Unfunded Liability a Concern

Unfunded Liability a Concern, Legislative Inaction Even More So

By Thomas E. Schneider

In October of 1956 I went to work for the Teachers Retirement System. I was hired to become the first employee of MPEA as of March 1, 1971. I was hired mainly for my knowledge of retirement systems as I was the actuary for two retirement systems at that time. I am now stepping down as the executive director of MPEA after 35 years.

I guess you could say that I’ve spent my entire adult life, 50 years, working for and with the state retirement systems. I believe that we are now faced with the first TRUE CRISIS for every public employee and teacher during that period of time. It’s true that salaries have always been an issue but we have always had very good retirement benefits.

I am concerned with the $1.4 billion unfunded liability but that is not the CRISIS. We had the legislation in front of the Finance and Claims Committee in the Senate in April of 2005 to solve that problem. The House had already passed the bills but the Senate chose to kill them and deal with the subject in a special session. We did not deal with the problem and it will continue to grow.

The CRISIS, however, is all of the talk of replacing the defined benefit system with the defined contribution system for all new employees. The simple response to this is that new employees already pay the full cost of their benefits including GABA. They also are paying for the unfunded liability for the existing employees. If that is allowed to happen it will cause a major increase in the unfunded liability of PERS similar to what happened to TRS when new faculty members in the University System were shunted to the Option Retirement Plan (defined contribution plan) provided by TIAA-CREF. Portability is the only benefit to an employee from a defined contribution plan. The major benefit is to the employer because all that the plan is obligated to pay the retiree is the balance either through a “present value” cash payment or an annuity. The major issue being overlooked by the proponents of this idea is that once the employees find out that those who have the defined benefit plan are receiving much better benefits they will go to the legislature and push for a conversion back to a defined benefit plan. When that happens it will create an even larger unfunded liability.

I know some will think this is far fetched! So, I’ll end with some FACTS to back my statements up. The PERS was a defined contribution plan in 1956. The plan was set up to provide a public employee with 27 percent of the employee’s annual salary after 35 years of service. The current formula of PERS provides 70 percent of the highest 36 months of salary averaged after 35 years of service plus a 3 percent cost of living adjustment after one year of being retired. Have we made great strides for public employees in Montana or what? Do you want to see it taken away? I recommend you talk with your legislative candidates and vote for those who truly understand the issues and want to protect your future.

There are hundreds maybe even thousands of public employees that I would personally like to thank for my time with them over the past 35 years with MPEA. Please accept my THANK YOU from the bottom of my heart. It’s not over until it’s over!

Last Modified: Thursday June 07, 2007

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