HELENA — The Bullock administration’s two bills attempting to fix Montana’s financially troubled government pension systems won approval in committee Friday.
On identical 14-7 votes, the House Appropriations Committee endorsed House Bill 454, by Rep. Bill McChesney, D-Miles City, and HB377, by Rep. Tom Woods, D-Bozeman, that address the Public Employees’ Retirement System and Teachers’ Retirement System, respectively.
Montana’s pension systems face a combined potential shortfall of $4.3 billion, in large part because of investment losses from the 2008-2009 recession and the Legislature’s failure to provide the necessary contribution annually to maintain the funds’ finances.
The committee passed the bills after hearings on them earlier in the day in which the bills were endorsed by Gov. Steve Bullock’s budget director, Dan Villa, unions, public employers and others. The measures will go back to the House, which endorsed both of them in a preliminary vote Thursday, for additional action.
The committee also heard — but took no action — on a third bill, HB338, by Rep. Keith Regier, R-Kalispell. Some committee members speculated afterward that HB338 will not be returned to the House floor but instead be left to die in committee.
McChesney and Woods’ bills preserve the current “defined benefit” pension systems for both current and new employees. A defined-benefit system provides retirees with a guaranteed, fixed pension for the rest of their lives, based on a formula that takes into account the number of years they worked and the average of their highest years’ salaries.
To bolster the funds’ current shaky financial condition, sources of money are pumped into them. Employees and employers would have to make increased contributions until the financial condition of the funds improve.
In addition, McChesney’s bill calls for an annual infusion of $21 million in interest income annually from the coal tax permanent trust fund until 2019 and possibly later.
Woods’ bill requires a $25 million annual contribution from revenues earned from state lands, plus a one-time $14.7 million payment from school districts’ reserve funds.
“It’s not a gift to have a defined-benefit system,” Villa told the committee. “It’s a way to retire and work with dignity.”
Both bills would reduce the guaranteed annual benefit adjustment (GABA), a kind of cost-of-living adjustment for retirees. The bill would reduce the 3 percent GABA for most retired employees to 1 percent, but it would increase again after the funds are on a stronger financial footing.
Retirees and unions have expressed concern over the GABA reduction. Some have questioned whether it isn’t an unconstitutional reduction in guaranteed benefits they’ve earned.
“By reducing it, you’re taking away that guarantee,” said Russell Wrigg, president of the Montana Association of Retired Public Employees. “I hope you can get GABA reinstated.”
Regier’s HB338 would end the defined pension funds for all new public employees hired after mid-2014. They would be placed in “defined contribution” pension funds that are similar to 401(k) retirement funds common in the private sector.
Regier said his is the only of the three bills that will fix the problem for all nine pension funds.
Among the opponents of his bill was Alec Hansen, executive director of the Montana League of Cities and Towns.
“Here’s the fiscal note of my life,” Hansen told the committee. “I have a DC (defined contribution) plan. I’m 72 years old, and I’m still working. What does that tell you?”