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Actuary: Time to change Mont. pension assumptions

Matt Gouras, Associated Press

HELENA, Mont. (AP) -- The board that runs the state's public employee pension system was told Thursday it should expect less earnings on its investments, a key assumption used to predict the solvency of the system.

But the Montana Public Employees Retirement Board also got some good news from an actuarial consultant used to project the system's health.

The board was told Thursday it doesn't have to worry about a technical problem that could have inadvertently gutted the fix the Legislature made to help the pension system. The issue arose from a trigger in the law that could have later this year wrongly ended the increased contribution amounts that were put in place just two months ago.

The board had taken some steps at an emergency meeting last month aimed at putting together a patchwork fix to avoid the problem.

But actuary Stephen McElhaney said the problem will be avoided altogether because the financial trigger of overall system health won't be met this year, based on his analysis.

Attention at Thursday's meeting focused on the pension system's assumed investment return of 7.75 percent. McElhaney said there is a 60 percent chance that investment earnings fall short of that figure. He said market experience over the past decade suggests that a reduction to 7.5 percent is a more realistic long-term expectation for the board to count on.

Decreasing the figure would increase the amount of shortfalls projected in the future.

A split board, at the urging of the governor's budget office, decided against making any changes, arguing the system is still adjusting to all the changes the Legislature made to increase contributions and cut benefits. It also rejected a suggestion to reduce the pay raises public employees are expected to receive.

"We've just got to give this bill a little time to breathe," Dan Villa, the governor's budget director, told the board.

The actuary reported that the Legislature's fix would ensure that in about 16 years, the system will have enough assets to meet its obligations, if temporary increases to employee and employer contributions remain in place. Without those contributions, it would take about 26 years to balance the system.

Without the Legislature's action to increase contributions and cut benefits, the system was never projected to be able to meet its obligations and would eventually run out of money in the coming decades.

A portion of the fix, though, is still subject to a lawsuit from retirees.

Retired public employees have threatened to sue, saying that the reduction of inflationary increases to the retirement benefit constituted an unconstitutional change in their contract with the state. A lawsuit could come later this month, or next month, a retiree group has said.

A similar lawsuit is expected against a similar legislative fix for the teacher's retirement program.