Administrative Rules of the State of Montana

BEFORE THE PUBLIC EMPLOYEES' RETIREMENT BOARD

OF THE STATE OF MONTANA

In the matter of the amendment of ARM 2.43.2105 pertaining to the basic period of service, ARM 2.43.2109 pertaining to receipt of service credit on or after termination of employment, and ARM 2.43.2110 pertaining to calculation of highest average compensation or final average compensation

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NOTICE OF PROPOSED AMENDMENT

NO PUBLIC HEARING CONTEMPLATED

TO: All Concerned Persons

1. On July 6, 2024, the Public Employees' Retirement Board proposes to amend the above-stated rules.

2. The Public Employees' Retirement Board will make reasonable accommodations for persons with disabilities who wish to participate in this rulemaking process or need an alternative accessible format of this notice. If you require an accommodation, contact the Montana Public Employee Retirement Administration (MPERA) no later than 5:00 p.m. on May 17, 2024, to advise us of the nature of the accommodation that you need. Please contact Kris Vladic, Montana Public Employee Retirement Administration, P.O. Box 200131, Helena, Montana, 59620-0131; telephone (406) 444-2578; fax (406) 444-5428; TDD (406) 444-1421; or e-mail kvladic@mt.gov.

3. The rules as proposed to be amended provide as follows, new matter underlined, deleted matter interlined:

2.43.2105 BASIC PERIOD OF SERVICE (1) remains the same.

(a) Except as otherwise specified by rule or statute, 160 hours of service ~~credit~~ or 240 hours of service in a three-paycheck month for members who are paid biweekly will equal one month of service credit, regardless of the calendar period during which the service credit was earned.

(b) through (4) remain the same.

AUTH: 19-2-403, MCA

IMP: 19-2-701, 19-3-108, 19-3-904, 19-5-502, 19-6-502, 19-7-101, 19-7-503, 19-8-101, 19-8-603, 19-9-804, 19-13-704, MCA

REASONABLE NECESSITY: Because service credit is recorded to an individual member's account in arrears at the time that mandatory payroll contributions are made, proper recording and allocation of that service credit requires that an anomaly resulting from biweekly pay–two months per year where employers who pay their employees on a biweekly basis report three pay periods to MPERA–be accounted for in the number of reported hours that constitute the basic period of service.

2.43.2109 RECEIPT OF SERVICE CREDIT ON OR AFTER TERMINATION OF EMPLOYMENT (1) A member terminating employment shall receive service credit for lump sum payments for which required contributions have been made of severance pay or paid leave, including banked holiday time, vacation, personal, sick, or compensatory leave, received in the month following termination of employment unless the member elects to retire effective that month. ~~No member can receive both~~ A member may not receive service credit for lump-sum payments and a retirement benefit for the same month.

AUTH: 19-2-403, MCA

IMP: 19-2-303, 19-3-108, 19-6-101, 19-7-101, 19-8-101, 19-9-104, 19-13-104, MCA

REASONABLE NECESSITY: The first proposed amendment to this rule clarifies that consistent with the definition of "service credit" at 19-2-303(47), MCA, service credit for lump-sum payments after termination of employment is only awarded for such payments when required contributions are made. This distinction is necessary because many retiring members elect to roll their unused sick and annual leave into a 26 U.S.C. § 501(c)(9) voluntary employees' beneficiary association health reimbursement account (VEBA), which are exempt from retirement contributions and other payroll taxes. Accordingly, service credit cannot be awarded for unused sick and annual leave when it is rolled into a VEBA account because required employer and employee contributions are not paid on those amounts.

The second proposed amendment to this rule merely clarifies that the existing prohibition on receiving service credit and a retirement benefit in the same month applies only to lump sum payments and not to service credit for hours worked in the month prior to termination of employment but credited to the member's account in arrears when employer payroll reports are received by MPERA.

2.43.2110 CALCULATION OF HIGHEST AVERAGE COMPENSATION WITH LUMP-SUM PAYMENTS (1) For applicable systems, lump-sum payments made upon termination of employment and for which required contributions have been made for paid leave, including banked holiday time, vacation, personal, sick, or compensatory leave may be included in the calculation of a member's highest average compensation (HAC) by replacing lower consecutive compensation months with the same number of higher consecutive compensation months.

(2) and (3) remain the same.

AUTH: 19-2-403, MCA

IMP: 19-2-303, 19-2-506, 19-2-1005, 19-3-108, 19-6-101, 19-7-101, 19-8-101, 19-13-104, MCA

REASONABLE NECESSITY: This clarification is proposed for the same reason as that to ARM 2.43.2109 in that definitions of "compensation" in each of the MPERA-administered retirement systems tie that definition to required employer and employee contributions. When retiring members elect to roll their unused sick and annual leave into a 26 U.S.C. § 501(c)(9) VEBA account, employer and employee contributions on those amounts are not received and cannot be utilized for the calculation of highest average compensation.

4. Concerned persons may submit their data, views, or arguments concerning the proposed action in writing to: Montana Public Employee Retirement Administration, P.O. Box 200131, Helena, Montana, 59620-0131; telephone (406) 444-3154; fax (406) 444-5428; or e-mail mpera@mt.gov, and must be received no later than 5:00 p.m., May 24, 2024.

5. If persons who are directly affected by the proposed actions wish to express their data, views, or arguments orally or in writing at a public hearing, they must make written request for a hearing and submit this request along with any written comments to Kris Vladic at the above address no later than 5:00 p.m., May 24, 2024.

6. If the agency receives requests for a public hearing on the proposed action from either 10 percent or 25, whichever is less, of the persons directly affected by the proposed action; from the appropriate administrative rule review committee of the Legislature; from a governmental subdivision or agency; or from an association having not less than 25 members who will be directly affected, a hearing will be held at a later date. Notice of the hearing will be published in the Montana Administrative Register. Ten percent of those directly affected has been determined to be 1,601 persons based on approximately 6,089 participants in the Defined Contribution Plan and 9,917 participants in the 457(b) Deferred Compensation Plan as of June 30, 2023 for a total of 16,006.

7. The Public Employees' Retirement Board maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request that includes the name, e-mail, and mailing address of the person to receive notices and specifies for which program the person wishes to receive notices. Notices will be sent by e-mail unless a mailing preference is noted in the request. Such written request may be mailed or delivered to the contact person in 5 above or may be made by completing a request form at any rules hearing held by the Public Employees' Retirement Board.

8. An electronic copy of this proposal notice is available through the Secretary of State's web site at http://sosmt.gov/ARM/Register.

9. The bill sponsor contact requirements of 2-4-302, MCA, do not apply.

10. With regard to the requirements of 2-4-111, MCA, the Public Employees' Retirement Board has determined that the amendment of the above-referenced rules will not significantly and directly impact small businesses.

/s/ Nicholas Domitrovich /s/ Maggie Peterson

Nicholas Domitrovich Maggie Peterson

Chief Legal Counsel President

and Rule Reviewer Public Employees' Retirement Board

Certified to the Secretary of State April 16, 2024.