return. See sec. 1.6662-3(b)(1),

Income Tax Regs. 

There is a substantial understatement of income tax if the

amount of the understatement exceeds the greater of either 10

percent of the tax required to be shown on the return, or $5,000. 

Sec. 6662(d)(1)(A); sec. 1.6662-4(b)(1), Income Tax Regs.

Petitioners failed to include as income the amount shown on

the information return sent by PERA. Therefore, respondent has

met his burden of production with respect to this penalty. The

accuracy-related penalty does not apply, however, to any portion

of an underpayment for which there was reasonable cause and where

the taxpayer acted in good faith with respect to that portion. 

See sec. 6664(c)(1); sec. 1.6664-4(a), Income Tax Regs. The

determination of whether the taxpayer acted with reasonable cause

and in good faith is made on a case-by-case basis, taking into

account all pertinent facts and circumstances. Sec. 6664(c)(1);

sec. 1.6664-4(b), Income Tax Regs. Circumstances that may

indicate reasonable cause and good faith include an honest

misunderstanding of fact or law that is reasonable in light of

all the facts and circumstances, including the experience,

knowledge and education of the taxpayer. Sec. 1.6664-4(b)(1),

Income Tax Regs. We have chosen not to impose penalties in

instances where an area of law is novel or the statute is
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unclear. See, e.g. Williams v. Commissioner, 123 T.C. 144, 153

(2004); Hitchens v. Commissioner, 103 T.C. 711, 719-720 (1994);

Facq v. Commissioner, T.C. Memo. 2006-111. 

Petitioner, a disabled policeman, received a disability

annuity for many years. Minnesota law then changed so that

petitioner’s annuity would, at a time defined in the statute,

become a retirement annuity. Further confusing this situation,

petitioner’s annuity changed from one payment plan to another and

came under the provisions of a different Minnesota statute that

used the term “disabled” in a manner that led petitioner to

believe that his annuity continued as one subject to the

disability provisions. Considering petitioner’s education,

background, and the complexity of the statutory scheme in this

case, we hold that petitioner acted with reasonable cause and in

good faith based on his understanding of Minnesota law. His

misunderstanding was reasonable in light of the facts and

circumstances here. Petitioners have established that they had

reasonable cause and acted in good faith when they failed to

include the $37,271 in pension payments on their return. 

Accordingly, we hold that petitioners are not liable for the

accuracy-related penalty. 
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To reflect the foregoing,

Decision will be entered

for respondent with respect to

the deficiency and for

petitioners with respect to

the penalty under section

6662(a).
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APPENDIX

Provisions of Chapter 423A

423A.11. Recomputation of a disability benefit as a service

 pension

 Subdivision 1. Termination of disability benefit. The

disability benefit of any disabled member of a local police or

salaried firefighters relief association, whichever is

applicable, shall terminate when the disabled member attains:

 (a) the minimum age for the receipt of a service pension

specified in the articles of incorporation or the bylaws of the

relief association, if the disabled member has credit for at

least the number of years of service for active duty which would

entitle the disabled member to a service pension in an amount

equal to the amount of the disability benefit; or

 (b) the age attained by the disabled member when the total

number of years of service credited for active duty and of years

of receipt of a disability benefit equals the number of years of

service credit which would entitle the disabled member to a

service pension in an amount equal to the amount of the

disability benefit, if the disabled member has credit for less

than the number of years of service for active duty which would

entitle the disabled member to a service pension in an amount

equal to the amount of the disability benefit when the disabled

member attains the minimum age for the receipt of a service

pension specified in the articles of incorporation or the bylaws

of the relief association.

 Subd. 2. Amount of disability benefit recomputed as a service

pension. After the disability benefit terminates, the disabled

member shall be deemed to be a service pensioner and shall be

entitled to receive a service pension in an amount equal to the

disability benefit without any benefit offset required pursuant

to any applicable provision of law, articles of incorporation or

bylaws which was payable by the relief association immediately

prior to the date when the disability benefit terminated pursuant

to this section or the service pension otherwise payable based on

the service credit for active duty of the person, whichever

amount is greater. The disability benefit recomputed as a service

pension shall be subject to any annual automatic post retirement

adjustments or escalation applicable to any other service pension

payable by the relief association.
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 Subd. 3. Limitation on disability benefit coverage. No relief

association member who has attained the age and acquired the

service credit for termination of a disability benefit specified

in subdivision 1 shall be eligible for a disability benefit after

that date. If a relief association member who is ineligible for a

disability benefit solely pursuant to the limitation set forth in

this subdivision becomes permanently unable to perform the duties

of a police officer or a firefighter, whichever is applicable, by

virtue of a medically determinable illness or injury, the member

shall be eligible to a service pension in an amount equal to the

amount of the disability benefit which would have been paid had

the person been entitled to a disability benefit, or the amount

of the service pension otherwise payable based on the service

credit for active duty of the person, whichever is greater.

