HELENA — Representatives of unions, retirees and state pension funds lined up Tuesday to criticize a bill to end guaranteed pensions for new public employees and replace them something similar to 401(k) plans in the private sector.
Nine people testified against Senate Bill 82, by Sen. Dave Lewis, R-Helena, at a hearing before the Joint Select Committee on Pensions, which Lewis chairs. Among them was Gov. Steve Bullock’s budget director, Dan Villa.
Only one person supported it.
Lewis said later he hopes that portions of his bill will be part of later negotiations between the Republican-controlled Legislature and Democratic governor to find a solution to fix Montana’s pensions plans, which have a potential shortfall topping $4 billion.
“I’m hoping to get enough Republicans to move something,” he said. “I’ll be surprised if I get any Democrats.”
Bullock is opposed to the Lewis plan to end what are known as “defined benefit” pensions for new employees and replace them with “defined contribution” plans that are similar to 401(k) plans.
A defined benefit pension provides retirees with a guaranteed amount monthly, based on a formula that uses the number of years they worked and the average of their top three annual salaries.
Defined contribution plans are managed by the employee, with contributions made by both the employer and employee, but come with no guaranteed pension amount.
“I will go to the governor and try to say, ‘My goodness, we can’t continue to go down this road. We have to make a change,’ “ Lewis said. “It has to be solved.”
Lewis, who draws a state pension as a former state budget director under several governors, raised the possibility of putting his bill on the ballot as a referendum for voters to decide.
“At some point, they’re the ones paying the bill,” he said.
Lewis, who tried to pass a similar bill two years ago, said he remains “absolutely concerned” about the future retirees and the pension system.
“I don’t want the next generation of public employees to go to the cupboard and find it bare,” he said.
Budget director Villa led the opposition, saying it would be far more costly than a “consensus” bill supported by Bullock and some of the groups opposing Lewis’ bill. Later, Villa said the bill would cost the state and pension plans $192 million, a number Lewis disputes.
“We all know we cannot go back and peel away the defined benefits system that current employees and current retirees have,” Villa said.
Bullock’s consensus bill calls for employers and employees to contribute more to their defined benefit pension system, with the state also pumping in $30 million a year from natural resources revenues over the next two years to shore up the pension funds.
Mike O'Connor, representing the Montana Public Employees Administration, said since 2001, public employees covered by this pension have been able to choose between defined benefit pensions or defined contribution. Only 7 percent have chosen the defined contribution system.
“The defined contribution plan is a good plan for young employees who have time to grow their retirement,” O’Connor said.
However, the average state government employee is 39 when hired and joins the Public Employee Retirement System and retires at age 59.3, earning $1,159 a month in retirement, he said.
Tom Schneider, representing the Montana Public Employees Association, criticized the bill.
From 1957-2003, Schneider said, legislative interim committees studying pension funds talked about how much money public employees need from the pension systems to retire.
“Since 2003, you have not heard that question,” he said. “All we’ve (legislators) talked about is how we can take something away from employees…Let’s talk about what it takes for people to live honorably when they’re retired.”
Citing a report in the Wall Street Journal last year, Diane Fladmo of MEA-MFT union said national studies have shown that most 401(k) participants have insufficient savings for retirement.
Lewis drew support from Riley Johnson of the Montana chapter of the National Federation of Independent Business. A survey of Montana members found 68 percent of them supported putting new state employees on a defined contribution plan, he said.