The numbers are in for how the state’s top pension systems performed over the last year in the stock market.
The investments made money, but not very much.
These pensions have been in debt for about a decade and are an increasing budget concern for the state. The ailing pension system is shaping up to be a top priority for the 2013 Legislature. State lawmakers are now weighing a proposal from Governor Brian Schweitzer to fix the pensions.
The gubernatorial candidates seeking to replace him disagree on what they want to see..
It’s sort of hard to paint a clear picture of how big of a deal state pension problems are because it all unfolds over a long time.
Let’s put it this way—over the next 30 years the state’s two biggest public employee pension systems, or retirement plans, will be $3 billion in debt if the current system does not change.
To put that in perspective, the state’s annual budget is about $2 billion.
And how do these pensions make money? Well, the employees and employers put in money, and it’s diversified by the State Board of Investments. The board recently received the figures for how much the pensions earned in the stock market over this last year. Board Director David Ewer says it was about 2.4 percent.
“It’s a very challenging environment for investors globally,” Ewer said.
2.4 percent is not very good. Ewer says the systems have earned an average of just under 6 percent over the last decade. In order for the stock market to pay back the debt on these retirement plans—Ewer predicts they would have to earn an average of about 9 percent over the next 30 years.
It’s hard to say for sure, let’s say between 8 and 11 percent. Either way, that’s probably not going to happen.
“I think I can fairly say that I think it’s unlikely that investment returns on their own will sufficiently close the gap that needs to be closed if you’re going to have for the long term a truly viable pension system,” he said.
Several bills to address the pension system are in the drafting stage right now. The one generating the most interest comes from Governor Brian Schweitzer’s budget office. It calls for increasing the amount paid into the plans from the employers and the employees.
And then it includes a new cash infusion from the money earned on state trust lands. Schweitzer calls this an incremental approach that would fix the pensions over the long term, but says state lawmakers need to get on it.
“We need to move today,” Schweitzer said. “We cannot allow the legislature to kick it down the road. If they do that then it becomes a deep, dark hole for the people of Montana.”
“We agree with a great deal of what the Governor’s proposing here,” said Republican gubernatorial candidate Rick Hill, one of two men looking to replace Schweitzer in this November’s election.
He agrees with Schweitzer this is an issue of utmost importance, Hill actually thinks the problem is worse than what’s been presented. He agrees fixing the pensions needs to be a shared responsibility. But Hill does not want to use state trust land money for the pensions. He says those funds should not go to one small group of beneficiaries, the state employees.
“We think all taxpayers ought to be beneficiaries of the revenues that come off of state lands,” Hill said, “and the best way to do that is to use those funds to help us change how we fund education in a way that allows us to reduce property taxes.”
Hill also touts moving new employees away from the current pension system, into 401Ks —leading to less risk for the state but more risk for the employees
“We believe we should seriously look at moving to a defined contribution plan for new hirees so that we’re not perpetuating this problem into eternity,” Hill said.
Democratic Gubernatorial candidate Steve Bullock does not speak about pensions with the same urgency as his predecessor or his opponent.
“We’re in a better position than a lot of other states,” Bullock said. “So the answer isn’t to panic, but it’s to methodically work on it and make sure it’s actuarially funded.”
Although, Bullock does say the next legislature should address the issue. As for the state trust land cash infusion, he says there will need to be some kind of new money propping up the pensions.
“Be it from some of the resource development or other, you know over time we need to chip away at it and that could be a good area to do it,” Bullock said.
But, Bullock does not agree with moving all new hires to 401Ks. He thinks it is good enough that it is now an option for new employees.
“Having that as an option makes a lot of sense. Switching out to everybody I don’t think does,” Bullock said.
While one of these men will be holding the veto pen next legislative session, their influence will first require the state legislature pass a pension bill.