Guest opinion by Gary Buchanan: Time to pay up – Montana urgently needs a public pension fix

Our governor and legislative leaders have recognized the state’s pension shortfalls as a problem. That’s encouraging. Now it is time to take the opportunity of our state’s healthy fiscal condition to make much- needed changes to the plan. It is time that the Legislature and the executive branch own the state’s responsibilities, and those who stand to benefit from a healthier pension plan should be prepared to contribute to the solution.

Addressing this challenge starts with being honest about where we are and looking at all possible solutions.

In 2000 our pension plans had a surplus. As of July 2012 we face a $4.24 billion shortfall. Montana missed the last five years of what are called Actuarially Required Contributions. (See box at right.)

These shortfalls occur when actuarial estimates of what contributions are needed now to pay future benefits come up short, as noted by the Gazette State Bureau in a Jan. 2 report. Part of the math required to make these plans pencil out includes actuarially required contributions from the state, which have not been made since 2007. The projection for ARC shortfalls equals $116 million for fiscal year 2013 and $121 million for fiscal year 2014.

These numbers are obligations and should be considered as direct deductions against any surplus. Smart states do this. Our current surplus it is an opportunity we cannot pass on to future generations, we must take responsibility now.

A real solution gores everyone’s ox. On top of the state’s responsibility, beneficiaries need to make some changes. Consideration must be given to higher employee contributions, more reasonable cost of living adjustments, increased anti-spiking provisions, reasonable actuarial assumptions, a review of unfunded benefit increases in the last decade, increased years of service and increased minimum retirement ages.

The state should fully fund the shortfall and there’s an obvious and logical source of funds: the governor’s proposed 5 + 5 Pay Plan.

As we have been reading, although no pay plan was passed in the 2011 session, significant raises were given to many state employees, some increasing by double digits. Instead of giving everyone an additional 10 percent or more raise during this biennium, the inequities realized with these recent raises should be addressed by giving raises to employees who did not receive a bump in pay in this last go around. Then use most of the money to make the critical investments into the pension funds. Strengthening our ability to pay for public employee retirement should be a top priority for unions and employees both. We can do that now by using money already in the budget, instead of giving additional raises across the board.

Finally, we should look forward to the Pew Research Center study that our legislative leaders requested. Pew is highly regarded, nationally respected and has no axe to grind. We should hear them out and not react to the conspiracy theories regarding Pew that Montana Education Association leadership recently touted. Why disparage a study before they even finish? Although I suspect the news will not be great, I look forward to seeing their findings.

Let’s use this opportunity to avoid passing these problems down the road again. Instead, address them now. A Senate and House select committee to deal with pension issues would be an ideal place to start.

Gary Buchanan is a financial adviser and business owner in Billings and chairs the State Board of Investments. Thoughts shared in this column are his and not those of the Board of Investments.

http://billingsgazette.com/news/opinion/guest/guest-opinion-time-to-pay-up—montana-urgently/article_ee791984-6a3b-54b9-b41f-1ba4134dc33f.html

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2013 Montana Legislature: Fixing state pensions on the agenda – Last in a 4 part series on the 2013 Montana Legislature http://www.matr.net/article-53464.html

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Guest opinion: Keep Montana’s promise to public servants http://www.matr.net/article-53606.html

Guide to the 63rd Session of the Montana Legislature http://www.matr.net/article-53522.html

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