HELENA — The Senate on Wednesday endorsed the two major bills seeking to repair Montana’s financially troubled pension funds for teachers and public employees.
House Bill 377, by Rep. Tom Woods, D-Bozeman, passed 30-20. It addresses the Teachers’ Retirement System.
The other measure, HB3454, by Rep. Bill McChesney, D-Miles City, deals with the Public Employees’ Retirement System. The Senate approved it, 31-19.
They face a final Senate vote before returning to the House, which must approve amendments put on by a Senate committee. Gov. Steve Bullock has endorsed both bills.
They are the lone remaining major bills still alive out of many introduced to deal with a $4.3 billion projected pension shortfall. State pension fund investments lost about one-fourth of their value after the 2008 stock market fall.
Both bills would keep the current “defined benefit” pension systems. These guarantee retirees a fixed lifetime pension based on a formula using their years of employment and the average of their highest years’ salaries.
Under both bills, employers and employees would contribute more to the pension funds.
In addition, the state would pump millions of dollars of natural resources revenues into the pension funds every year until they are actuarially sound.
Finally, current TRS and PERS retirees would receive a lower annual cost of living adjustment to their pensions. It’s known as GABA or guaranteed annual benefit adjustment.
A number of legislators and retirees have predicted this GABA reduction will be successfully challenged in court as a reduction of an earned benefit.
Backers of the two bills said the various changes over time will put the pension funds back on sound financial footing and fulfill the state constitutional obligation to fund them.
“If we pass this bill, the fund will be actuarially sound in 22 years,” said Sen. Tom Facey, D-Missoula, of HB377. The current TRS fund’s amortization period is infinity.
Sen. Larry Jent, D-Bozeman, speaking on behalf of HB454, said the financial fix will improve the state’s bond rating by removing pension liabilities from the books. That, in turn, will make it cheaper for the state and local governments to issue bonds to finance public works projects.
Some Republican legislators had failed in their efforts this session to scrap the “defined benefit” pension plans for future workers. They wanted to put new employees into a “defined contribution” retirement plan, like the 401(K) savings account n the private sector. These plans lack the guaranteed monthly pension check that “defined benefit” plans have.
A few GOP senators blasted the two bills as taxpayer bailouts and shell games.
“We’re shoveling money into a hole that doesn’t have a bottom,” Sen. Eric Moore, R-Miles City.
Senate Majority Leader Art Wittich, R-Bozeman, predicted that public retirees will “cherry pick” from the bill and sue over the GABA reduction. That will require the state and local governments and school districts to put even more money into these funds over time.
“It’s absolutely critical that retirees have a share in trying to bring these systems into balance,” said Sen. Dave Lewis, R-Helena.
Lewis unsuccessfully tried to amend both bills to remove the “severability clause” and require that the entire bill be thrown out if a court strikes one section, such as the GABA reduction.
As it stands, however, the severability clause remains intact in the bills. So if a court throws out part of the bill, the rest of the bill will remain in place.
A few Republicans spoke in support of the two bills.
“When Montana has an actuarially sound pension system, this will be a place where someone wants to come and do business,” said Sen. Bruce Tutvedt, R-Kalispell. “This puts us on a path toward fixing it.”