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MACo Pension Bill Review: Week 1


Posted Date: 
January 11, 2013
Contact: 
Sheryl Wood, Associate Director, Montana Association of Counties

Below is an overview of some of the Retirement System bills that have been introduced.  Per the MACo By-laws, the MACo Executive Committee provides legislative guidance; however, please feel free to send in your comments and thoughts on these bills that we can share with the Executive Committee and/or the legislative committee during the hearings.  We will continue to provide weekly updates, and we will have fiscal information posted on the MACo website next week as to the projected fiscal impact by county of some of the major bills.

HB 95 – Require Contributions on working retiree compensation (Rep. Wilmer)

This bill was brought forward at the request of the Montana Public Employees Retirement Board (MPERB).  This is the third session this bill has been introduced.  It did not pass in 2009 or 2011.  The current bill as introduced would affect PERS and SRS (Sheriffs) and would require:

  1. Beginning July 1, 2013, each employer shall contribute 7.07%, and the state shall contribute 0.1% for retired members who return to work in a covered position but who have not become active members.
  2. A retired member who returns to service for 480 hours or more in a calendar year must become an active member of the system. Upon reinstatement as an active member, benefit payments must cease until subsequent retirement.
  3. Retired members who return to active service for 480 hours or more in a calendar year are subject to the employee and employer contributions set forth in 19-7-403 and 19-7-404 (7.9% for employees, 7.07% for employers).
  4. The employer of a retired member, who is returning to work pursuant to #2 & #3 above, shall contribute the amounts specified in 19-7-404 (7.9% for employees, 7.07% for employers).

The Montana Public Employees Retirement Administration (MPERA) submitted a fiscal note to the Budget office, stating:

  1. HB 95 will provide additional funding for the applicable retirement systems to offset the funding lost by the adverse effect of retirees returning to work in place of active contributing members; and
  2. A retiree returning to work takes the place of a new member that would otherwise be hired to fill the position where employee and employer contributions would be paid; therefore, employers and the State are not paying contributions beyond what is normally budgeted for a new hire.

MACo was unable to obtain detailed fiscal data from MPERA, so we issued a survey to counties to gather information.  So far, 33 counties have responded.  We will be contacting those who have not responded to urge them to answer, so we have a good representation of the impacts to our counties. 

MPERA reported that the counties have 161 PERS retirees with a reported payroll of $753,972.68.  They estimate that counties are 20.1% of the overall fiscal projection.  Based on their numbers and information, the projected the impacts to counties would be:

2014   $18,348             2015   $19,129                        2016   $19,845            2017   $20,690

The Actuarial Report for HB 95 can be found on our website:  http://www.mtcounties.org/sites/default/files/forms-downloads/legislative/sessions/2013/pension-systems/hb-95-actuary-impact-statement-2012-12-28.pdf

HB 96:  Provide actuarial funding for PERS, HPORS, GWPORS, SRS retirement systems (Rep. Wilmer)

This bill was also brought forward on behalf of MPERB.  The bill as proposed would increase employer contributions to these systems by 0.25% per year over four years.  MACo has obtained detailed information from MPERA regarding the employer contributions by county for PERS and SRS, and will be posting our projections on our website next week.

In development of the fiscal note, MPERA establishes a projected payroll growth of 4% per year.  In FY 2012, the payroll increase reported over FY 2011 by counties was 2.13% for PERS and 4.15% for SRS.  MACo is creating a fiscal projection with realistic assumptions based on the CPI and will post the spreadsheets on our website when they are complete, so each county can see the projected fiscal impact of the proposed increase in employer contributions for PERS and SRS.

HB 97: Cap highest/final average compensation in MPERA retirement systems (Rep. Wilmer)

This was introduced by MPERB, based on a recommendation of the Legislative Audit Division.  HB 97 impacts all of the defined benefit plans administered by MPERA with the exception of Volunteer Firefighters and is applicable only to new hires on or after July 1, 2013. The purpose of the bill is to prevent a practice called “pay spiking” where a member approaching retirement will cause his or her pay to increase substantially, usually by working additional overtime. For calculations of highest average compensation (HAC) or final average compensation (FAC), a member’s percentage increase in annual compensation will be limited to 15% during the years of which the average is based.

This will only affect members and benefits and should not impact employers (counties), unless there would be additional reporting required.  At this time, we are not aware that there will be, but we will continue to monitor this bill for you.

HB 105:  Generally revise MPERA retirement system laws concerning plan administration (Rep. Steenberg)

This is the MPERA “clean-up” bill, which they bring every session to address how member benefits and distribution are handled.  There are no changes being proposed that would be of concern to counties.

HB 122: Ensure federal IRS qualification of MPERA retirement systems (Rep. Bennett)

This bill was introduced on behalf of MPERB, and it is their bill to ensure the retirement systems are administered to ensure IRS qualification of the plans.

With the passage of GASB 67 & 68, regarding the posting of pension liabilities by governments, the MPERB included language in this bill that states:

Section 2. Section 19-2-405, MCA, is amended to read: 19-2-405. Employment of actuary -- annual investigation and valuation. (7) The board shall require the actuary to prepare for each employer participating in a retirement system the disclosures or the information required to be included in the disclosures as required by law and by the governmental accounting standards board or its generally recognized successor. Each employer shall pay the employer's share of the actuary's cost for preparing the information or disclosures as  determined by the board. The board may adopt rules governing how employer costs must be determined and paid."

This is of concern to counties, as the costs of the actuary to determine the amount of each employer’s portion of the pension system’s unfunded liability will be passed on to the employers.  In the case of counties, this will include the actuarial costs for both PERS and SRS.  At their November 2012 meeting, MACo requested MPERA provide information on the projected costs to each employer.  That information is not available as of this writing; however, the fiscal note is due next week, so it will hopefully contain the information we need, so we can provide you with a projected fiscal impact statement.

HB 175:  Include Dispatchers in the Sheriff’s Retirement System (Rep. Wilmer)

This bill was also introduced on behalf of MPERB.  This is the third session that this bill has been introduced.  As introduced, HB 175 would allow current dispatchers the option of transferring from PERS to SRS.  It would also require any dispatchers hired after July 1, 2013 to become members of SRS.  The fiscal impact to counties will be the increased cost of employer contribution rate for the dispatchers.  The current employer contribution rate is 7.07% for PERS and 10.115% for SRS.

SB 82: Require PERS new hires to be in the Defined Contribution Plan (Sen. Lewis)

This bill would require all new hires as of July 1, 2013 to become members of the Defined Contribution Plan and would essentially “close” the defined benefit plan.  MPERB believes there are some technical issues with the bill.  MACo was unable to develop a fiscal note; however, MPERA submitted the information to the budget office for a fiscal impact statement.  The sponsor has challenged the fiscal note and requested more information on the fiscal impact of this bill.

 

Sheryl Wood | (406) 449-4360 | swood@mtcounties.org