423A.15. Effect of provisions for existing disability benefit

 recipients

 The provisions of section 423A.06 shall apply to any member of

any applicable local relief association in active service on or

after March 24, 1982. The provisions of section 423A.11 shall

apply to any person receiving a disability benefit from a local

relief association on or after March 24, 1982. The provisions of

section 423A.12 shall apply to any person who returns to active

employment as a police officer or firefighter, whichever is

applicable, after receipt of a permanent disability benefit. The

provisions of section 423A.14 shall apply to any person who first

commences receipt of a disability benefit after March 24, 1982. 

Provisions of Chapter 353 (PERA)

353.656. Disability benefits

 Subdivision 1. In line of duty; computation of benefits. A

member of the police and fire plan who becomes disabled and

physically unfit to perform duties as a police officer,

firefighter, or paramedic as defined under section 353.64,

subdivision 10, as a direct result of an injury, sickness, or

other disability incurred in or arising out of any act of duty,

which has or is expected to render the member physically or

mentally unable to perform the duties as a police officer,

firefighter, or paramedic as defined under section 353.64,

subdivision 10, for a period of at least one year, shall receive

disability benefits during the period of such disability. The

benefits must be in an amount equal to 60 percent of the "average

salary" as defined in section 353.651, subdivision 2, plus an

additional percent specified in section 356.315, subdivision 6,

of that average salary for each year of service in excess of 20
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years. If the disability under this subdivision occurs before the

member has at least five years of allowable service credit in the

police and fire plan, the disability benefit must be computed on

the "average salary" from which deductions were made for

contribution to the police and fire fund.

 Subd. 1a. Optional annuity election. A disabled member of the

police and fire fund may elect to receive the normal disability

benefit or an optional annuity as provided in section 353.30,

subdivision 3. The election of an optional annuity may be made

prior to commencement of payment of the disability benefit or as

specified under subdivision 6a. The optional annuity shall begin

to accrue on the same date as provided for the disability benefit.

 (1) If the person who is not the spouse of the member is named

as beneficiary of the joint and survivor optional annuity, the

person is eligible to receive the annuity only if the spouse, on

the disability application form prescribed by the executive

director, permanently waives the surviving spouse benefits under

section 353.657, subdivisions 2 and 2a. If the spouse of the

member refuses to permanently waive the surviving spouse

coverage, the selection of a person other than the spouse of the

member as a joint annuitant is invalid.

 (2) If the spouse of the member permanently waives survivor

coverage, the dependent child or children, if any, continue to be

eligible for survivor benefits, including the minimum benefit

under section 353.657, subdivision 3. The designated optional

annuity beneficiary may draw the monthly benefit; however, the

amount payable to the dependent child or children and joint

annuitant must not exceed the 70 percent maximum family benefit

under section 353.657, subdivision 3. If the maximum is exceeded,

the benefit of the joint annuitant must be reduced to the amount

necessary so that the total family benefit does not exceed the 70

percent maximum family benefit amount.

 (3) If the spouse is named as the beneficiary of the joint and

survivor optional annuity, the spouse may draw the monthly

benefit; however, the amount payable to the dependent child or

children and the joint annuitant must not exceed the 70 percent

maximum family benefit under section 353.657, subdivision 3. If

the maximum is exceeded, each dependent child will receive ten

percent of the member's specified average monthly salary, and the

benefit to the joint annuitant must be reduced to the amount

necessary so that the total family benefit does not exceed the 70

percent maximum family benefit amount. The joint and survivor

optional annuity must be restored to the surviving spouse, plus

applicable postretirement adjustments under section 356.41, as
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the dependent child or children become no longer dependent under

section 353.01, subdivision 15.

 Subd. 2. Benefits paid under workers' compensation law. If a

member, as described in subdivision 1, is injured under

circumstances which entitle the member to receive benefits under

the workers' compensation law, the member shall receive the same

benefits as provided in subdivision 1, with disability benefits

paid reimbursed and future benefits reduced by all periodic or

lump sum amounts paid to the member under the workers'

compensation law, after deduction of amount of attorney fees,

authorized under applicable workers' compensation laws, paid by a

disabilitant if the total of the single life annuity actuarial

equivalent disability benefit and the workers' compensation

benefit exceeds: (1) the salary the disabled member received as

of the date of the disability or (2) the salary currently payable

for the same employment position or an employment position

substantially similar to the one the person held as of the date

of the disability, whichever is greater. The disability benefit

must be reduced to that amount which, when added to the workers'

compensation benefits, does not exceed the greater of the

salaries described in clauses (1) and (2).

 Subd. 2a. Reduction restored; overpayment. A disabled member

who is eligible to receive a disability benefit under subdivision

2 as of June 30, 1987, and whose disability benefit amount had

been reduced prior to July 1, 1987, as a result of the receipt of

workers' compensation benefits, must have the disability benefit

payment amount restored, as of July 1, 1987, calculated in

accordance with subdivision 2. However, a disabled member is not

entitled to receive retroactive repayment of any disability

benefit amounts lost before July 1, 1987, as a result of the

reduction required before that date because of the receipt of

workers' compensation benefits.

