Overview of the Retirement System's Initial Provisions
Public Employees' (PERS) - The 1945 Montana Legislature enacted the Public Employees' Retirement Law which was signed, by Governor Sam C. Ford, in March 1945. The act provided for the creation, establishment and operation of a comprehensive retirement system for employees of the state of Montana and all employees of cities and counties contracting with the Public Employees' Retirement System. "The purpose of this act is to effect economy and efficiency in the public service by providing a means whereby employees who become superannuated or otherwise incapacitated may, without hardship or prejudice, be replaced by more capable employees, and to that end providing a retirement system consisting of retirement compensation and death benefits."
On July 1, 1945 all public employees had the option of becoming members of the system. $35,000 was appropriated to defray administrative expenses in the first biennium; until the employers' contributions commenced. No employees of the political subdivisions voted to become members during the first year of operation. No benefit payments were presumed to be made before July 1, 1947 because sufficient data was not available for the Legislature to make an immediate appropriation for setting up the system.
Contribution rates varied from member to member depending upon their age at the time of joining the system and their gender. The rates were set to provide an average benefit for members, which was around ½ pay after 35 years of service. The normal rate of contribution of members was determined on a standard retirement schedule, based on gender and age at the nearest birthday at the time the member entered into the system. A ceiling for contribution deductions was a monthly salary of $416.66. The normal rates of contribution were to provide an average annuity, at age 65. In addition to the contributions paid by the employees, each employee was required to pay a membership fee of a $l.00. The state general fund was required to pay a sum equal to 3% of total members' compensation. Terminating members were refunded 90% of accrued contributions without interest if they had less than 10 years of service; 100% without interest if they had greater than 10 years of service. Members were vested after 20 years of service.
Members were eligible for normal retirement after attaining age 65 or 30 years of service and were required to retire no later than age 75. Benefits were calculated using the following formula:
Annuitized contributions + years of service/140 X FAS (Final Average Salary)
Highway Patrolmen's (HPORS) - A retirement system for highway patrolmen was also established in 1945, solely for members of the Montana Highway Patrol. This system was set up to be a defined benefit plan.
Members were promised a monthly benefit of half of their FAS (which was the average of their last five years salaries) after serving at least 25 years in the patrol; they were required to retire no later than age 60. Members who were not able to work the full 25 years prior to reaching age 60 were eligible for a reduced "early out" benefit if they had served at least 20 years of service. Those involuntarily retired after at least 10 years of service were also eligible for an actuarially reduced benefit. While benefits were paid to retirees for life, no benefit continued to their survivors upon the retiree's death.
Game Wardens' and Peace Officers' (GWPORS) - In 1963, a separate retirement system was established for state game wardens. The Game Wardens' Retirement System (GWRS) (later to become the Game Wardens' and Peace Officers' Retirement System) was the first of several systems established to "peel off" members from the PERS; wardens were allowed the option of joining the new system or remaining in PERS. The GWRS Board members were the same persons as comprised the Board of Administration that administered PERS. Like the Highway Patrol system, the GWRS was established as a defined benefit plan.
When members reached age 55 with at least 25 years of service, they were promised a benefit equal to half of their FAS. If they did not get 25 years in by age 55, they received an actuarially reduced early retirement benefit if they had achieved at least 20 years of service. To fund the new system at the time of establishment, $129,069 was transferred from the PERS to the GWRS.
Judge's (JRS) - Four years later, in 1967, the second group of PERS members was "peeled off" when the legislature established the Judges' Retirement System. This system, also, was established as a defined benefit plan.
Members were to receive half-pay when they had served for 15 years in the Montana judiciary. Members were eligible for normal retirement at age 65, provided they had at least five years of service. At age 70, they were required to retire or they would forfeit their retirement benefit. For those members who served for more than 15 years prior to reaching age 70, they were paid a benefit equal to 1% of the final salary for each year of service more than 15 years.
Sheriffs' (SRS) - The final system to "peel away" from the PERS was the Sheriffs' Retirement System which was established by the 1974 legislature and was also administered by the same persons who formed the Board of Administration and who administered the PERS; the GWRS; and the JRS (all under separate board names). The SRS was established as a defined benefit plan.
At the time the SRS was established, an actuarial valuation was conducted to determine the total liabilities of the new system and this total amount was taken from the PERS trust fund and deposited into the SRS. However, the assets removed from the PERS were disproportional to the amounts contributed to PERS on behalf of the members who were transferring out to the SRS. Therefore, the unfunded liabilities of the PERS grew significantly to pay for the new SRS system.
Members were promised half of their pay at 25 years of service, providing the member was at least 55 years of age. Mandatory retirement occurred at age 65. Members not reaching 25 years of service were eligible for an actuarially reduced early retirement benefit with at least 20 years of service. Members who were involuntarily terminated after 10 years of service were eligible for an involuntary retirement benefit. This benefit was actuarially reduced from age 65. Employer contributions were set at 7.55% and employee contributions at 7% of total compensation.
Montana Police Officers' (MPORS) - Prior to 1974 Montana cities and towns had been establishing and administering pension plans for their police officers. Funding for those systems came from local mill levies and from specific increases to certain insurance premium taxes. However, with widely varying tax bases and somewhat unsophisticated investment strategies, by the early 1970s many of the local police pension systems were in severe financial trouble. The first effort to bolster the flagging local funds came with the establishment in 1974 of a statewide fund for reserve officers in first and second class cities. The legislation abolished the local boards of trustees and transferred all records to the Department of Administration and all quasi-judicial functions of the local boards to the Board of Administration. Employers were required to send 11% of the total compensation of their police officers to the Department and to remit 6% of their employee's compensation on behalf of the members. While the cities still determined when an officer was disabled, there were changes instituted. Some of the major changes instituted by the legislature in order to reduce the costs and increase the funding available to pay for benefits in the almost bankrupt local plans included:
- Requiring members to attain age 50 in order to be eligible for retirement (prior to this time, local plans had allowed members to retire with 20 years of service).
- Setting the benefit at half-pay for 20 years of service with an additional 1% of their final salary earned for each year over 20 that the member was required to work in order to attain age 50.
- Setting the maximum benefit accrual at 60% of salary and requiring officers to retire no later than age 65.
- Allowing refunds to terminating members (including interest if the member had at least 10 years of service).
In 1974 the Municipal Police Officers' Retirement System was established with full administration given over to the Board of Administration. Contribution rates were set at: State -- 12%; Employers -- 12%; Employees -- 6% of each member's compensation. In addition, an actuarial valuation had been conducted to determine the excess unfunded liabilities from the old plans and schedules were set up whereby cities would pay off those additional unfunded liabilities. However, in 1979 it was determined that cities were unable to payoff those liabilities, so lump sum amounts were paid to the retirement system from the tax premium fund over a period of 10 years to help reduce those liabilities.
Firefighters' (FURS) - The same problems which befell many of the local police plans soon happened to the local fire plans. In 1981, the legislature established the Firefighters' Unified Retirement System and entrusted administration of this new statewide system to the Public Employees' Retirement Board (which had been so renamed during executive reorganization). The significant differences instituted by the legislature for the statewide system included:
- Setting employee contributions at 6% ; employer and state (tax premium fund contributions) at 18% (phased in over several years -- from 12% to 15% to 18%).
- Reducing the benefit formula from 2.5%/year for first 25 years to 2% per year for all years.
- Funding minimum benefit adjustments from the system. Persons hired after the July 1, 1981 were not promised any minimum benefit adjustment.