Almost a year after it was introduced, a scant 600 of the eligible 30,000 employees of Montana state and local government agencies have gone for the DC option, according to the Bozeman (Montana) Daily Chronicle.
The primary culprit, according to state officials: the struggling financial markets. In 1999, when the state’s legislature authorized the new plan, the country was in the midst of a stock market boom. Many workers figured they could do better investing their own retirement funds.But the bubble burst in 2000 and only two out of a hundred employees have taken advantage of the new alternative.
“We had expected a lot more, but when this plan was developed it was before the market downturn,” Mike O’Connor, executive director of Montana Public Employee Retirement Association, told the newspaper.
The new option allows employees to direct where their retirement money is invested in a variety of funds managed by Great West Life Insurance Co. of Denver, Colo. It cost about $1.5 million to create the plan, O’Connor said, paid for with a loan from the Montana Board of Investments.
Participants will have to pay a monthly fee starting in August to repay the DC plan start-up costs, according to retirement plan officials. O’Connor said he will seek to have repayment deferred so the start up costs won’t be borne by relatively few people.
Workers can opt for the DC alternative up to June 30 or they will have to stay with the tradional defined benefit pension plan, according to the newspaper. Montana’s system covers 550 government agencies including counties, incorporated towns and school district classified employees and invests $115 million annually.
Florida pension officials enountered a similarly lukewarm reaction when they also offered a DC option to government workers (See A Cloud Over The Sunshine State ). Nebraska ended up requiring all new workers to join a cash balance plan starting in January when it, too, got a weak employee response to its new K plan (See Nebraska Turns away from State K Plan ).