Senate committee hears bill proposing $300 million pension reserve and changes to interest flows

Senate Bill 287 would create a pension reserve and adjust how Montana uses interest earnings to help shore up the public employees— and teachers— retirement systems, sponsor Sen. Wendy McKamey said at a Senate Finance and Claims hearing.

The bill would provide a one-time general fund transfer of $300,000,000 to a newly funded pension state special revenue account and let that account retain its interest earnings. It also would continue directing 50% of Treasurer—s Cash Account (TCA) interest to the debt-and-liability-free account and 50% back to the general fund; under current law, the full flow returns to the general fund in fiscal 2026. The debt-and-liability-free account would be allowed to transfer unobligated balances above $150,000,000 at the end of each biennium into the pension reserve.

The proposal also would permit the debt-and-liability-free account to purchase low‑interest subsidized loans currently in the coal trust permanent fund and would phase in a 0.2 percentage‑point annual increase in the employer supplemental contribution for both the Public Employees— Retirement System (PERS) and the Teachers— Retirement System (TRS) for 10 years, producing an aggregate 2 percentage‑point employer contribution increase if fully phased in.

Why it matters: Proponents said the bill accelerates paying unfunded pension liabilities, improves actuarial outcomes and uses excess interest earnings rather than principal to address liabilities. Dan Villa, executive director of the Board of Investments, told the committee the bill would help the coal trust "maximize returns for all taxpayers" by moving subsidized loans off the coal trust portfolio to the debt-and-liability-free account.

Supporters from retirement system offices and employee groups told the committee the design would shorten PERS and TRS amortization periods. William Hollahan, executive director of the Montana Public Employee Retirement Administration, said the added 0.2% employer supplemental contribution for ten years would reduce PERS— amortization period by five years in the actuarial forecast. Sean Graham, executive director of the Montana Teachers— Retirement System, said TRS— amortization would shorten by two years under the bill's assumptions.

Actuarial and fiscal staff described risks and probabilities. Elizabeth Wiley, an actuary with Chiron, explained the transfer mechanism—s trigger: if the pension funds' inception‑to‑date market return falls below their boards— assumed rates for two consecutive years, funds from the pension reserve could be transferred to make the systems whole. Wiley said, using stochastic scenarios and current assumptions, there is a roughly 9% chance of at least one transfer in early years rising to roughly a coin‑flip by the mid‑2030s.

Committee members pressed staff on mechanics and priorities. Senator McGilvray asked whether an unobligated debt‑free balance of $300,000,000 would produce a $150,000,000 transfer to the pension reserve; Ryan Evans, assistant budget director in the governor—s office, agreed with that calculation. Committee members also questioned whether continued use of the debt-and-liability-free account to pay nonbonded liabilities (such as line items listed in prior budgets) stretches the public perception of being "debt free." Officials responded that "debt free" referenced bonded indebtedness taken off the state's books in 2023, and that the debt-and-liability-free account can lawfully address a range of state financial liabilities and contingencies.

No committee vote was recorded at the hearing. Sponsor closing remarks reiterated the bill—s intent to let interest earnings, rather than principal, be used to address liabilities.

Ending note: The bill was presented for a due‑pass recommendation; staff and pension officials remained available to answer follow‑up questions and provide more detailed forecasts and legal language as the committee considers amendments.