OLYMPIA, WA – A bill in the process of being recommended by the Select Committee on Pension Policy would spend an additional $136 million through 20231 on cost-of-living adjustments for Washington pensioners under two plans without automatic COLAs. Meanwhile, discussions continue over how to account for the underfunding of those plans, along with a plan with massive overfunding.
The Teachers’ Retirement System Plan 1 and the Public Employees’ Retirement System Plan 1 were closed to new members after October 1, 1977, but unlike other pension plans do not include regular and automatic COLAs.
House Bill 1474 sponsored this session by Rep. Mia Gregerson, D-SeaTac, at the request of the Office of Financial Management would provide a one-time 3% increase to the retirement benefits of retirees in the PERS 1 and TERS 1, up to $110 per month. The bill would have taken effect in July if it had passed. The bill cleared the House Committee on Appropriations, but did not advance beyond the Rules Committee to the House floor.
During its Oct. 21 meeting, the Select Committee on Pension Policy voted to draft a letter recommending the bill and other related Senate bills, which will avoid the need to write and introduce new legislation.
Another bill concerning the pension system that might get a second look in 2006 is House Bill 5085, which would merge TERS 1 and PERS 1, the only plans to have unfunded liabilities, with a third plan that is currently overfunded. HB 5085 was sponsored this session but didn’t pass.
Select Committee on Pension Policy member Sen. Steve Conway, D-Tacoma, said at the Oct. 21 meeting that “the critical issue here is overfunding of a plan which is unusual. Usually we adjust our contribution rates to adjust overfunding status. In other words, we lower the contribution rates, but we are faced in this state with a single plan that is definitely well overfunded to….over $3 billion.”
“Each of these plans, as you know, are designed in part to figure out a way to reduce the overfunding status,” he added. “The beneficiaries have no right to the over funding status. How do we manage an overfunded plan? We are likely to over fund other plans, and I’m just curious whether we’re always going to be faced with these two options of either merger or closure to address over funding like this.”
One factor driving the overfunding status is the state Legislature voting to raise the assumed rate of return on pension investments from 7% to 7.25%, which allowed it to avoid putting money into the system. While the move made additional state spending unnecessary in the short-term, some pensioner advocates fear that it could lead to problems in the future if investments don’t meet that 7.25% marker.
Candice Bock with the Association of Washington Cities cautioned the committee at its Oct. 21 meeting to “not create more burden on our state, on our local governments, for greater pension expenses. Let’s be really sensitive to that and use these scarce resources, taxpayer resources, in a way that can help reduce our overall pension burden. We certainly would appreciate it if somehow we could recognize the extraordinary cost burden that cities have if they have LEOF 1 retirees and they’re responsible for their medical benefits. That is a $2 billion unfunded liability for those jurisdictions.”
She added that they should “use those dollars in a way that has the most impact and really, again, addresses not just the state but also the local governments that have contributed over the years and not set ourselves up for just continuing this challenge into the future with benefits that we can’t afford long-term.”
