The growing, unfunded public pension liability was one of the biggest, most urgent problems the 2013 Montana Legislature addressed.
The session ended with passage of two bills intended to fix the two biggest pension funds: Public Employees Retirement System and Teachers Retirement System. Gov. Steve Bullock, a Democrat, signed both bills.
“Montana Improves Pension Funding, Credit Positive for State and Local Governments” was the lead story May 16 in Moody’s Investor Service newsletter. That’s the kind of headline we like to see on state financial news. The article cited a significant expected reduction in the state’s net pension liability.
But the pension news out of Helena has been less rosy for the past few weeks. Seems that the new law reforming the PERS might not work the way some lawmakers say they intended it to work.
Meanwhile, the fund is due for an actuarial analysis taking into account the changes that will be in effect on July 1.
The governor’s budget director, Democrat Dan Villa, last week suggested that the actuary should be directed to base the analysis on what the Legislature intended, not what the law says. A week earlier, the Legislative Finance Committee asked the pension board to have its actuary examine the fund based on present law, the law that expires June 30.
These ridiculous suggestions prompted Senate President Jeff Essmann, R-Billings, to request an attorney general’s opinion. The Public Employees’ Retirement Board is scheduled to meet July 11 to decide what to do, so Essmann asked Attorney General Tim Fox, also a Republican, to issue an opinion by July 11.
Meanwhile, a lawsuit is expected — perhaps any day — to challenge the reduction in benefits for PERS retirees. The new law (House Bill 454) says that the annual cost of living adjustment for retirees will be cut in half from 3 percent to 1.5 percent and that it could be reduced to zero, depending on the fund’s actuarial analysis.
For years as the Legislature put off dealing with big pension issues, attorneys for retiree groups and the Legislature’s own legal staff have warned that cutting benefits for retirees may be an unconstitutional breach of contract under both the U.S. and Montana constitutions.
If a court finds that part of the law unconstitutional, one revenue source for the PERS fix would disappear. Increases in contributions from employees and from employers (state and local governments) could then stay in place beyond the end of 2013. Some lawmakers say they intended those contribution increases to continue beyond this year, even though the bill’s fiscal note said they would end Jan. 1, 2014.
Further action uncertain
Since no lawsuit has been filed yet, it is uncertain what part or parts of the law might be overturned.
Politics that made passage of the new law difficult last session would make further legislative action uncertain — in a special session or in 2015.
The PERS fix is clouded with uncertainty that must be cleared up as soon as possible. Perhaps, Fox can help clarify the situation. Perhaps, a court ruling will help sort out what changes can lawfully be made.
The pensions are financial obligations of the state and the local governments. The pension fix has to be fixed.