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State retirement option draws few takers

By Ron Rschida

Bozeman Daily Chronicle, May 19, 2003

Nearly a year after the state of Montana unveiled its new pension option only about 600 of the 30,000 eligible public employees have signed up for the "defined contribution" plan.

"We had expected a lot more, but when this plan was developed it was before the market downturn," said Mike O'Connor, executive director of Montana Public Employee Retirement Association.

The new option allows employees to direct where their retirement money is invested in a variety of funds managed by Great West Life Insurance Co. of Denver, Colo.

It's similar to 401(k) plans offered by many private employers.

It cost about $1.5 million to create the plan, O'Connor said, paid for with a loan from the Montana Board of Investments.

But that money is to be repaid beginning in August, O'Connor said, through monthly fees charged to plan participants.

O'Connor said he'll seek to have repayment deferred so the startup costs won't be borne by relatively few people.

Current employees have only until June 30 elect the new plan or stay with the old "defined benefit" plan, under which they are guaranteed a retirement income based on years of service and earnings.

In 1999, when the Legislature authorized created the new plan, the country was in the midst of one of the greatest stock market booms in history. Many people figured they could do better investing their own retirement funds.

But the bubble burst in 2000 and only two out of a hundred employees have taken advantage of the new plan.

"What we anticipate is a lot the new hires will generally be younger and will go into the defined contribution plan," O'Connor said.

Also, many procrastinators may make the switch in the next six weeks, he said.

Dale Martin, who works for the Montana Department of Transportation, chose the defined contribution plan. Investment results have been great so far, he said, but he's angry about one glitch in the system.

Martin gets paid every two weeks, and 6.9 percent of his salary is deducted for his retirement. But his department is only required to forward the money to MPERA once a month. That's created month-long delays in getting his money invested, Martin said.

O'Connor said that will be fixed July 1 when a new rule takes effect requiring every employer to transmit retirement money to MPERA within five days of a payroll date. The agency then sends the money electronically to Great West typically within 24 hours.

Montana's system covers some 550 different government agencies including counties, incorporated towns and school district classified employees.

The system invests $115 million annually.