Article: Schweitzer to ask lawmakers to put $125 million in pension funds (Montana)
Montana Forum
Dec. 06, 2005
By Charles S. Johnson
Lee State Bureau
HELENA - Gov. Brian Schweitzer said Monday he'll ask a special legislative session next week to spend $125 million to help bail out two public retirement systems' pension funds whose combined potential deficit tops $1.4 billion.
"We have to shore up our retirement systems for teachers and public employees, which will also help property tax payers," Schweitzer said.
Earlier this fall, Schweitzer, a Democrat, had pledged he would recommend pumping the $125 million in to the two pension funds.
He will target $100 million for the Teachers' Retirement System, which had an unfunded liability or potential deficit of $903.3 million as of July 1. Schweitzer also called for putting $25 million into the Public Employees Retirement System, which reported a $541 million potential deficit on July 1.
This money would come from one-time money that is part of a larger-than-anticipated state general fund, or "checking account," surplus.
The governor's budget director, David Ewer, said Schweitzer wants the Legislature to take up two other pension-related bills next week.
One, by the Teachers' Retirement System, would tighten language defining years of service and the ability of retired employees to return to work "to prevent abuses," Ewer said.
The other, backed by Schweitzer, which was endorsed by an interim legislative committee, would reinstitute its annual review of retirement legislation.
"This is very harmonious with the pension reform," Ewer said.
Ewer said the administration favors delaying action until 2007 on a bill requiring state and local governments and school districts to raise their employer contributions for pension funds for employees. They would have to pay more than $40 million a year in new funds, with local property taxes funding the lion's share.
Meanwhile, Rep. John Sinrud, R-Bozeman, announced a 13-point pension systems overhaul that he wants to raise next week.
If not allowed in Schweitzer's formal agenda, Sinrud said he will seek the signatures of 76 of the 150 lawmakers to expand the session.
"It's a $1.46 billion problem," Sinrud said. "If someone can solve a $1.46 billion problem by putting in $125 million, they're working magic."
The cornerstone of his plan calls for the state to issue $625 million in general obligation bonds, with the proceeds invested by the Board of Investments for the pension funds, with stiffer restrictions.
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"You just can't throw money at the problem," Sinrud said. "You have to have reforms in the system."
If the Board of Investments made an 8 percent return on the investment of the money raised by the bond issue, which isn't unusual, Sinrud said five-eighths of the money would go to pay off the bonds, while three-eighths would go to the pension funds.
"It would save $400 million for taxpayers over 30 years," Sinrud said.
Ewer, who agreed with just a few parts of Sinrud's proposal, rejected the bonding proposal as "an inefficient use of capital."
"To have a huge infusion of capital with bond proceeds, we have to pay interest on those bonds," Ewer said, "whereas the contributions from employee and employer are cash flow (without interest). There is an opportunity cost for the state to have its bond capacity all sucked up with $625 million in pension funds."
Another Sinrud proposal opposed by Ewer would be to require all new state and local government employees to participate in the now-optional "defined contribution" retirement plan. Existing employees could remain in a "defined benefit" plans.
Ewer estimated about 10 percent of state employees have opted for the "defined contribution" plan, while the remainder participate in a "defined benefit" plan.
Under a "defined benefit" plan, an employee who works a certain number of years receives a fixed pension upon retirement that doesn't vary with how the stock and bond markets perform. Someone who works for the state for 30 years will retire at a fixed percentage of the average of his or her three highest years' salaries.
Someone under a "defined contribution" plan, invests his or her pension and the state's contributions in an array of financial market choices. Upon retirement, that person receives the balance of his or her investment account with no guaranteed pension. Defined contribution plans are increasingly common in the private sector.
"Defined benefits is a great deal," Sinrud said. "They can't afford it. They're going bankrupt."
Countered Ewer: "The defined benefit program is an important recruiting and retention benefit for state workers. It's an important option that we would want to preserve."
