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Local schools pay $500,000 to bail out teacher’s retirement

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LAKE COUNTY — A plan to bail out the Montana Teacher’s Retirement System will cost Lake County school districts more than $500,000 this year, resulting in less relief to the taxpayer and the inability to build reserve funds, according to local education officials.  

The plan was created in the 2013 legislative session to get the system back on track after it lost $820 million in investments because of the 2008 financial crash. In the 2012 fiscal year the system lost $40 million because investment earnings did not cover a $99.4 million difference between contributions and benefit payments, according to a January 2013 audit. 

“There was no time frame in which the liabilities would have been fully funded,” system executive director David Senn said. 

Now, the program will be fully funded in 22 years.

The legislature took a multi-faceted approach to making the system solvent. In addition to lowering cost-of-living allowances, increasing employer and employee contributions, and allotting mineral revenues to the system, school districts have to make a one-time payment into the system this school year. 

The funds come from restricting the amount districts can put in retirement reserves. In previous years, districts could hold as much as 35 percent of their budgeted retirement funds in reserves. This year, that amount has been lowered to 20 percent. 

“The reserve is there to cover unexpected retirees,” Ronan Superintendent Andy Holmlund said. 

The 15-percent difference in the reserve cap will be used to make a one-time payment to the Teacher’s Retirement System. Senn said the payments are projected to raise $14.7 million for the system. 

According to Lake County superintendent of schools Michelle Wood, 12 local schools have to make $575,655.24 in payments by October 2014. 

Ronan Elementary is the only local school that will not have to make the payment. Holmlund said the district anticipated the system reforms and was able to reduce the impact on the elementary budget. 

“Schools that were building their reserves were impacted more,” Wood said. 

St. Ignatius schools will have to make a payment in excess of $120,000 under the plan. 

“The difficult thing to stomach for me is that that money was collected specifically for our county and it’s going out of our county,” superintendent Bob Lewandowski told board members at a budget hearing. “That doesn’t seem quite right.” 

Charlo school clerk Sara Vaughan called the one-time payment’s impact on countywide taxpayers “drastic” at the school board’s August budget hearing. In the school’s budgeting process, it tries to be consistent and fair, Vaughan told the board. 

“I think if we ask the taxpayers for it and we didn’t need it let’s give it back,” Vaughan said. 

Woods said there would be fewer opportunities for schools to do that because of the new retirement funding strategy. 

“Our districts as a whole try to be as fiscally responsible as they can. As often as possible they try to be frugal so there can be relief to the taxpayer. Any time that doesn’t happen it is a bit of a disappointment.”

Local districts will pay $4,809,686.33 in regular benefits in addition to the one-time payments. 

The Montana Board of Investment invests the monies, Senn said. 

“They have not made any wholesale changes,” Senn said of the board’s investment process since the crash. “You don’t just change overnight.”  

Senn called the crash a “once in a lifetime” event. 

“The last time it happened was 1929,” he said. 

Eight of the top 10 financial entities that the system held bonds with in 2012 received money from the U.S. federal government as part of a bank bailout package. The system’s top public equity holding in 2012 was with BlackRock, which became a money-managing powerhouse in wake of the crash. 

“There are no guarantees,” Senn said. “They do the best they can.”

Returns on investments have been more than 10 percent almost every year since the crash, Senn said. Last year, the return was 13 percent. 

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