One bad & two good pension bills pass
The Joint Select Committee on Pensions passed a bad pension bill and two good ones earlier this month.
Bad bill: HB 338 (Regier) ends ALL public employee pensions and forces ALL new public employees (state, county, city, and school) into one huge defined contribution plan 401(k).
Defined contribution (DC) plans are subject to the volatility of the market, whereas Montana’s existing defined benefit (DB) pension plans are stable and provide retirees with a guaranteed amount each month. DB plans also cost taxpayers less. Read more.
HB 338 also suspends guaranteed annual benefit adjustments (GABA) for all current and future retirees. For this, every current and future public employee pays more.
MEA-MFT President Eric Feaver calls this bill “Godzilla.” Ironically, Godzilla is sponsored by a retired teacher with a pension and a modest 1.5% GABA.
“So much for future generations of public employees,” says Feaver. “Toss recruitment and retention out the window. Go to court. Godzilla will not withstand legal challenge.”
Good bills: Yesterday the Committee on Pensions also passed HB 337 (Woods) and HB 454 (McChesney) to amortize and preserve defined benefit pensions in the Teachers and Public Employee Retirement Systems, respectively.
These bills help protect Montana’s existing public pension systems.
Unfortunately the committee added cynical amendments that fiddle around with GABA, going one step too far. But the story is far from over on GABA. Right now, the task is to keep these two bills alive.
Properly mandating increases in employer AND employee contributions, HBs 337 and 454 amortize our pension systems about as cheaply as can possibly be done. They will help Montana recruit and retain future quality public employees to do the work that matters. But neither bill needs to mess around with GABA to get where we need to go.
News story follows:
Both big pension fixes still alive at Legislature
BY CHARLES S. JOHNSON GAZETTE STATE BUREAU – MARCH 13, 2013
HELENA — The House will face a choice between two conflicting approaches to fixing Montana’s financially ailing pension systems.
The Joint Select Committee on Pensions on Tuesday amended and pushed out three major proposals — one backed by Republicans and the other two by Democrats — that eventually will wind up on the House floor. Republicans control both the House and the Senate, but Gov. Steve Bullock is a Democrat.
Various pension systems for Montana state and local government employees and teachers face a combined potential shortfall of $4.3 billion if legislators do nothing. The state has a constitutional obligation to fund the plans.
“I don’t have any idea what will happen,” said the committee chairman, Sen. Dave Lewis, R-Helena, after the meeting. “We have two irreconcilable options — a defined benefit and defined contribution plan.”
It was unclear when the bills will reach the House floor for debate.
House Speaker Mark Blasdel, R-Somers, said he first wants to get updated analyses of the bills from financial experts. He said he may send the bills to the House State Administration Committee for more scrutiny.
The two approaches, if enacted, may face potential future legal challenges because they reduce current annual cost of living benefits now guaranteed to current and future retirees. The cost of living adjustment is known as GABA — guaranteed annual benefit adjustment.
On an 8-4 vote, the committee endorsed House Bill 338, by Rep. Keith Regier, R-Kalispell. All eight Republicans supported the bill, while all four Democrats opposed it.
HB338 would terminate the current “defined benefit” pension plan for new state and local government employees and teachers as of July 1, 2014. New employees instead would be enrolled in a “defined contribution” pension that’s similar to a 401(k) plan that’s common in the private sector.
Employees and employers would contribute to the “defined contribution” retirement fund. Employees would be responsible for choosing where to invest their money, not the state Board of Investments.
When employees retire, they would leave with whatever money they have is in their fund — their portion, their employers’ share and the investment earnings. They would no longer be guaranteed a fixed monthly pension for life as is the case now.
Reiger’s bill provides for an infusion of cash from the coal severance tax and increased contributions by employers temporarily. The bill also eliminated the current annual cost of living adjustments for current and future retirees.
Afterward, Regier, “I think the people of the state can identify with the defined-contribution plan.”
The committee also passed, by identical 7-5 votes, two pension bills backed by Democrats that continue the current “defined benefit” pension systems. They also include influxes of cash from the coal severance tax or, in case of the teachers’ retirement system, school district reserves and state land revenues. All four Democrats and three Republicans on the committee supported both bills, while five Republicans opposed them.
The two bills are HB454, by Rep. Bill McChesney, D-Miles City, addressing the public employees’ retirement systems, and HB377, by Rep. Tom Woods, D-Bozeman, for the teachers’ retirement system.
They retain the current “defined benefit” retirement systems, which guarantee retired public workers with a fixed pension for life, no matter how the investments are performing. The pensions are based on a formula using their number of years of service and the average of their highest years’ salaries.
Both Democratic bills also provide for increased contributions by employees, employers or both.
Amendments to these two Democrat bills reduced the guaranteed cost of living allowances for current and future retirees.
In a later interview, McChesney said Democrats agreed to cut the cost of living increases on a temporary basis until the pension funds are adequately funded. Democrats had previously opposed such cuts.
“Part of it was compromise,” McChesney said. “Part of it was a realization we can’t make the pension funds actuarially sound within a reasonable amount of time without the GABA (cuts). The reductions were what was required.”
McChesney said he believes Bullock “is going to be on board” with the adjustments, and he’s hoping public employee unions will be, too.