How should Montana fix its the $700 million per year problem that two of its public pensions are estimated to cost the state? One representative has some suggestions.
In an opinion piece with the Independent Record, Rep. Tom Burnett recommended the state’s Teachers’ Retirement System (TRS) and Public Employees’ Retirement System (PERS) —which cover about 90% of employees entitled to receive pension benefits—compare their funding to other items that receive money from the state’s budget, such as the $189 million the state university system gets every year.
Another way Burnett considered getting the $700 million was through property tax, which he deduced would come out to $1,687 per household per year.
“Money to cover unfunded pension obligations will have to come from somewhere. Employees can be asked to put in more during their working years, but taxpayers will still bear the brunt of the burden, through higher taxes and/or reduced services,” Burnett wrote. “For taxpayers, the prospect of getting fewer educational or public safety services in order to support pensioners is distressing.”
Rather than keep the 7.75% rate of return for its investments, Burnett wrote that most economists recommend the rate be between 4.5% and 5%, something much smaller for funds to set their sights on.
Burnett got the $700 million figure from a legislative fiscal analyst, who ran a computer model of the TRS assuming 4.5% rate of return, then doubled it after determining that the PERS is about the same size as the teachers’ fund.
“Montana’s public pensions aren’t sustainable, as too little money is being put aside to fund, over the long haul, the pensions contractually due to the employees,” wrote Burnett. “I believe many public employees understandably worry that the pension benefits they’ve been promised will be hard to collect; some have privately told me so.”
Montana has 11 retirement plans for public employees, nine of them being defined benefit (PERS, Judges’ Retirement System, Highway Patrol Officers’ Retirement System, Sheriffs’ Retirement System, Game Wardens’ and Peace Officers’ Retirement System, Municipal Police Officers’ Retirement System, Firefighters’ Unified Retirement System, Volunteer Firefighters’ Compensation Act), and while Burnett admitted that the pensions are “a splendid deal” for state retirees, he pointed out the issue that they are not sustainable due to employees not providing enough contributions during their working years and the pension systems masking their weaknesses “by assuming a highly optimistic annual rate of return.”
According to Bloomberg, the state was 71.2% funded in 2016, down 3.3% from the year prior.
“Public pension finance is an expensive, hence discouraging, topic. It’s also unavoidable, so we need serious attention paid to the stark choices that loom,” wrote Burnett.