Dec. 06, 2005
By Charles S. Johnson
Lee State Bureau
HELENA - Gov. Brian Schweitzer said Monday he'll ask a special legislative session next week to spend $125 million to help bail out two public retirement systems' pension funds whose combined potential deficit tops $1.4 billion.
"We have to shore up our retirement systems for teachers and public employees, which will also help property tax payers," Schweitzer said.
Earlier this fall, Schweitzer, a Democrat, had pledged he would recommend pumping the $125 million in to the two pension funds.
He will target $100 million for the Teachers' Retirement System, which had an unfunded liability or potential deficit of $903.3 million as of July 1. Schweitzer also called for putting $25 million into the Public Employees Retirement System, which reported a $541 million potential deficit on July 1.
This money would come from one-time money that is part of a larger-than-anticipated state general fund, or "checking account," surplus.
The governor's budget director, David Ewer, said Schweitzer wants the Legislature to take up two other pension-related bills next week.
One, by the Teachers' Retirement System, would tighten language defining years of service and the ability of retired employees to return to work "to prevent abuses," Ewer said.
The other, backed by Schweitzer, which was endorsed by an interim legislative committee, would reinstitute its annual review of retirement legislation.
"This is very harmonious with the pension reform," Ewer said.
Ewer said the administration favors delaying action until 2007 on a bill requiring state and local governments and school districts to raise their employer contributions for pension funds for employees. They would have to pay more than $40 million a year in new funds, with local property taxes funding the lion's share.
Meanwhile, Rep. John Sinrud, R-Bozeman, announced a 13-point pension systems overhaul that he wants to raise next week.
If not allowed in Schweitzer's formal agenda, Sinrud said he will seek the signatures of 76 of the 150 lawmakers to expand the session.
"It's a $1.46 billion problem," Sinrud said. "If someone can solve a $1.46 billion problem by putting in $125 million, they're working magic."
The cornerstone of his plan calls for the state to issue $625 million in general obligation bonds, with the proceeds invested by the Board of Investments for the pension funds, with stiffer restrictions.
RelatedStories
Schweitzer calls special session
Dem leaders seem to support plan to convene Legislature; GOP unsure
"You just can't throw money at the problem," Sinrud said. "You have to have reforms in the system."
If the Board of Investments made an 8 percent return on the investment of the money raised by the bond issue, which isn't unusual, Sinrud said five-eighths of the money would go to pay off the bonds, while three-eighths would go to the pension funds.
"It would save $400 million for taxpayers over 30 years," Sinrud said.
Ewer, who agreed with just a few parts of Sinrud's proposal, rejected the bonding proposal as "an inefficient use of capital."
"To have a huge infusion of capital with bond proceeds, we have to pay interest on those bonds," Ewer said, "whereas the contributions from employee and employer are cash flow (without interest). There is an opportunity cost for the state to have its bond capacity all sucked up with $625 million in pension funds."
Another Sinrud proposal opposed by Ewer would be to require all new state and local government employees to participate in the now-optional "defined contribution" retirement plan. Existing employees could remain in a "defined benefit" plans.
Ewer estimated about 10 percent of state employees have opted for the "defined contribution" plan, while the remainder participate in a "defined benefit" plan.
Under a "defined benefit" plan, an employee who works a certain number of years receives a fixed pension upon retirement that doesn't vary with how the stock and bond markets perform. Someone who works for the state for 30 years will retire at a fixed percentage of the average of his or her three highest years' salaries.
Someone under a "defined contribution" plan, invests his or her pension and the state's contributions in an array of financial market choices. Upon retirement, that person receives the balance of his or her investment account with no guaranteed pension. Defined contribution plans are increasingly common in the private sector.
"Defined benefits is a great deal," Sinrud said. "They can't afford it. They're going bankrupt."
Countered Ewer: "The defined benefit program is an important recruiting and retention benefit for state workers. It's an important option that we would want to preserve."
posted by Kathie Bracy at 10:26 PM
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