A group representing retired public employees has written a letter urging Governor Steve Bullock to veto the bill fixing the very pension systems they rely on.
The letter from Association of Montana Retired Public Employees President Russell Wrigg faults the bill (HB454) for reducing the annual cost of living increases guaranteed to retirees.
“The Association feels betrayed by your office and is adamantly opposed to House Bill 454 at this time,” Wrigg writes to the governor, “House Bill 454 could have been modified in a way that would be much more palatable to the Association and its members, and all retirees, without inflicting the harm that it has.”
Montana’s two biggest retirement systems are facing more than a $4 billion shortfall over the next 30 years if the bills passed by the legislature to shore up those plans are not signed by the governor. The measures balance the budgets of the pensions by requiring both employers and employees pitch in more money, some natural resource or general fund money is kicked in, and benefits are reduced slightly. It’s that last part that has angered retirees.
The AMRPE initially supported the fix to the Public Employee Retirement System, before it was amended to reduce the cost of living increases. Wrigg says the AMRPE was not consulted on those amendments.
“It is our understanding that your office was actively involved in those amendments that further trampled on the rights of retirees,” Wrigg writes in his letter.
Gov. Bulllock’s Budget Director Dan Villa says the administration understands the concerns of the retirees on the reductions and admits they will likely be found unconstitutional.
“We believe that ultimately when current and retired employees bring challenge to them that they will be successful,” Villa said, adding the bill fixes the retirement system with or without the reduction in yearly raises which he said just make the fix more aggressive.
“When and if they are found unconstitutional by the state courts, we will still have a solvent public pension system that does not increase taxes and we’ll be the first state in the country to do so,” Villa said.
Wrigg said he wants the pension fix bills to pass without the raise reductions–he would prefer that to them dying through a veto. He says the group will consider legal actions against the bills if the governor signs them, which is expected. But, he doesn’t approve of the tactic.
“Legislation through litigation is really not the way to solve our problems in this state,” he said.
The Senate has its work cut out for it this weekend. The chamber’s Republicans and Democrats will be focused on pushing forward the state’s two-year, $9 billion budget. The main budget bill, HB2, unanimously passed the House last month.
“Almost all the work’s left to do yet,” said Senate Finance Chairman, Senator Rick Ripley (R-Wolf Creek). Senators will be considering amendments to make room in the budget for other major proposals being considered by the wider legislature, such as a fix to the state’s pension debts, state employee pay raises, and funding for construction projects.
“It’s a complicated process to begin with,” Ripley said, “but…we have so many unusual circumstances that normally in a regular legislative session we wouldn’t have to deal with.” He’s referring to the large bills for fixing the pensions and state employee pay raises.
The Governor’s Office wants the Legislature to close on the budget with $300 million left in the bank, otherwise known as the ‘ending fund balance.’ But a balance sheet put out this week from the Legislative Fiscal Division shows the fund almost $95 million in the hole.
Senator Jon Sesso (D-Butte)
“It’s not as bad as the status report really looks,” explains Senate Minority Leader Jon Sesso, who is also on the Finance Committee. That balance sheet includes the costs of all bills still working their way through the Legislative process at this point. “If we went home today, passed House Bill 2… and didn’t pass any other bills, we’ve got $700 million in the bank.”
The question now is what’s going to make it in out of the major projects yet to pass. Sen. Ripley predicts most big projects will probably make it through, “but chopping away at the edges of them and whittling them down to where we can deal with ’em” rather than killing the ideas. He mentions the House removing large portions of money from Sen. Llew Jones’ (R-Conrad) major education funding legislation.
Senator Sesso looks to a number of major tax cut bills still in the works. “Some of the permanent tax relief is premature,” he said, saying those could put the budget out of structural balance in the long term. He prefers some one-time tax cut options. Democratic Governor Steve Bullock did not comment too much the budget, which he calls ‘a moving target.’ But, he echoed some of Sesso’s thoughts on tax cuts.
“What I said at the start is we’re gonna fund essential services and long-term liabilities before we start new programs or tax cuts,” Bullock said.
Although he does have veto power, it’s not Bullock’s call what to fund. That responsibility falls to the Republican-controlled legislature.
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.
Pension Joint Select Committee Chair Dave Lewis (R-Helena), right, and committee member Rob Cook (R-Conrad)
The Joint-Select Committee on Pensions has had a tough job the last few months– wading through the complex budget shortfall facing the state’s largest retirement systems. Over the next 30 years, those funds will end up more than $4 billion in debt if nothing is done.
When the committee first started meeting, it was mentioned that the committee would try to put forth one, encompassing bill to fix the pensions, combining what they liked from the 18 different bills presented to them. But as discussions moved forward, it became clear the group of eight Republicans and four Democrats were considering two main, and opposing, ideas.
Governor Steve Bullock’s proposal: This plan, modified from a plan put forth by former Governor Brian Schweitzer, would keep the current ‘defined benefit’ retirement systems in place for future employees. It would attempt to fix the plans by requiring employees put more of their money into the retirement systems, requiring employers put in more money, and then pulling some money in from state trust lands. The Governor’s plan is being carried by Representative Bill McChesney (D-Miles City). It’s HB454
A ‘Defined Contribution’ model: This moves all future employees to ‘defined contribution’ plans, which are similar to 401(k) retirement plans used widely in the private sector. The idea has largely been spearheaded by Committee Chair Senator Dave Lewis (R-Helena) who says the current model is unsustainable in the long-term. Lewis’s ideas were modified into HB338 carried by Representative Keith Regier (R-Kalispell). This proposal would pay for current pension funds from other sources.
Ultimately, the joint-select committee decided to pass both ideas on to the House Appropriations Committee. Chair Lewis says he has received criticism for not settling on one bill, but he says the two main ideas are in too stark opposition to combine.
“You can’t meld those,” he said. “These are policy choices the Legislature’s going to have to make.”
An interim committee of lawmakers has moved a plan to fix the state’s pension systems one step closer to the 2013 Legislature. The proposed bill start with the pension fix proposed by the Schweitzer Administration.
The State Administration and Veteran Affairs (SAVA) Committee has voted to approve bills to potentially fix debt problems plaguing the state’s two biggest employee retirement systems.
The Public Employee Retirement System and Teachers Retirement System are expected to be about $3 billion in the hole over the next 3 decades.Wilsall Republican Senator Ron Arthun.
“We need to address this because we’re getting so much farther behind on our unfunded liabilities,” said Wilsall Republican Senator Ron Arthun.
Arthun joined a seven to one majority passing a bill for the Teachers Retirement System. The bill has both the employees and employers paying more into the system to correct the shortfall over the long term. Then coal tax revenue would fill in the rest.
A fix for the Public Employee Retirement System generated a little more debate in the SAVA committee. A bill for that system passed 5 to 3.
This fix has much of the same framework as the teachers plan; an infusion from natural resource taxes and more from the employees. The controversy here comes in asking for more from the employers, which are many times city and county governments. Some public comment at the meeting accused the committee of trying to balance the budgets of the pensions on the backs of local governments, leading to forced tax hikes.
Senator Arthun says it has to be a shared sacrifice.
“I think some of the burden has to be shared by the local governments,” Arthun said.
Executive Director of the Montana League of Cities and towns Alec Hansen says local governments are willing to make a reasonable contribution to solve this problem.
“It’s vitally important to restore actuarial balance to those programs. It’s also vitally important to protect the retirement benefits of our employees,” Hansen said.
The bills passed by the SAVA committee now move over to the Legislative Finance Committee for another review. SAVA will view them again in November before making a decision on whether or not to send the measures to the 2013 Legislature.
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.