Copyright
Sheri S Heffelfinger.

Legislative policy objectives for Montana's Public Employee Retirement Systems : 1999-2000 interim : presession consideration of retirement plan proposals : a report to the 57th Legislature by the State Administration, Public Retirement Systems, and Veterans' Affairs Interim Committee, 1999-2000 (Vo online

. (page 2 of 4)
Online LibrarySheri S HeffelfingerLegislative policy objectives for Montana's Public Employee Retirement Systems : 1999-2000 interim : presession consideration of retirement plan proposals : a report to the 57th Legislature by the State Administration, Public Retirement Systems, and Veterans' Affairs Interim Committee, 1999-2000 (Vo → online text (page 2 of 4)
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members


provision for employer
contributions to 401 (k),
403(b), 457, and
postretirement medical
expense plans and programs


state guaranteed
tax base aid. Est.
cost: $5m per year
($4m from levy,
$1m from state)




Otf


ler proposals re


lated to public employee benefit


s


24


MEA-MFT,


School


Amend the existing school


School district




MSBA


Districts


district voluntary
"compensation absence
liability fund" (CALF) to
include severance pay


general fund,
voluntary by district



A Report of the State Administration Interim Committee: 1999-2000 23



Legislative Policy Objectives for Montana 's Public Employee Retirement Systems



No.


Requestor


System
affected


Summary


Est. cost, funding
sources






Proposal


s submitted after July 1




25


Retired
Teachers
(Rep.
Kitzenburg)


TRS


Change date for determining
eligibility for GABA after 3
years of retirement from
January 1 to July 1


TBD


26


Assoc, of


HPORS


Allow full retirement benefits


TBD




Mt Hwy




after 20 years of service


1




Patrolmen




regardless of age (striking


1




(AMHP)




requirement for "and age
50")




27


PERB


HPORS


Statutorily required report
and recommendations on
25-cent vehicle registration
fee and statutory
appropriation to fund
supplemental retirement
benefits for certain HPORS
retirees


N/A



24 A Report of the State Administration Interim Committee: 1999-2000



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TABLE 7
VOLUNTEER FIREFIGHTERS' COMPENSATION ACT

(Based on June 30, 2000, Actuarial Valuation)



PENSION PLAN FEATURES


VOLUNTEER FIREFIGHTERS' PENSION FUND


Minimum service and age for
normal (unreduced) retirement


Age 55 and 20 years of service; or
Age 60 and 10 years of service


Vested


10 years


Basic benefit formula


$5 per year of service, up to maximum of
$100 per month


Disability


$5 per year of service, with a minimum of $50
per month up to a maximum of $100 per
month


Death benefit


$5 per year of service


Membership


839 retirees and beneficiaries

2,502 active members

624 vested inactive (terminated) members


3,965 total members


Average age of active
members


43 years old


Average years of service of
active members


9 years


Average benefit for service
retirees


$86 per month


Contributions


5% of insurance premium taxes collected
(See Section 19-17-301, MCA)


Actuarial liabilities


$16.7 million


Actuarial value of assets


$1 7.7 million


Unfunded liability


($1 million) surplus


Funded ratio


106%



TABLE 8

PERS DEFINED CONTRIBUTION PLAN
(Chapter 471, Laws of Montana, 1999)

To be operational no later than July 1 , 2002.



Membership


All PERS members will have 12 months to make
a one-time, irrevocable choice between the DB
and DC plans.


Employee Contributions


6.9% of salary


Employer Contributions


6.9% of salary allocated as follows:
- 0.4% to an educational fund
- 2.37% to PERS DB plan as plan choice rate
- 4.49% to member accounts


Total contributions to
member accounts


1 1.39% of salary


Investment choices


16 funds (the PERB is in the process of
selecting the funds)


Vesting


5 years for employer contributions and
investment earnings on those contributions, but
members have immediate control over how
employer and employee contributions are
invested


Benefits


Contributions plus investment earnings, minus
administrative expenses; payable at any time
after termination, with a federal tax penalty for
withdrawal before age 59 1/2.


Disability benefit


Member's account balance

(The SAIC recommends the adoption of
LC 1 99, which would provide a defined
disability benefit based on a 1/56 x FAS x years
of service formula, as is provided in the PERS
DB plan.) U


Death/survivorship
benefit


Member's account balance


Plan administration and
contracted vendors


- PERB IS the plan's board of trustees

- Great West is the plan's recordkeeper

- Educational Technologies Inc. will provide
educational services (to the DC plan as well as
to the DB plan)

- Investment fund manager bids are still being
evaluated



TABLE 9



UNIVERSITY SYSTEM OPTIONAL RETIREMENT PLAN

(As of June 30, 2000)



PLAN FEATURES


OPTIONAL RETIREMENT PROGRAM (ORP)
(A Defined Contribution Retirement Plan)


Membership


All administrative, scientific, and instructional staff of
the University System. (When PERS DC plan is
operational. University System employees in PERS will
have option of joining PERS DC plan or the ORP.)

