Montana retirement panel asked to modify pension fix to avoid mistake

2013-06-19T19:15:00Z 2013-06-19T20:20:31Z Montana retirement panel asked to modify pension fix to avoid mistake missoulian.com

HELENA – An attempt to modify the future impact of an error in a new pension law continued Wednesday, but wasn’t resolved.

A subcommittee of the state Public Employees Retirement Board postponed action Wednesday on a legislative committee’s request to tell its actuary how to value the pension fund to prevent the unintended consequences from the error in the 2013 law.

Gov. Steve Bullock’s office also weighed in Wednesday. Budget Director Dan Villa asked the board to have its actuary use a different time period and to conduct another evaluation once, as expected, an injunction blocks part of the law from taking place.

The panel postponed a decision until the full Public Employees’ Retirement Board can discuss it at a special meeting June 26.

At issue is a mistake in one of the major laws passed by the 2013 Legislature. The law was intended to fix the financially battered Public Employees Retirement System, or PERS, through a three-pronged approach: through increased contributions from public employees and employers, lower cost-of-living raises for retirees and an infusion of millions of dollars in natural resources revenue.

The law goes into effect July 1. A group of retired public employees already has voted to challenge the law over the reductions in the cost-of-living increase, arguing it illegally impairs in their contractual rights.

Because of the late error made in April in a Senate committee, the matching 1 percent increases in the contributions by both employers and public employers will end after only six months. They go in place July 1 but will terminate Jan. 1, 2014, much sooner than anticipated.

However, scheduled cuts in the guaranteed annual benefit adjustment, the cost-of-living raises that retirees receive, would remain in place much longer than intended because of loss of money caused by the termination of the employer and employee contribution increases. The GABA drops from 3 percent to 1.5 percent on July 1, but can decrease further in increments of 0.1 percent to zero, depending on the pension fund’s finances.

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On Wednesday, Villa asked the legislative committee of the Public Employees Retirement Board to modify its plan and not have its actuary examine the fund for the fiscal year starting July 1 with the new law in place.

Last week, the Legislative Finance Committee asked the pension board to have its actuary examine the fund based only on the current law in effect June 30 and not the new law in place on July 1.

“The law as written is pretty clear as to what we’re supposed to do,” said Terry Smith, the PERB subcommittee chairman.

He said the board can’t rewrite a state law and ask its actuary to violate his standards to produce a result the Legislature wants to happen.

Villa, however, asked how it would harm the system for the actuary to run the numbers as requested by the Legislature and administration to protect the retirees, with the understanding the 2015 Legislature would fix it.

But Melanie Symons, the pension’s board’s chief lawyer, said if the actuary uses the 3 percent GABA instead of the 1.5 percent, it would actually drive the GABA down more, possibly to zero.

“I believe we could have a greater liability,” she said.

Villa said the lawsuit challenging parts of the law is a certainty. He asked if there couldn’t be an additional actuarial report done after the likely injunction halting the GABA reduction is in place.

There also was finger-pointing as to who was to blame for the error in the law.

Villa blamed the Legislature for the mistake.

However, state Rep. Rob Cook, R-Conrad, said afterward the mistake can be traced to an amendment provided by Villa.

Cook warned that the pension fund could be left in much worse financial shape if the additional contributions by employers and employees terminate after six months and a court stops the reduction of the GABA.

The end result, Cook said, could be that the Legislature would instead switch to a defined contribution retirement system like 401(k) plans common in the private sector.

“Republicans won’t support this twice,” Cook said. He was referring to support from some Republicans that helped Democrats pass the pension bills sought by Bullock.

Administration officials said Bullock did not receive the bill until the Legislature had already adjourned. As a result, he wasn’t able to propose an amendment to fix the error.

Missoulian State Bureau reporter Charles S. Johnson can be reached at (406) 447-4066 or by email at chuck.johnson@lee.net.

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(1) Comments

  1. idiot state
    Report Abuse
    idiot state - June 20, 2013 7:22 am
    Funny. The state that your past and current governors like to endlessly brag about is really a bit of a financial mess. Since Montana can't figure out how to do its public pension system, why not take a look at some of the states that handle theirs well-like South Dakota, which is fully funded. See how they do it. Try to emulate states that actually handle things well...
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