 Any disability benefit overpayments made before July 1, 1987,

and occurring because of the failure to reduce the disability

benefit payment to the extent required because of the receipt of

workers' compensation benefits, may be collected by the

association through the reduction of disability benefit or

annuity payment made on or after July 1, 1987, until the

overpayment is fully recovered. 

 Subd. 3. Nonduty disability benefit. Any member of the police

and fire plan who becomes disabled after not less than one year

of allowable service because of sickness or injury occurring

while not on duty as a police officer, firefighter, or paramedic

as defined under section 353.64, subdivision 10, and by reason of
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that sickness or injury the member has been or is expected to be

unable to perform the duties as a police officer, firefighter, or

paramedic as defined under section 353.64, subdivision 10, for a

period of at least one year, is entitled to receive a disability

benefit. The benefit must be paid in the same manner as if the

benefit were paid under section 353.651. If a disability under

this subdivision occurs after one but in less than 15 years of

allowable service, the disability benefit must be the same as

though the member had at least 15 years service. For a member who

is employed as a full-time firefighter by the department of

military affairs of the state of Minnesota, allowable service as

a full-time state military affairs department firefighter

credited by the Minnesota state retirement system may be used in

meeting the minimum allowable service requirement of this

subdivision.

 Subd. 4. Limitation on disability benefit payments. (a) No

member is entitled to receive a disability benefit payment when

there remains to the member's credit unused annual leave or sick

leave or under any other circumstances when, during the period of

disability, there has been no impairment of the person's salary

as a police officer or a firefighter, whichever applies. 

 (b) If a disabled member resumes a gainful occupation with

earnings less than the disabilitant reemployment earnings limit,

the amount of the disability benefit must be reduced as provided

in this paragraph. The disabilitant reemployment earnings limit

is the greater of:

 (1) the salary earned at the date of disability; or

 (2) 125 percent of the salary currently paid by the employing

governmental subdivision for similar positions. 

 The disability benefit must be reduced by one dollar for each

three dollars by which the total amount of the current disability

benefit, any workers' compensation benefits, and actual earnings

exceed the greater disabilitant reemployment earnings limit. In

no event may the disability benefit as adjusted under this

subdivision exceed the disability benefit originally allowed.

 Subd. 5. Proof of disability. A disability benefit payment

must not be made except upon adequate proof furnished to the

association of the existence of such disability, and during the

time when disability benefits are being paid, the association has

the right, at reasonable times, to require the disabled member to

submit proof of the continuance of the disability claimed. A

person applying for or receiving a disability benefit shall

provide or authorize release of medical evidence, including all
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medical records and information from any source, relating to an

application for disability benefits.

 Subd. 5a. Cessation of disability benefit. The association

shall cease the payment of an in-line-of-duty or nonduty

disability benefit the first of the month following the

reinstatement of a member to full time or less than full-time

service in a position covered by the police and fire fund.

 Subd. 6. Repealed by Laws, 1993, c. 307, art. 4, § 54.

 Subd. 6a. Disability survivor benefits. If a member who is

receiving a disability benefit under subdivision 1 or 3:

 (a) dies before attaining age 65 or within five years of the

effective date of the disability, whichever is later, the

surviving spouse shall receive a survivor benefit under section

353.657, subdivision 2 or 2a, unless the surviving spouse elected

to receive a refund under section 353.32, subdivision 1. The

joint and survivor optional annuity under subdivision 2a is based

on the minimum disability benefit under subdivision 1 or 3, or

the deceased member's allowable service, whichever is greater.

 (b) is living at age 65 or five years after the effective date

of the disability, whichever is later, the member may continue to

receive a normal disability benefit, or the member may elect a

joint and survivor optional annuity under section 353.30. The

optional annuity is based on the minimum disability benefit under

subdivision 1 or 3, or the member's allowable service, whichever

is greater. The election of this joint and survivor annuity must

occur within 90 days of age 65 or the five-year anniversary of

the effective date of the disability benefit, whichever is later.

The optional annuity takes effect the first of the month

following the month in which the person attains age 65 or reaches

the five-year anniversary of the effective date of the disability

benefit, whichever is later.

 (c) if there is a dependent child or children under paragraph

(a) or (b), the association shall grant a dependent child benefit

under section 353.657, subdivision 3.

353.659. Local relief association consolidation account benefits

 For any person who has prior service covered by a local police

or firefighters relief association which has consolidated with

the public employees retirement association and who has elected

the type of benefit coverage provided by the public employees

police and fire fund benefit plan under section 353A.08 following
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the consolidation, any retirement benefits payable are governed

by the applicable provisions of this chapter. For any person who

has prior service covered by a local police or firefighters

relief association which has consolidated with the public

employees retirement association and who has not elected the type

of benefit coverage provided by the public employees police and

fire fund benefit plan under section 353A.08 following the

consolidation, any retirement benefits payable are governed by

the provisions of sections 353B.01 to 353B.13 which apply to the

relief association.