Public Employees’ Retirement Board

For the second consecutive year, all retirement plans administered by the board amortized within 30 years, with two plans being fully funded. Legislation passed during the 2023 session authorized one-time payments to three of the defined benefit retirement plans which significantly reduced their amortization periods. The investment rate of return of 9.07 percent also contributed to this outcome.

Auditor's Opinion: Unmodified We found the board’s financial statements and note disclosures presents fairly the activity of the plans in all material respects. This means the reader can rely on the information presented and the underlying financial records.

Objectives: The objectives of this financial audit were to determine if the board’s financial statements are presented fairly and if the board has complied with certain laws and regulations. To achieve this, we reviewed support for contributions revenue, benefit payments, and the accuracy of investment balances and net investment income. We also evaluated the board’s control systems, including the information system used for processing contributions and benefits. Additionally, we reviewed the financial statements and note disclosures to determine if they were supported by underlying accounting records and actuarial valuations. Finally, we evaluated compliance with select laws and regulations governing investments, contribution revenues, and benefit payments.

Member Information: To accomplish this, we tested data to verify retiree and active member information, referred to as census information, was supported. Material errors in census information can result in inaccurate actuarial calculations. We completed a sample of new active employees of the Firefighters’ United Retirement System (FURS), Game Wardens’ and Peace Officers’ Retirement System (GWPORS), Municipal Police Officers’ Retirement System (MPORS), Public Employees’ Retirement System (PERS) and Sheriffs’ Retirement System (SRS). This encompassed 63 employers. We tested the accuracy of the census information, such as gender, hire date, and birth date, for the employees included in the samples. Additionally, we performed audit procedures over the census information at Highway Patrol Officers’ Retirement System (HPORS) and Judges’ Retirement System (JRS) separately, as the state is the only contributing employer.

Internal Auditor: At the same time, we reduced the extent of our audit work on the census information, contribution revenues, and benefit payments by leveraging the work completed by the board’s internal compliance auditor, an efficiency allowed by auditing standards. We performed audit procedures over 11 of the 55 employer audits completed by the compliance auditor during fiscal year 2024. As required by auditing standards, we reperformed the compliance auditor’s procedures as a basis for our reliance and identified no errors.

Actuary: We hired an independent actuary to provide expertise during the audit. This included reviewing the plans’ actuarial valuations and the assumptions underlying the calculation of the total pension liability. Our actuary determined the methodology used by the board’s actuary was reasonable and consistent with actuarial standards. Further, our actuary recalculated the amortization periods of the pension liabilities.

Status of Pension Plans: The Montana Constitution requires the defined benefit pension plans be funded on an actuarially sound basis. Generally, state law considers a defined benefit pension plan actuarially sound when contributions are sufficient to pay benefit obligations as they come due in the future, and the unfunded liability can be amortized in 30 years. The most recent actuarial valuations performed as of June 30, 2024, found the defined benefit pension plans all amortize within 30 years. (See Figure 1 on page S-3 for the amortization periods). Favorable investment conditions contributed to the reduced amortization periods.

Additionally, the Legislature passed HB 569 during the 2023 session, authorized one-time payments to HPORS, SRS, and GWPORS. This legislation also created closed 25-year amortization periods for legacy unfunded liabilities of these three retirement plans. Legacy unfunded liability refers to the plan’s unfunded liability as of June 30, 2023, for these plans. This means the current fixed 25-year amortization period will reduce by one year for each year that passes after the legislation was enacted. Going forward, any new unfunded liability, known as the contemporary unfunded liability, will only be amortized over closed 10-year periods after each valuation for HPORS, SRS, and GWPORS. This legislation also revised contribution laws to enable this amortization methodology to occur.

Table 1 summarizes each plan’s total and net pension liability or asset, which are financial reporting measurements. The total pension liability is today’s value of future benefit payments projected by an actuary to be paid out by the plan to participants over the life of the plan. The estimate is calculated as of June 30, 2024, and is based on member service and other census information. The net pension liability or asset is the difference between the plan’s bottom line (net position) and the actuary’s estimated total pension liability. If the plan’s bottom line can cover the total pension liability, the plan has a net pension asset. However, if the plan’s bottom line cannot cover the total pension liability, the plan has a net pension liability. The net pension asset or liability is allocated to plan participating employers and nonemployer contributing entities for inclusion in their financial reporting of assets and liabilities.