Montana’s largest public pension plans—the Teachers’ Retirement System (TRS) and Public Employees’ Retirement System (PERS)—together manage retirement benefits for almost 49,000 active members and over 38,000 retirees but both plans are facing significant financial headwinds.
After recovering from the dot.com economic bubble bursting in the early 2000s, PERS was nearly fully funded, holding less than $1 million in unfunded liabilities in 2002, while TRS maintained near $384 million in pension debt at that time.
Today, both plans, combined, find themselves nearing $4 billion in debt. TRS has only 68 percent of assets on hand, and PERS has 73 percent of assets needed, to pay out the benefits promised to public workers.
The Pension Integrity Project at Reason Foundation’s preliminary analysis of the current state of pension solvency in Montana shows that if the plans’ problems are not addressed, they will lead to a steady increase in costs borne by taxpayers and a growing degradation of pension solvency.
One significant issue: Investment returns underperforming, relative to the plans’ assumed rates of return, have added over $1.07 billion in unfunded liabilities to TRS and PERS, leading both to statutorily increase state contributions.
Additionally, the amortization policies for both TRS and PERS are also perpetuating debt across generations by using excessively long amortization periods. PERS, specifically, uses an amortization method that resets the period used to calculate actuarially required contributions each year to a 30-year term commitment, passing the bill onto future generations.
Although recent steps taken to align assumptions with real-world experiences is the source of nearly a quarter of the total unfunded liability, those actions should be seen as positive steps towards recognizing the true cost of a public pension. Without exposing these hidden costs, TRS and PERS would have continued their history of missed investment return assumptions and low funded ratios, likely experiencing continued growth in unfunded liabilities and required employer contributions over time.
Restoring TRS and PERS to fiscal health will require blending the rigorous actuarial analysis and risk assessment needed to deconstruct the components of the problem with a comprehensive solution-building strategy focused on engaging and considering the objectives of all stakeholders.
Montana Public Employee Retirement System Solvency Analysis
Montana Teachers’ Retirement System Solvency Analysis
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