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The House Joint Select Committee on Pensions has Completed Their Work

Posted Date: 
March 15, 2013
Sheryl Wood, Associate Director, Montana Association of Counties

Now YOUR Help is Needed

On Tuesday, March 12, the House Joint Select Committee (JSC) on Pensions took executive action on all of the bills under their purview.  Of the 15 bills they had under consideration pertaining to the retirement systems, 9 were tabled, 2 were passed in their original form, three were passed after amendments, and one was re-referred back to another Committee.  Of all of those bills, there are three important pension funding and structure bills that will affect counties left in the process:

  • HB 454 – Representative McChesney: Provide Funding for PERS Defined Benefit Plan, Revise GABA

    HB 454 is the Governor’s proposal to provide funding for the PERS system that MACo supports, as the proposal met or exceeded the majority of our guiding philosophies provided by our members.  This bill passed 7-5 following amendments in the Committee.  This bill has been re-referred to the House State Administration Committee for further review and consideration.  A new actuary report and fiscal note have been requested.  With the implementation of the changes to the funding in this bill, it is estimated the system would achieve a 36.7 year amortization by FY 2014. 

    Components of the bill:

    • Requires a 1% employee increase in contributions to a maximum of 7.9% of salary;
    • Requires a 1% employer increase in contributions to a maximum of 7.9% of payroll;
    • Allocates spendable interest from the Coal Tax Permanent Trust and dedicates up to $21 million of Coal Severance Tax Revenues to PERS on behalf of state and local public employers and employees;
    • Keeps the years of service requirement at 30 years;
    • Keeps the benefit calculation of highest average compensation at 5 years;
    • Changes the dates for the accrued principle to the Treasure State endowment Renewable resource Trust with in the Coal Tax Trust to FY 2017. (Note:  These dates needed to be changed in order to accommodate the additional revenues from the Coal Tax Permanent Trust);
    • Revises the guaranteed annual benefit adjustment (GABA) for new and current members; there were 2 amendments placed on the bill in the Committee regarding GABA:
      • Senator Jent:  The amendment provides that for new members of PERS, the 1.5% GABA will be reduced by 0.1% for each year that the amortization period for the system’s unfunded liabilities is greater than 25 years.
      • Representative Cook:  This amendment applies the same conditions on retirees and current employees of PERS as Senator Jent’s amendment.  It should be noted that under this amendment, although not a conflict, the actuarial conditions used in this amendment are related to the funded ration of the system, while the actuarial conditions used in Senator Jent’s amendment are related to the amortization period for the system’s unfunded liabilities.
  • HB 338: - Representative Regier - Provide Funding for Pension Debts, All New Hires to DC Plan

    HB 338 is what we referred to as the “kitchen sink” bill during our Midwinter Presentation.  It is a very complex bill that is 88 pages, has 90 sections (as introduced), and pertains to all retirement systems.  This bill was amended in Committee, and passed as amended on a vote of 8-4.  This bill has been re-referred to the House State Administration Committee for further review and consideration, and a new actuary report and fiscal note have been requested.  As this bill has a number of components to it, MACo carefully evaluated each section to determine how it fit within our guiding philosophies.  Based on that evaluation, MACo was allowed to testify as an informational witness to relay to the committee with what we concurred, opposed, and remained neutral.  Our position on each section is noted below with the outline of the main components of the bill:

    • Increases the PERS Board from 7 to 11 members:  Eliminates 2 at large members, adds 2 active or retired public safety officers, adds 2 who are teachers and adds 1 retired teacher and 1 school board member;
      • MACo opposes, as the expansion of the Board will add costs of administration, and the proposal does not allow local government (employer) to have a seat on the board.
    • Revises the powers and duties of the Revenue & Transportation, State Administration & Veterans Affairs, and Legislative Finance Committees regarding oversight of the pension systems;
      • MACo supports, as it adds increased monitoring and oversight of the systems.
    • Adds dollar amounts of Coal Severance Taxes to pension trust funds based proportionately to the system’s unfunded liabilities compared to total unfunded liabilities compared to total unfunded liabilities in all of the systems as of the latest valuation.  Beginning January 1, following valuations showing 100% funded, the funds would go to the general fund;
      • MACo supports, as it provides for statutory appropriations and funding for the unfunded actuarial liabilities for PERS and SRS.
    • Requires an annual actuarial valuation and projection of the flat dollar amount that would be needed to ensure each system is 100% funded by 2043;
      • MACo supports as it will provide annual information as to the fiscal status of the systems.
    • Provides that the PERS Board will contract for disability insurances, and allows a local government permissive tax levy for local governments;
      • While MACo supports permissive tax levy authority for additional costs, there are significant concerns that costs may increase due to the insurance costs being added to the contribution rates. The current defined benefit plans include the cost of disability in the normal cost of the plan.  The largest concern is that experience shows that 75% of disabilities in public safety are in the line of duty, and it is unknown what an equivalent disability insurance policy would cost.
    • Provides a “trigger” to reduce employer contributions to PERS and SRS beginning January ,1 following an actuarial valuation showing that the system is at least 100% funded;
      • MACo supports this portion of the proposal.
    • Shifts all new hires to a Defined Contribution (DC) Plan;
      • MACo strongly opposes this proposal.  MACo’s belief is that members should have the option of choosing how their funds are managed.  Under the DB plan, the benefits are defined in statute.  Under the DC plan, employees would have all of the risk of managing their investments for the future.  MACo’s position is that if the legislature is going to mandate participation and contribution into a plan, they are obligated to manage the funds for the members, with the members having the OPTION of managing their own investments should they choose to do so.  While this proposal would shift 100% of the risk to the employees and eliminate the fiscal risk to the state and the employers, it also leaves a potential burden should employees be unable to effectively manage their investments, so they have a stable retirement as is required by statute.
    • Closes the Defined Benefit Plan by shifting all new hires to a DC plan and creates a new “tier” of employees within the retirement systems;
      • MACo strongly opposes this proposal.  While there has been much discussion regarding the system paying more in benefits than it is collecting in contributions and earning in investments, changes have and are being made and proposed that will provide stability within the existing defined benefit plan.  Significant changes were made in the system for new hires in 2011.  The effects of those changes will not be known for a number of years, but all projections indicate they will have a significant positive effect on the stability of the systems.  Additionally, proposals are moving forward to stop abuses of the systems such as salary spiking and working retirees.  Those changes, coupled with the increases in employee and employer increases, additional Coal Severance Tax funding, and the recovery of the stock market should stabilize the plans much sooner than expected.  Additionally, there will be a much higher focused oversight of the actions of the Retirement Board and the investments by the Legislature to ensure that the systems achieve actuarial soundness and remain stable for the long term.
    • Amends local government contract rights and prohibits local governments converting to PERS;
      • MACo opposes this proposal.  This proposal would only allow counties to enter into contracts for participation in a Defined Contribution Plan and would no longer allow participation in a Defined Benefit Plan.
    • Reduces the amount of employer contributions to the member education fund in the DC plan from 0.04% to 0.02% of contributions;
      • MACo has no position on this proposal.
    • Provides for the suspension of the Guaranteed Annual Benefit Adjustment;
      • MACo has not taken a position on this issue.  As written, the proposal would have suspended GABA, but did not contain a provision to re-establish it.  The amendment proposed by the sponsor, and approved by the Committee, provided that GABA could be reinstated once all of the systems are 100% funded.  The amendment requires the Legislative Finance Committee to monitor the reinstatement of the GABA and requires any legislation necessary to keep the plans actuarially sound.
  • SB 333 - Senator Arthun: Establish Cash Balance Benefit Tier in TRS and PERS for New Hires

    SB 333 would establish a third tier in the systems and creates a “cash balance” program where members would receive a guaranteed annuity.  The original proposal was for a 4.5% guaranteed benefit, but was amended in Committee to 4%.  The Committee and the Senate, at the sponsor’s request, have re-referred this bill to the Senate State Administration Committee for further consideration.

    MACo opposes this proposal, as it creates another “tier” in the systems.  Additionally, while it creates more of a “shared” burden between employees and employers, it also could potentially lead to another unfunded liability in the retirement system, should the system be unable to sustain the guaranteed benefit.  It also does not provide any solutions to the current unfunded liability issue of the current retirement systems.

What you can do . . . Please contact your representatives and urge their support of HB 454, and opposition of HB 338. HB 454 is the only proposal at this point that is a fully comprehensive solution to the retirement system problems and will offer solutions with little or no impact to the taxpayers, your budgets, or your employees’ benefits.

MACo will continue to monitor these bills as they progress, and we will keep you posted.

Sheryl Wood | (406) 449-4360 |