Three states -- Montana, North Dakota and Arizona -- have passed legislation creating state defined contribution plans this year, and legislatures in another eight states are mulling similar moves.
In all, bills creating defined contribution plans have been reviewed in more than 18 states this year.
Defined contribution plans for public employees are hot these days:
* In Ohio, a bill creating a defined contribution plan for teachers was introduced this month. It is backed by the State Teachers Retirement System. The Ohio Legislature is considering another bill that would create a defined contribution program for public employees covered by Ohio's state retirement system. The teachers' board opposes this bill because it would cause a projected $430 million loss resulting from reduced investment income and would not provide a guaranteed retirement benefit.
* In California, a bill creating an optional defined contribution plan for state appointees and another expanding an existing after-tax defined contribution program have passed the Senate and are being weighed by the Assembly (see related story on page 3).
* Indiana Gov. Frank O'Bannon signed a bill allowing the state budget agency to adopt a defined contribution plan to match all or a specified portion of employee contributions to the state employees' deferred compensation plan.
* New laws in Maryland allow certain higher-education employees to participate in an optional defined contribution system and authorize eligible governmental units to provide employees with contributory pension systems.
* A new Virginia law establishes a voluntary defined contribution plan for some volunteer firefighters and rescue squad workers.
The states' interest in defined contribution plans coincides with federal government discussions about retirement issues.
"The country is paying so much attention to retirement benefits and talking about Social Security," said Matt Lathrop, task force director, commerce and economic development, for the American Legislative Exchange Council, Washington.
"Retirement has become so important on the national scene, it is very difficult to ignore."
Other states are flirting with the defined contribution idea. A bill was scheduled to be introduced in Kansas when the Legislature there adjourned last month. Instead, the proposal, which includes five alternative defined contribution programs, was pre-filed, thus enabling a joint legislative committee to review it during the summer before it is introduced next January.
Proponents of a Wisconsin defined contribution plan for workers in higher education are now crafting legislation, Mr. Lathrop said. Wisconsin is one of only two states without such a plan, he said. In Florida, meanwhile, proposals to establish an optional defined contribution system died. But the Legislature created an interim study committee that would recommend how a defined contribution plan could be implemented. Georgia and South Carolina also are forming interim study committees.
Among the laws that made it through state legislatures, Montana's created a defined contribution plan for state and local government employees in seven of the state's retirement systems, said Michael O'Connor, executive director of the Montana Public Employees' Retirement System, Helena. The Montana Board of Investments is charged with running the new plan and choosing the investment options. The plan is to be in operation by July 2002, he said. Excluded from the new plan are firefighters, police officers and teachers. The new law also transferred administration of the state's $96 million 457 plan to the retirement board, he said. Both employees and employers will contribute to the defined contribution plan. But about a third of the employer contribution will be used to reduce the $185 million unfunded liability of the state's $2.4 billion defined benefit plan, Mr. O'Connor said.
The North Dakota law establishes a defined contribution retirement plan for non-classified state employees. The Arizona plan will cover all elected officials. Proponents successfully argued that state officials have terms in office too short to allow vesting in the defined benefit system.
Not all defined contribution plan legislation passed. For example, a proposal in Texas to create an optional plan failed in the House, despite strong support from Gov. George W. Bush and smooth sailing on the Senate floor. Mr. Bush, who is seeking the GOP presidential nomination, supports a defined contribution plan that gives state "employees the options private sector employees have," said Linda Edwards, deputy communications director for the governor's office. "It's a healthy reform to give people more choices in their finances."