HELENA – A state retirement board voted Thursday to change a rule in an attempt to salvage one major part of a large legislative fix of the financially troubled pension fund, if a court blocks another key change.
It was an attempt by the Public Employees’ Retirement Board to stop new, 1 percent increases in contribution rates for both public employees and their employers from ending Jan. 1, 2014, after being in place only six month. The higher contributions were intended to remain in place much longer, but a legislative error will terminate them after six months.
Some board members anticipated that a court likely will halt another major part of the bill. Effective July 1, it lowered the annual cost-of-living raises for retirees to 1.5 percent from the previous 3 percent, with the potential of dropping further.
A group of retired public employees and a union already have vowed to sue over the reduced cost-of-living raises. They contend it is an illegal violation of their contractual rights.
The net effect of the decision Thursday is the Public Employees’ Retirement Board now will have its actuary conduct a second financial study of the pension fund. It will use the 3 percent cost-of-living increase – known as the Guaranteed Annual Benefit Adjustment – that had been in effect until June 30.
The board already had intended to have the actuary analyze the funds finances using the new 1.5 percent GABA rate that is part of a new law that took effect into effect July 1. This study will cost $78,000, with the extra one not expected to cost nearly as much.
The complex law has separate triggers that use different financial measures from the actuary’s analysis to determine when the higher contribution rates end for employers and employees and when the GABA rates can be further adjusted.
The actuarial study using the 3 percent GABA rates would be done in anticipation that a court will halt the reduction to 1.5 percent.
Backers said that, in turn, might prevent the termination of the higher contribution increases earlier than anticipated and help prevent the pension fund’s financial picture from worsening from it it might be otherwise.
Two legislative committees had asked the board to repeal or change a rule it adopted recently in an effort to preserve lawmakers’ intent to keep the higher contribution rates in place longer, despite what the law says.
Board member Sheena Wilson of Helena, a retired state employee who had been Gov. Brian Schweitzer’s deputy chief of staff, made the successful motion to change the rule.
“That’s what all of this is about-to ensure the survival of this system,” Wilson told reporters later. “There’s a number of legislators who would like to put it down (the current pension system) next session.”
Wilson told the board that legislators worked hard and “did the heavy lifting to save this system.”
She was referring to the political fight over whether to save the current, defined benefit pension system, which guarantees public retirees a fixed monthly benefit for the rest of their lives, based on their years of service and their highest years of pay. Both employees and employers contribute to the pension fund.
Republican legislators pushed unsuccessfully to switch to a defined contribution system for new employees, which is like a 401(k) plan common in the private sector. Under this system, employers and employees both contribute to the fund, where money is invested, but it has no fixed or guaranteed pensions for retirees. When employees retire, they would get the money in their fund for their retirement.
House Bill 454, by Rep. Bill McChesney, D-Miles City, was the major bill passed by the Legislature and signed by Gov. Steve Bullock to shore up Public Employees’ Retirement System pension fund.
It provided a three-pronged approach to bolster the pension fund. Besides the GABA reduction and contribution increases, the law relies heavily on an infusion of millions of dollars of coal tax revenue.
A bill to fix the Teachers’ Retirement System also passed, but didn’t contain the legislative mistake that the bill to repair the Public Employees’ Retirement System had.