Resolution #2012-5 Public Employee Pension Reform

The Public Employee Retirement System is running an actuarial deficit of $1.3-billion, and finding a way to patch this hole will be one of the headline issues of the 2013 Legislature.  Interim committees, legislative and agency staff and the Governor’s Office have been working over the past year on proposals to adjust contributions and benefits in a combination that will assure adequate funding of the pension system as required by law.

The following options are on various tables:

  1. permanent 5.45% increase in employer contributions that would cost cities more than $7-million a year

     

  2. permanent 1% increase in agency and employee contributions.  This proposal from the Governor’s Office would cost cities $1.3-million annually. It would increase costs for the 3,200 municipal employees enrolled in PERS by a similar amount.  It would also require local governments to kick in $20-million in one-time cash from a yet to be determined source of “mystery money”.

     

  3. .25% increase in employer contributions in each of the next four years.  This incremental approach, proposed by PERA, would boost the employer contribution from 7.14% to 8.14 % by 2016.  The recommendation also calls for a cash payment from local governments.  Cities recognize that an increase in employer contributions may be necessary to protect future benefits, but the Legislature must also understand the financial limitations of local governments and the resistance of cities and their constituents to higher property taxes and utility rates or cuts in essential services.

Recommendation:  MLCT will support an increase in employer contributions to PERS if it does not result in higher mill levies and utility rates or reductions in other budget categories.  Cities also believe that a one-time cash payment that may be necessary to stabilize the pension system should come from the $482-million general fund surplus or other state accounts.

The Montana Police Protective Association will propose legislation to include overtime, holiday, vacation and shift differential pay in the definition of compensation to determine pension benefits.  The suggested revision would increase city, state and member contributions by about 20%.  Representatives of the police association claim that the suggested revision will stabilize funding for the pension system which could lead to lower future contribution rates.

Recommendation:  MLCT should not take a position on this bill without a reliable analysis of present and future costs.

Cities and towns are finding it more difficult each year to recruit and retain volunteer firefighters.  Improved pension benefits could be an important incentive to bring new members into volunteer service, but state law imposes a limit of $225 per month.

Recommendation:  MLCT will support a measure that will be introduced at the request of Columbia Falls to allow municipal volunteer fire departments that are actuarially sound to pay pension benefits above the current statutory limit.

Current law allows health insurance premiums or similar payments to be included in “compensation” for the purpose of calculating pension benefits.

Recommendation:  MLCT will support legislation to clarify that health insurance premiums are not compensation for pension purposes.