Our public retirement systems are in trouble, but not the kind of trouble I read in the headlines recently. We can fix them and we should do it now. But we need to remember how they got into trouble in the first place.
I hear too much hyperbolic fear mongering that misleads the public on this issue, especially when it overstates the shortfall and then calculates how much this would “cost” each Montana family. This is hogwash.
Intoxicated with the 1990s long market boom, the Legislature (in a bill sponsored by Republican Dave Lewis) generously doubled the cost-of-living increase for public employees in 2002. This exacerbates the problem we have now, but it didn’t cause it, and it was in part rescinded for new state and most other public employees in 2007 anyway. Aging baby boomers make our demographic pyramid top-heavy with more folks in the retirement age bracket than working and paying into retirement systems. This also exacerbates the problem but it doesn’t cause it.
Not long ago our Teachers Retirement System was actuarially sound. In 1998 it amortized over 9 years. Actuarial soundness measures how long it takes to amortize benefit obligations to all members currently in the system. In the 1990s, actuarial standards used a 40-year metric, but today they recommend 30 or less. So 9 years is pretty darned sound. Now they don’t amortize at all. Time to amortize? Infinity.
How did we go from 9 years to infinity? When the stock market crashed in the Great Recession of 2008-09, our retirement systems’ assets lost about one-third of their value.
Now we hear misleading and alarmist statements like “our retirement systems are $4 billion in debt,” but this is not really the case. An unfunded liability is the value of future benefits minus current assets. In other words, our systems are “pre-funded.” But an obligation to pay future benefits is not really the same as being in debt. When the Board of Investments met this November the estimated shortfall of future benefits minus current assets was about $70 million for the Public Employees Retirement System. In the teachers’ system, we have current assets to cover a little more than half of our future obligations.
The slow and steady recovery of the stock market will help stabilize these systems and strengthen their actuarial soundness. If we do nothing but waiting for the stock market to rebound enough to cover its 2008-09 losses to the system, then by 2058 these systems will be bankrupt. This has already happened in other states and we can be thankful we are still 40 years away from that crisis. We have time to fix things.
Working with the retirement systems directors and union representatives, the governor has proposed solutions that include increasing employee and employer contributions, authorizing a one-time transfer of surpluses from school districts to the system, and appropriating $25 million a year from state trust land revenues until the system is sound again. To balance the public employees system, he proposes appropriating non-dedicated revenue from coal severance taxes and $3 million of Coal Severance Tax Permanent Fund interest, and requests a supplemental local government contribution. These proposals ask everyone to make an effort to solve the problem.
I urge my legislative colleagues not to play political football with our public employees and teachers retirement systems. These folks are our public nurses and caregivers, people who clean, repair, and maintain our public buildings, run snowplows to keep our roads open, and make sure child support is paid. They prepare the next generation for jobs that matter, for college, to solve problems and think of good business ideas to keep Montana a great place to live and raise a family.
It’s our constitutional obligation to maintain the actuarial soundness of these retirement systems, and it’s the right thing to do.