Introduction

The first public pension plans in Montana were individual, local pension plans established for (mostly volunteer) firefighters. The earliest of these plans was established in 1911, and over 75 of these plans still exist today. In 1927 some cities and towns began establishing small plans for their police officers. These early plans were established sporadically and had widely differing provisions and funding available.

In 1945 the Public Employees' Retirement System (PERS) and the Highway Patrolmen's Retirement System began following the establishment of the Teachers' Retirement System in 1935. Each system was administered by three separate retirement boards; the Board of Administration, the Highway Patrolmen's Retirement Board, and the State Teachers' Retirement Board. Each board invested the assets of the retirement systems, mainly in mortgages and some bonds, along with approving membership in and retirement from the systems. Since their inception, there have been many changes made by the legislature.

PERS was initially set up as a defined contribution plan, paying an annuity to individual retirees based upon their contributions plus interest, matched by an equal employer share. The Highway Patrolmen's system, on the other hand, was set up to be a defined benefit plan.

Over the years several new systems were created "peeling off" members from PERS: Game Wardens', Judge's, and Sheriffs'. These systems were established as defined benefit retirement plans which promised a specific benefit based upon a formula.

Today, there are eight retirement systems administered by the Public Employees' Retirement Board. Each system operates as a defined benefit plan with the exception of PERS, which offers a defined contribution option to its members. Below is a summary of initial establishment of the retirement systems.

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.

 

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.

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.

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.

Benefits
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.

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:

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:

Changes Over Time

After establishment of the three statewide systems, succeeding legislatures made changes to the benefits provided. Incremental improvements included, reducing the vesting period from 25 and 20 years in TRS and PERS, respectively, to 10 years; reducing normal retirement eligibility in PERS from age 65 to age 60 (with 10 years of service); excluding elected officials and gubernatorial appointees from the mandatory retirement provisions of PERS; implementing disability retirement and death benefit provisions. Employer contribution rates were increased along the way to pay for the increased costs of providing the disability and death benefits.

During the 1973 session, the legislature created the Board of Investments which was charged with investing all state funds, including the public retirement trust funds which, up until this point had been invested and managed by the individual retirement boards.

In the 1970's "Defined Benefit Plans" were the trend in public plans across the country; three of the five Montana plans were already defined benefit plans and in 1971, the Teachers' Retirement System was recodified and modernized with a 1/60 formula providing half-pay at 30 years of service. Employer contributions were increased to 4.5% and employee contributions to 5% of total member's compensation to fund this reorganized system.

In 1973, PERS was recodified and modernized to become a defined benefit plan, with a 1/65 formula (half pay in 32.5 years). Members were also allowed to choose optional forms of benefit payments (whereby a spouse or other contingent annuitant could be selected to receive continuing benefits upon the death of the retiree). Employee contribution rates were set at a flat 5.75% of salary, regardless of age or gender.

In 1974, the Montana Highway Patrol Officers' Retirement System was modernized and administration of the system was transferred to the Department of Administration and the Board of Administration (later to become the Public Employees' Retirement Board). The was a change in the formula that allowed members with more than 25 years of service to accrue additional benefits (at a rate of 1% of FAS per year of service over 25) beyond half-pay. Employee contributions were increased from 5% to 6.5% of compensation to pay for the benefit enhancement package.

History of Changes to the Retirement Systems

March 31, 1945	Public Employees' Retirement Act approved by the 29th Legislative Assembly.
May 9, 1945	Governor Sam C. Ford appointed three members to the new retirement system board: Barclay Craighead of Missoula, Malcolm Bowden and Fergus Fay of Helena. Other members designated by law were Attorney General R.V. Bottomly, Secretary of State Sam W. Mitchell, State Treasurer George P. Porter and State Auditor John J. Holmes.
July 1, 1973	Board retains an actuary to perform biennial valuations. The board may collect a penalty for delinquent payroll contribution reports at the rate of 9% per year or $10 a day whichever is greater. Board of Investments was created and given the responsibility of investing on behalf of the retirement funds.
July 1, 1977	Retirees may have group insurance premiums withheld from their benefit checks.
January 1, 1991	Public pension benefits above $3600 per year are subject to state income tax.
April 28, 1993	An interim legislative committee on public employee retirement systems was established to review proposed retirement legislation to increase consistency, understanding and control costs.
July 1, 1993	The Board is to review the sufficiency of benefits paid by the various retirement systems and act as advocates of benefit adjustments required to maintain a stable standard of living for public retirees. Family Law Orders allowed retirement benefits to be split and paid to alternate payees upon divorce of retirement system members or other benefit recipients.
January 1995	Constitutional amendment passes to establish the fiduciary responsibilities of the retirement and investment boards and the State for providing and funding retirement benefits for public employees.