Senate committee hears bill to seed $300 million pension reserve and keep interest split to support debt relief and pensions

Senator Wendy McKamey introduced Senate Bill 287, saying the measure “creates a financial framework to assist in ensuring that the public employees and teachers retirement systems meet their long term rate of return assumptions and adds an ongoing additional funding source for the pension state special revenue account.” The bill would make a one‑time general fund transfer of $300,000,000 to a newly created pension state special revenue account and allow that account to retain its interest earnings.

The bill also changes the distribution of interest earned in the treasurer’s cash account so 50% would go to the general fund and 50% would continue to be directed to the debt and liability free account. Under a separate rule in the bill, any unobligated balance in the debt and liability free account in excess of $150,000,000 at the end of the biennium would be transferred into the pension reserve.

Ryan Evans of the governor’s budget office walked the committee through the mechanics and the flow diagram. He described the proposal as a way to “seed” the pension reserve and generate interest that would finance a 0.2% annual increase in employer contribution rates for both the Public Employees’ Retirement System (PERS) and the Teachers’ Retirement System (TRS) over 10 years — an effective 2% increase for each system funded by interest earnings from the new reserve.

Proponents including William Hollahan, executive director of the Montana Public Employee Retirement Administration, said the added employer contributions would reduce amortization periods. Hollahan said the PERS amortization period would shorten by five years under actuarial forecasts and the additional funding would “ensure the constitutional and actuarial soundness of the PERS system.” Sean Graham, executive director of the Teachers’ Retirement System, said the measure would shorten TRS’s amortization period from 21 to 19 years.

Actuarial and fiscal testimony emphasized both benefits and risks. Elizabeth Wiley, an actuary with Chiron, told the committee she ran stochastic scenarios and estimated roughly a 9% chance that the transfer mechanism would be triggered by 2026, about a 35% chance by 2030 and about a 49% chance by 2035. Wiley added that if a transfer were triggered it would likely be a maximum transfer in the scenarios modeled.

Committee members pressed witnesses on several details: how the $150,000,000 cap would operate; whether repeated transfers could grow the pension reserve well above its $300,000,000 seed; and what uses of the debt and liability free fund would be allowed under the bill. Witnesses and staff explained the mechanics: the pension reserve would retain its interest, trigger transfers when actuarial returns fall below board assumptions for two consecutive years, and be eligible for periodic refilling from unobligated debt free balances up to $150,000,000. Ryan Evans told the committee that “that fund would retain its own interest” and that debt free balances would “trap door” back into the pension reserve to bring it back to the $300,000,000 minimum.

The hearing also included prolonged discussion about allowable uses of the debt and liability free fund. Staff described certain projects previously authorized — including CSKT Compact obligations, the Walt Sullivan property transfer and retirement of bonds such as the East Fork dam rehab — as legal liabilities or legally authorized expenditures that could be paid from the debt and liability free fund under existing statute and prior appropriations.

Supporters pushed for a due‑pass recommendation; some legislators voiced concern that broadening the debt fund’s allowable investments to include loans or obligations payable to state entities could be interpreted more broadly than the public expected when the state announced it was “debt free.” Senator McGilvray said he was trying to reconcile the public perception that the state was debt free with continued use of the debt fund for liabilities and projects; witnesses replied that “debt free” in 2023 referred primarily to bonded indebtedness and that other legally defined state liabilities remain.

The committee closed the SB 287 hearing after further questioning about funding splits and statutory appropriations for PERS and TRS. The bill’s fiscal mechanics and actuarial probabilities will likely be central to subsequent consideration.

The committee adjourned the SB 287 hearing with the sponsor urging a due pass.