Active membership: 1,115


Retirement eligibility


A plan member may "retire" (i.e., access the ORP
account) any time after service is terminated. There are
federal tax penalties for withdrawal prior to age 59 1/2.


Benefit


An ORP member's benefit depends on total contributions
to the member's individual account, plus investment
earnings, minus administrative expenses. The ORP is
administered by TIAA-CREF, which offers eight
investment options.


Disability benefits


All University System employees are covered under a
long-term disability insurance plan. The basic plan is
entirely employer-paid and provides disability payments
up to 60% of monthly earnings, offset against other
income, such as pension benefits, social security,
workers' compensation insurance, etc.


Death and survivor
benefits


The full current value in a member's annuity account is
payable to the beneficiary before retirement. The
benefit can be paid in a single sum, as an annuity
income to the beneficiary for life, or as an annuity
income for a fixed period of years. The annuity may
also be deferred as federal law permits.


Total payroll
covered


$31,475,709


Employer
contribution as a
percentage of
payroll


4.956%


Employee
contribution as a
percentage of salary


7.044%


Total contributions
to member accounts


12%


Contribution to TRS
for unfunded liability


3.73% on 7/1/00

4.04% on 7/1/01 (to be reviewed and possibly adjusted

on 7/1/2033)



APPENDIX A

MEETING DATES AND MAJOR AGENDA ITEMS

The following is a list of the meeting dates during which the SAIC
considered retirement issues. This list is provided to aid readers interested
in researching the meeting minutes and exhibits, which are available by
contacting the Montana Legislative Services Division, P.O. Box 201706,
Room 110, State Capitol, Helena, Montana, 59620-1706, (406) 444-3064,
or on the Internet at http://leq.state.mt.us .



June 14, 1999:



Organizational meeting



September 9-10, 1999: Background information from agencies



May 9, 2000:



Background on and overview of the
public employee retirement plans



August 4, 2000:



Retirement proposal hearings



September 15, 2000:



Final actions



APPENDIX B

STAFF ANALYSIS

OF RETIREMENT PROPOSALS

SUBMITTED FOR REVIEW



Staff Analysis
Retirement Proposal No. 1 through No. 5

Increasing the Guaranteed Annual Benefit
Adjustment (GABA) for the Defined Benefit Retirement Plans



For the

State Administration, Public Retirement Systems, and

Veterans' Affairs Interim Committee

(1999-2000)

Prepared by

Sheri S. Heffelfinger, Research Analyst

Office of Research and Policy Analysis, Legislative Services Division

September 2000
(Edited for this report.)

Issue Summary

Five proposals:

One goal Five proposals: The State Administration, Public

Retirement Systems, and Veterans' Affairs Interim
Committee (SAIC) received five separate, but in many
cases similar, proposals to increase the Guaranteed
Annual Benefit Adjustment (GABA) now provided in the
defined benefit (DB) retirement plans. This analysis
addresses all five proposals.

What is GABA? The GABA in the Teachers' Retirement
System (TRS) and the eight defined benefit (DB)
systems administered by the Public Employee
Retirement Board (PERB) provides a 1.5% automatic
annual increase in the benefits paid to retirees and their
beneficiaries. It is not tied to the Consumer Price Index
(CPI) or otherwise indexed for inflation. There is a
3-year waiting period before the GABA begins.

Key issue, GABA 's sufficiency: The underlying policy
issue IS the sufficiency of the 1.5% GABA.
Postretirement benefit increases, such as a GABA, are
supposed to help retirement benefits keep pace with
inflation, or to at least slow the erosion of retiree
benefits caused when the cost of living increases. This
erosion of benefits is significantly exacerbated by an
almost 1 1 % inflation rate for health care costs, which
hits retirees the hardest.



In Sum The five proposals may essentially be listed as follows:

• Increase the GABAs to 3%

• Increase the GABAs to 2.5%

• Index the GABAs to the Social Security COLA

• Increase the GABAs as actuarial funding allows,
• - to a maximum of 2.5% biennially (every two

years)

Costs and funding options are discussed in the analysis
section.

Historical Perspective

1997 GABA Eight retirement systems pet GABA in 1997: In 1997,

the Legislature enacted the 1 .5% GABA for each of the
PERB-administered DB plans. House Bill No. 170 was
the culmination of several interim studies (one dating
back to 1980) and came only after similar GABA bills
failed during the 1993 and 1995 Sessions. HB 170
was signed into law (Ch. 287, L. 1997) after passing


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