Montana Administrative Register Notice 2-43-439 No. 16   08/26/2010    
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In the matter of the amendment of ARM 2.43.1306 pertaining to actuarial rates and assumptions






TO:  All Concerned Persons


1.  On June 24, 2010, the Montana Public Employees' Retirement Board (PER Board) published MAR Notice No. 2-43-439 pertaining to the public hearing on the proposed amendment of the above-stated rule at page 1433 of the 2010 Montana Administrative Register, Issue Number 12.


2.  The PER Board has amended the above-stated rule as proposed.


3.  The PER Board has thoroughly considered the comments received.  A public hearing was held on July 15, 2010 at 9:00 a.m.  No testimony was provided.  A summary of the comments received and the board's responses are as follows:


COMMENT #1:  The Montana Public Employee Retirement Administration (MPERA) received telephone calls from certain payroll clerks asking how the new actuarial rates and assumptions impact their employees and why they are receiving these notices of proposed amendment.


RESPONSE #1:  The changes to actuarial rates and assumptions referenced in this notice impact the cost of service purchases available to retirement system members. They also impact the calculation of the benefit payment options available upon retirement to the members and their survivors.  The PER Board believes that members of the retirement systems it administers should be kept advised of changes to the PER Board's rules that directly impact those members.  The PER Board has consistently relied on its employers' payroll clerks and other human resource contacts to provide notice of administrative rule changes to their employees.


Approximately every five years, the PER Board's actuary conducts an "experience study" to determine whether the assumptions and earnings rates relied on by the actuary remain accurate.  If the study indicates significant differences in the assumptions versus actual experience, the assumptions and rates must be changed to reflect reality.  The PER Board's actuary, Cheiron, conducted an experience study in June 2010 which resulted in several changes to the assumptions and rates contained in BOARD Admin 09, Actuarial Valuation Assumptions and Methods.  Those changes are:


A decrease in the net investment earnings assumption from 8% to 7.75%;


A decrease in the general wage increase assumption from 4.25% to 4.00%;


Male spouses in all systems other than the Judges' Retirement System (JRS) are assumed to be three years older than their female spouses, a decrease from the four years previously assumed;


Male spouses in JRS are assumed to be four years older than their female spouses, an increase from the three years previously assumed;


A decrease in the assumed interest rate on member contributions in all retirement systems from 5.0% to 3.5%;


A change in the relied upon mortality tables from various 1994 mortality tables to various 2000 mortality tables and 2000 tables projected to 2015.


These changes, when considered as a whole, resulted in changes to BOARD Admin 10, Actuarial Equivalence Option Factor Determination.  The option factors in BOARD Admin 10 are used to calculate the joint and survivor annuity retirement options available in the Public Employees' Retirement System (PERS), JRS, the Sheriffs' Retirement System (SRS) and the Game Wardens' and Peace Officers' Retirement System (GWPORS).  According to draft calculations performed by the PER Board's benefit analysts, the changes in option factors result in an increase in the amount of the joint and survivor annuity retirement options for nearly all retirement system members wishing to retire in July 2010.  The PER Board assumes, but cannot guarantee, that future retirees will be similarly impacted.


The changes to BOARD Admin 09 will also impact the calculation of the cost of service purchases in all systems.  The PER Board has not conducted an analysis of the impact of these new factors on the cost of those optional service purchases.


A final change to BOARD Admin 09 updates the assumptions related to participation in the Municipal Police Officers' Retirement System's (MPORS) Deferred Retirement Option Plan (DROP), including the earned rate of return and the percentage of MPORS members participating in the DROP.  The earned rate of return was amended during the 2007 legislative session to provide the actuarial assumed rate of return, now 7.75%, rather than the actual rate of return.  Additionally, the experience study reflects that MPORS members do not participate in the DROP at the rate initially assumed, or for the initially assumed period of time.  These participation assumptions will impact the actuarial valuation of the DROP and MPORS, but will have no bearing on any MPORS member's DROP account.


Interested persons may request a copy of the June 2010 experience study from Roxanne M. Minnehan, Executive Director, Montana Public Employee Retirement Administration (MPERA), 100 North Park Avenue, Suite 200, P.O. Box 200131, Helena, Montana 59620-0131; telephone (406) 444-5459; fax (406) 444-5428; or e-mail rminnehan@mt.gov.



/s/  Melanie A. Symons                                 /s/  John Nielsen                   

Melanie A. Symons                                       John Nielsen

Chief Legal Counsel                         President

and Rule Reviewer                                        Public Employees' Retirement Board


/s/  Michael P. Manion                     

Michael P. Manion, Chief Legal Counsel

and Rule Reviewer

Department of Administration


Certified to the Secretary of State August 16, 2010.



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