(April 17, 2013) — Public sector workers in Montana are to retain their defined benefit – for the time being – after Republicans in the state senate failed in an attempt to move to a defined contribution system yesterday.
A senate committee debated how to help restore the state’s unfunded public pension system on Tuesday, local paper the Independent Record reported, and submitted two bills to the main floor for debate.
The pension funds for teachers and general public employees have a combined shortfall of around $4.8 billion.
The bills recommended that employees and employers would have to contribute more to the pension systems, at least until they were back on a firmer financial footing.
A further bill that pushed for public sector pensions to be converted to DC arrangements, sponsored by Republican senators, was rejected.
An immediate amendment to the current status quo saw employer contributions rise from 1% to 2%, in increments of 0.1% until 2024.
Additionally, should the bill be passed, retired members could see a temporary hiatus in the automatic increase in payments linked to the cost of living – the guaranteed annual benefit adjustment (GABA).
The Democratic Senate leader amended the public employees’ system bill to set the GABA at 1.5% annually for retired employees, the paper reported. However, if actuarial soundness isn’t projected in 25 years or less, the GABA would be reduced by 0.1% point per year that year.
Elsewhere, the largest pension fund, the California Public Employees’ Retirement System (CalPERS) addressed its funding shortfall through proposing higher contributions for members and employers, and smoothing and amortisation methods.
A statement from the $257 billion scheme said most CalPERS plans are now between 65% and 80% funded.
“The desired goal is 100% funding, in which assets on hand are equal to the desired level of assets needed to pay pension benefits,” the statement said.
“Using current smoothing methods, progress toward 100% funded status is very slow for many plans. Despite significant gains in the investment portfolio, liabilities continue to grow faster than assets.”
For an in-depth look at how US public pensions are having to adapt to survive, see the next edition of aiCIO, published later this month.