The House of Representatives has decided to move forward with a plan to fix the state’s ailing pension systems, a plan brought forward by Governor Steve Bullock.
As we’ve reported, the state’s biggest retirement systems are on pace to be more than $4 billion in debt over the next 30 years if their funding mechanism isn’t changed.
The Governor’s plan is split into two bills which separately address the state’s two largest systems, the Teachers Retirement System (TRS) and Public Employees Retirement System (PERS). Those plans require both employers and employees put in more money toward the pensions. They would also take more money from state trust lands. The House approved both by wide margins Thursday, 60-39 for the TRS plan and 64-35 for the PERS plan.
“I think most citizens of Montana are gonna see that we’re just trying to bail out a failed plan,” said Representative Keith Regier (R-Kalispell). He sponsored another bill which became the top alternative to the Governor’s plan. It would have moved all new hires over to defined contribution plans, which are similar to 401(K) plans used often in the private sector. Making that shift would have cost the state more money, but Regier argues only for the short term. Under his plan, the state could eventually transition out of the pension program. The state would contribute money to the defined contribution plans of the employees, but the stability of those plans would be based on the whims of the stock market.
“It comes down to who should have the risk for somebody’s retirement,” he said, meaning the individual employees with the defined contribution plans or the state with the current pension system.
Representative Tom Woods (D-Bozeman)
Representative Tom Woods (D-Bozeman) sponsored the Governor’s plan to fix the Teachers Retirement System. He says House members realized it was the best way to move forward, “that it’s more expensive to close defined benefit plans than to fix them.” He believes the two bills have cleared their biggest hurdles as they move over to the Senate.
“I believe these bills will pass,” said Eric Feaver, President of the state’s largest public employee union, the MEA-MFT. “This is the session to do it, we have the money to do it, we have the commitment.” Feaver is a strong supporter of the pension fix bills even though he believes parts of the measures are unconstitutional. While the Governor’s pension bills were in a joint-select committee responsible for pensions, lawmakers added amendments which would lower the guaranteed cost-of-living adjustment built into the plans of current employees. Legislative legal staff have warned this could be a breach of contract.
“That’s a problem,” Feaver said. He says he will lobby to try to remove those amendments in the Senate or if the bill makes it to Governor Bullock’s desk. If they make it all the way through the process, he believes he and several other plaintiffs could mount a successful lawsuit to strip them.
“The bills need to pass anyway,” he said.
Lawmakers in favor of the 401(K) retirement plan shift are not giving up. On Wednesday, Senator Dee Brown introduced a bill which, if passed, would put the proposal before the voters.
The Governor’s office has negotiated pay increases with the unions representing state employees.The deal for public employees includes a 10 percent raise over the next two years. This also applies for employees of the Montana University System.
But there’s a catch. The raises must be approved by the 2013 legislature, after current Governor Brian Schweitzer has already left office.
President of the state’s largest employee union, the MEA-MFT, Eric Feaver says many state employees will have gone without a pay raise for four years when the Legislature considers this deal.
“So the bill has come due,” he said, “and these state employees, they deserve the money.”
The 10 percent raise reached in the deal with the Schweitzer Administration spreads over two years. Five percent next year, another five the year after that.
The agreement also includes a 20 percent total increase in the state’s share of employee health insurance premiums. The state is projected to have a budget surplus of over $400 million this next biennium. Feaver says that’s enough money.
“For sure, the state can afford this plan. And so for us to argue differently is just simply to once-again tell state employees that we don’t value your service,” he said.
He calls that a solid argument.
“Whether the next legislature buys it, obviously will depend a great deal on the partisan makeup of that next legislature,” he said.
Feaver has no doubt a Republican dominated legislature would be less inclined to support the deal.
That’s what happened in 2011 anyway—heavy Republican majorities rejected a smaller negotiated pay raise.
“But, if we are able to shrink the margin of partisan difference perhaps folks will get on board and we will go forward,” Feaver said.
Wolf Creek Republican Senator Rick Ripley says it is an important issue.
“There’s some consideration that state employees do need a raise and I think that will be seriously considered,” Ripley said.
He suggests approving raises for those state employees on the lower tiers. He says those at the top have been receiving other raises outside of their base salary pay.
As for whether or not the Legislature will be willing to spend its budget surplus on state employees?
“There’s gonna be a lot of demand on that and how that is split up we’ll just have to wait and see. It’s a complicated process to work through,” Ripley said.
The raises would affect between 15-thousand and 16-thousand employees.
The Governor’s office says the total cost would be $138 million.
Governor Brian Schweitzer has released a plan he says will fix the state’s ailing pension system. The retirement plans for the state’s teachers and many other public employees have been running in the red for about a decade now. Schweitzer’s proposal includes increasing contributions from both state employees and the agencies that employ them. Lawmakers on both sides of the issue agree something needs to be done soon.
The state retirement plans are not solvent right now. That is to say Montana does not have the money set aside to pay them, and it’s on a downward slide.
Speaking to reporters, Governor Brian Schweitzer says that’s actually unconstitutional.
“You know, there’s some folks who say well, dog-gone it if we don’t have the money I guess we won’t pay them. But it doesn’t work that way. We have a constitutional requirement,” Schweitzer said.
The retirement plans split into two groups. There’s the Teacher’s Retirement System and the Public Employee Retirement system. For the Teacher’s Plan, the Governor is proposing a one percent increase in how much the employees contribute. Then, he is asking school districts to contribute a combined one time only amount of about $15 million dollars.
With the Public Employee System there would be a one percent increase to both the employees and the employing agencies, like local governments. The third component would be putting in more money from state trust lands.
Erik Feaver is President of the MEA-MFT, the state’s largest public employee union. He says he supports the plan, that his members realize something needs to be done.
“The fact is this is not unique to the Governor, we’ve been talking about this plan for some time, maybe not in every little detail…he is in part saying the sorts of things we would want him to say if we were actually lobbying him,” he said.
The Governor says his plan would make the retirement plans by about 2017.
Republican Senator Dave Lewis sits on the State Administration and Veteran’s Affairs Interim Committee, the committee that looks at the pensions. He says the plan may not go far enough.
“I’m willing to support looking into some one-time-only money simply to take care of the existing fund, but we’ve got to stop the growth of the problem and the only way to do that is to put new employees into a different kind of plan,” Lewis said. He proposes 401K plans for new employees.
The Governor’s proposal would need to go before the 2013 legislature, after Schweitzer has left office.