HELENA – Senate President Jeff Essmann on Friday asked for an attorney general’s opinion on how a state retirement board should interpret a new law to prepare for an actuarial valuation of the Public Employees Retirement System.
Essmann, R-Billings, made the request in a letter to Attorney General Tim Fox.
“Your opinion will resolve the controversy surrounding the statutory duties of the PERB (Public Employees Retirement Board) and will assist the members of the PERB in performance of their legal and fiduciary responsibilities, which carry legal liability,” Essmann wrote.
In an interview, Essmann said he would like Fox to issue the opinion before the next meeting of the state pension board. Its scheduled June 26 meeting has been postponed until July 11.
That should give Fox “plenty of time to render an opinion,” Essmann said.
Fox’s office had received the request Friday afternoon and was beginning its legal analysis, said John Barnes, spokesman for the Republican attorney general.
The attorney general’s opinions have the force of law unless overturned by a court decision or the Legislature.
It’s the latest development in the controversy over a mistake in a major law passed by the 2013 Legislature to fix the finances of the Public Employees Retirement System.
At issue is whether the board should have an actuarial evaluation done for the current fiscal year, which ends June 30, without considering changes in new law, as a legislative committee requested.
The PERB staff said the actuarial evaluation also should evaluate the impact of the changes in the new law, which takes effect July 1.
An error in a late amendment made in a Senate committee could lead to unintended consequences.
The law provides money from three sources to fix the financially battered Public Employees Retirement System. It calls for increased contributions from public employees and employers, lower annual cost-of-living raises for retirees and an infusion of millions of dollars of cash from natural resources revenue.
Because of the error, 1 percent increases in contributions by both employers and employees will end after only six months on Jan. 1, 2014, much sooner than anticipated.
That, in turn, will cause a reduction in the cost-of-living increase – known as the Guaranteed Annual Benefit Adjustment (GABA) – to remain in place much longer than intended. Under the new law, the GABA drops from 3 percent to 1.5 percent for retirees, but can decrease in 0.1 percent increments to zero, depending on the fund’s evaluation by the actuary.
The Association of Montana Retired Public Employees already has said it will sue, asking a court to block the GABA cut as an infringement of their contractual rights. Unions are expected to join the lawsuit.
Gov. Steve Bullock’s administration through Budget Director Dan Villa asked the pension board to examine the fund based only on the current law in effect June 30 and not the new law. He also suggested a second evaluation if an injunction is issued.
Essmann asked Fox for clarification whether the actuary should evaluate the pension fund under which time period and which law.
He asked whether the pension board could “ignore the letter of the law and base an actuarial evaluation on provisions that individual legislators state was their intent, several months after the session ended, or upon supposed fixes suggested by members of the executive branch that may or may not be passed by future legislatures.”
Essmann offered his advice to Fox:
“The actuarial evaluation should be prepared in accordance with the law, as passed. The Legislature had ample opportunity to amend the bill in order to revolve known issues.”
He said the issue was disclosed in an April 19 fiscal note that supports the plain reading of the law.
The Legislature could have fixed the pension system in a way that kept the promises to current retirees while providing taxpayers relief from uncertainties that will continue to exist under existing retirement systems, Essmann said.
“The opportunity to reform the system was not seized, and it now appears that the supposed ’fix’ did not fix anything,” he wrote.
Essmann and some other Republicans favored ending the current “defined benefit” pension systems, which guarantee retirees a fixed, lifetime pension. They favored replacing them with a “defined contribution” system like a 401(k) plan, but those bills were killed.