2015 Pensions Policy
The state should disclose all financial and other data necessary for policymakers, school districts and the general public to have a clear and accurate depiction of the current standing and future health of the system. State teacher retirement systems als
Teachers, policymakers and taxpayers deserve accurate and reliable information about the costs and benefits of the public pension systems they support.
Just as teachers can easily obtain their salary schedules, they should have access to information about pensions so that they can make informed decisions about their career and retirement futures. While Montana provides teachers with an annual benefits statement, the report includes very limited information about the value of pension benefits. Montana does not provide teachers with information on how their benefits accrue for each year of service, the amount contributed each year by teachers and employers on behalf of teachers, or the projected value of a teacher's contributions based on different assumptions about the rate of return expected (e.g. 4%, 6%, and 8%). Montana also does not provide teachers with transparent information about the opportunity cost of leaving contributions in the system by reporting how much might be earned if teachers were to put contributions into a personal retirement savings account.
Teachers in Montana enroll in a final-salary DB plan, which means that employee and employer contributions should be sufficient to pre-fund the employee's pension. Montana, however, does not provide teachers with clear information about how their contributions are being used, including how benefits are distributed across teachers of different cohorts and teachers with different career lengths.
Public disclosures on teacher pensions in Montana also lack transparency. Montana does not report projections for future contributions required to fully amortize the system's total unfunded liabilities, information that would allow policymakers and employers to better plan their budgets in the short and longer terms. These projections should be reported under a range of assumptions about the rate of return on investments, not just under the system's own assumption, which would allow stakeholders in Montana to appropriately assign risk to the system's obligations and provide clarity about potential unfunded liabilities facing taxpayers.
The Government Accountability Standards Board (GASB) requires public retirement systems to disclose who makes employer contributions, and the proportion of total contributions for which each contributor is responsible. All states' pension systems collect this information, and Montana makes these data readily available.
Montana, like most states, reports the portion of total pension contributions that is normal cost and the proportion that is amortization cost. However, the state does not report information about whether it has taken on debt in order to pay for current or future retiree benefits (e.g. through pension obligation bonds or other instruments for raising capital). Even if the state has not taken on debt, it should disclose this information to the public as it is an important indicator of the state's overall health and stability.
Teachers' Retirement System, State of Montana. Actuarial Valuation as of July 1, 2015. GASB Statement No. 68 for the Montana Teachers’ Retirement System, Prepared as of June 30, 2014.
Provide teachers with the information necessary to understand their retirement benefits.
Montana should provide much more detailed information to teachers about how their benefits accrue at different points during their careers, as well as information about the opportunity costs related to any contributions made into the system. The plan should also disclose to teachers how their contributions are being used (i.e. whether they all are directed at prefunding their own retirement, or whether a portion of their contributions are used to help pay for retirement benefits of other members). Moreover, Montana could provide detailed information about how employer contributions are used - e.g. to what extent the employer contributions for an individual teacher are used to subsidize teachers in different cohorts and teachers with different tenure.
Report to policymakers and the public data that give a complete representation of the system's financial health.
Montana should also report projections for future contributions necessary to pay off its unfunded liabilities under a range of assumptions about its discount rate. Finally, the state should disclose in its reports whether or not the system has taken debt service to pay for retirement benefits.
Montana was helpful in providing information that enhanced this analysis. Montana also noted that its 2015 valuation report includes the funded ratio and amortization horizon under different discount rates. The state also responded that teachers are provided with information about how their benefits accrue over time in its member handbook.
While the state does provide funding projections under different discount rates, it would be more helpful to decision makers if the projections included future contributions required to fully amortize the total pension debt under different discount rates. As for the information provided to teachers, teachers would be best served if they received detailed information about their own individual benefits.