HELENA — Montana’s unfunded pension liability has been a topic of debate for years at the state Legislature. Now, a pair of bills aimed at reducing that liability have passed the House and are under consideration in the Senate.
On Monday, the Senate Finance and Claims Committee held hearings on House Bills 226 and 569, both sponsored by Rep. Terry Moore, R-Billings.
“I'd love to see the state not have that long-term liability bearing down on our children and grandchildren as a generational debt,” Moore told MTN.
Together, the two bills seek to reduce the “amortization period” for four of Montana’s public pension systems – the length of time required to pay off the liability.
“Across the state, it's costing us about 350 million a year in lost earnings on the unfunded liability,” Moore said.
Both bills use a combination of methods: increasing required contributions by public employers, investing state money and making policy changes for future employees.
“We can take this conversation away from the Legislature and the agony of what to do or what not to do,” said Moore. “It puts us in a path of resolution on those particular plans.”
HB 226 applies to the Public Employee Retirement System, the largest state pension system. It serves more than 28,000 active members – including state, local government and school district employees – and another 25,000 retirees and beneficiaries.
According to HB 226, PERS currently has $2.25 billion in unfunded liability and an amortization period of 32 years – higher than the maximum 30 years that the system is designed for.
Currently, employers pay about 9% of their total payroll for PERS employees into the system. HB 226 would increase that percentage based on an actuarial analysis of what would be needed to pay off the unfunded liability. The bill includes language to make that increase gradual – about 0.5% a year – and it would set aside $300 million in state funding to cover the difference between the actuarially determined rate and the actual rate for the first few years.
“We’ve asked the state to participate in limiting the exposure of the counties to get us there, and that’s the $300 million,” said Jason Rittal, deputy director of the Montana Association of Counties. “We would ask that you hold the line hard on that $300 million help.”
Leaders with the Montana League of Cities and Towns remained opposed to the bill even with that assistance, saying it still would lead to significant added costs for municipalities.
HB 226 would also make it the default for new employees joining PERS to join the “defined contribution plan,” where the employee assumes the investment risk and opportunities for their money. They would have the option to instead select the “defined benefit plan,” where employees get a specific pension amount based on things like their job and years of service.
Currently, the defined benefit plan is the default, and employees must select the defined contribution plan if they want it. The Montana Federation of Public Employees, the union that represents many PERS members, opposed switching that.
“This affects people who forget to fill out paperwork – which when you're 22 has been known to happen once in a while,” said Sarah Piper, MFPE’s director of research and bargaining. “Currently, if someone forgets to fill it out, they're placed in the pension plan, the DB plan. This places them in a less secure retirement plan as the default.”
Piper said about 90% of current employees are in the defined benefit plan, and only about 10% choose defined contribution.
HB 569 covers three smaller pension systems: the Highway Patrol Officers’ Retirement System, for Montana Highway Patrol troopers and supervisors; the Sheriffs’ Retirement System, for county sheriffs, deputies and detention officers and Montana Department of Justice criminal investigators; and the Game Wardens' and Peace Officers' Retirement System, for wardens and a variety of other state employees, including corrections officers and Montana University System security officers.
The bill would provide $95.6 million in state funds and establish actuarially determined contribution rates for employers to bring the amortization periods in these systems to 25 years.
HB 569 would also change when newly hired members of the sheriffs’ and highway patrol systems can begin drawing their pensions. Currently, officers need to work 20 years to be eligible for a retirement benefit. The bill would require they work 20 years and reach the age of 50.
During Monday’s hearing, a number of law enforcement representatives expressed opposition to the change. They said it makes sense for officers to have an earlier retirement as they’re in a physically and emotionally demanding career. They also raised concerns that, since this added wouldn’t apply to municipal police officers, it would be harder for sheriff’s offices and MHP to recruit and retain officers.
“I ask that you allow your law enforcement leaders to continue to look at their recruits and tell them, ‘If you give me your 20 best – if you serve this community with your 20 best years – we will in turn invest in you and you can draw your retirement,’” said Gallatin County Undersheriff Jeremy Kopp.
Moore said the retirement age wouldn’t be changed for the Municipal Police Officers’ Retirement System because they aren’t receiving an infusion of state money in this bill. However, he said he expects the state will continue to look at changes to the pension systems and could address the police officers’ system as soon as next legislative session if this bill goes forward.
Moore stressed that neither bill would make changes to benefits or policies for current public employees or retirees – only for new employees starting after July. He said these changes are important steps to ensure the state doesn’t get back into a position with large unfunded liabilities again in the future.
“Over the next couple of decades, it will make a difference,” he said.
The committee took no immediate action on either bill.
HB 226 passed the House last month, 72-25, with several Democrats joining all Republicans in support. HB 569 passed 62-37, with most Republicans in favor and all Democrats opposed.