Montana’s default retirement benefit option should best serve most public workers
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Backgrounder

Montana’s default retirement benefit option should best serve most public workers

Montana House Bill 226 would better align the default retirement benefit option with what would best most workers need.

A newly-hired Montana public employee who neglects to select a retirement benefit in the first 12 months is currently set to automatically default into the Montana Public Employee Retirement System pension benefit (PERS-DB) during employment unless he or she chooses to join the defined contribution plan (PERS-DC). Given that only a fraction of public employees stay in their jobs for more than five years, much less for the 30 years required to receive a full pension benefit, Montana House Bill 226 aligns the default benefit option with what would best serve most public workers.

 The PERS-DC Benefit Best Serves the Majority of Montana Workers

  • When setting a default pension benefit in law, policymakers should make the decision that best serves the purpose of Montana’s retirement system—that is, it should maximize the retirement security of its members.
  • Analysis of PERS retention data suggests two key findings: (1) most new hires leave public employment before ever vesting in the PERS-DB benefit, and (2) those who do work long enough to vest still tend to leave their jobs in the first 15 years, before any meaningful pension benefit can be accrued.Chart

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  • Only 9% of Montana employees hired in their early 20s stay employed for the 30 years required to earn an unreduced PERS-DB retirement.
  • Workers who default into the PERS-DB pension but leave public employment before a full career risk forfeiting employer contributions, falling behind on their retirement savings goals and potentially having to rely on public assistance in retirement.

The Power of Choice in Retirement Plans

  • A one-size-fits-all retirement plan does not work for today’s workforce. 
  • Aligning the default benefit with the basic needs of workers while maintaining the current PERS-DB as an option allows for more portability and greater retirement security for the vast majority of employees hired by Montana governments, not just a very small group of full-career workers. 
  • With the option between the PERS-DC and the PERS-DB available to new workers, they can select the plan that best fits their expected career paths, maximizing the value of PERS to its individual members.

Bottom Line: The current policy only serves a fraction of public employees at an ever-rising cost. HB 226 sets the PERS-DC as the default to better align with the needs of the modern public workforce.

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