A solution to close the pension funding gap

Although election season is over, citizens and elected representatives will continue to discuss many serious economic issues. One critical topic on the 2013 legislative agenda is funding of the Montana Teachers' Retirement System; a defined benefit pension plan. Views on the retirement system vary widely — from solid support to severe criticism.

A crucial role of the TRS Board and staff is to ensure legislators and the public have accurate data and information about Montana's pension systems. We want to support policy decisions that are best for Montana's local economy, taxpayers, public workforce, and retirees.

Here are key facts to inform the policy debate.

• First, and most important, defined benefit plans work. For more than 75 years, TRS has provided a modest retirement income for educators who have dedicated their professional careers to Montana's children. Our members contribute 7.15 percent of each paycheck and school districts contribute 7.47 percent to TRS. These contributions are coupled with investment earnings to fund monthly payments to retirees.

Like any system, a healthy pension plan needs regular maintenance. The TRS Board proactively adjusts policies and drafts legislation as a regular course of business to adapt to changing economic conditions. We work closely with the Legislature to ensure TRS is financially sound and to ensure the best use of taxpayer dollars.

Second, the market downturn in 2008-09 impacted all investors, including TRS. The good news is that our system is pre-funded; our obligations are not due all at once, but over decades into the future. We have more than $2.9 billion on hand today. Based on current actuarial assumptions, we have sufficient assets in place to pay our obligations for the next 40 years.

However, the fact remains that because of the market downturn, we now face a shortfall. You may hear that our liability is $1.96 billion. It is important to understand that 55 percent of that liability is already funded. This means that we have an actual shortfall of $870 million.

The Montana Constitution requires public pensions to be funded on an actuarially sound basis. This is no different than ensuring that your current and future income will fully fund your mortgage payments. Just like rebalancing a household or business budget, we are looking at a full range of options to increase income and decrease expenses. TRS members — teachers and administrators, nurses and librarians, coaches and counselors — want to do their part. They tell us they can commit to modifications if we're all partners in sharing the responsibility

To that end, the TRS funding proposal for the 2013 legislative session includes:

• An increase of employee contributions by 1.0 percent from 7.15 percent to 8.15 percent of salary
• A reduction of benefits for new members; they must contribute more and work more years before they are eligible to retire.
• A one-time contribution from school district reserves and annual contributions from State land revenues.

Montana is well-positioned to make prudent changes and set a sound financial course for our public retirement systems while avoiding dire, costly choices. Pensions are a critical workforce management tool for governmental employers; we all benefit when our communities can recruit and retain the best teaching professionals to prepare our children for a competitive workforce.

Kicking the can down the road and waiting for future legislators to close the funding gap will only increase the shortfall. Montana can't wait to act. If the legislature does nothing in 2013, the financial obligations will only continue to grow and become more expensive and painful to fix.

We can't afford inaction. We stand ready to work in partnership with citizens and policymakers to address the shortfall in a responsible manner that protects taxpayers, our educators, and retirees alike.