HOUSE BILL REPORT

ESHB 1308

As Passed House:

March 9, 2019

Title: An act relating to plan membership default provisions in the public employees' retirement system, the teachers' retirement system, and the school employees' retirement system.

Brief Description: Addressing plan membership default provisions in the public employees' retirement system, the teachers' retirement system, and the school employees' retirement system.

Sponsors: House Committee on Appropriations (originally sponsored by Representatives Stanford, Volz, Ormsby, Fitzgibbon and Griffey; by request of Select Committee on Pension Policy).

Brief History:

Committee Activity:

Appropriations: 1/28/19, 2/14/19 [DPS].

Floor Activity:

Passed House: 3/9/19, 74-22.

Majority Report: The substitute bill be substituted therefor and the substitute bill do pass. Signed by 22 members: Representatives Ormsby, Chair; Bergquist, 2nd Vice Chair; Robinson, 1st Vice Chair; Rude, Assistant Ranking Minority Member; Caldier, Cody, Dolan, Fitzgibbon, Hansen, Jinkins, Macri, Pettigrew, Pollet, Ryu, Senn, Springer, Stanford, Steele, Sullivan, Tarleton, Tharinger and Volz.

Minority Report: Do not pass. Signed by 9 members: Representatives Stokesbary, Ranking Minority Member; Chandler, Dye, Hoff, Hudgins, Kraft, Schmick, Sutherland and Ybarra.

Minority Report: Without recommendation. Signed by 2 members: Representatives MacEwen, Assistant Ranking Minority Member; Mosbrucker.

Staff: David Pringle (786-7310).

Background:

The Public Employees' Retirement System Plans 2 and 3 (PERS 2/3) provide benefits for all regularly compensated public employees and appointed officials unless they fall under a specific exemption from membership, such as qualification for another membership of the state retirement systems. Covered employees include all state agencies and subdivisions and most local government employees not employed by the cities of Seattle, Tacoma, or Spokane. The Teachers' Retirement System (TRS) covers employees certificated by the Superintendent of Public Instruction to teach and who are employed by a public school, educational service district, or the state in an instructional, administrative, or supervisory capacity.

The PERS 2 and TRS Plan 2 were created in 1977 and covered all new members of the PERS and the TRS. Plan 2 within each of the systems is a defined benefit plan that provides a retirement allowance based on 2 percent of final average salary for each year of service and a normal retirement age of 65. Early retirement benefits are available beginning at age 55, with reductions depending on the member's age and years of service. Contributions for the plan vary from year to year with actuarial requirements, are divided equally between employers and employees, and are each paid into the defined benefit pension fund for purposes of supporting the defined benefits at retirement. The School Employees' Retirement System (SERS) Plan 2 was created in 2000, along with the SERS Plan 3, out of the classified school employees that had previously been covered in the PERS 2.

Plan 3 is a hybrid defined benefit and defined contribution retirement plan. Employer contributions support a 1 percent of final average salary benefit for each year of service with a normal retirement age of 65. Early retirement benefits are similar to those offered in Plan 2. Employee contributions are made to an individual defined contribution account. The rate of employee contributions are selected by the employee during a period following each term of employment and are fixed for the duration of the employment relationship. Employee contributions vary between 5 percent and 15 percent of pay, and there are a variety of investment options available for members, including participation in the same combined investment fund used for the defined benefit plans.

The TRS Plan 3 was created in 1995, the SERS Plan 3 in 2000, and the PERS 3 was created in 2002. From the creation of the PERS 3, new members of the PERS were given a period of 90 days to choose to become a member of Plan 2 or Plan 3. The choice is irrevocable and is thereafter the only PERS plan that the member may participate in, including periods worked after a break in employment or with a different employer. If a member does not choose membership in either Plan 2 or Plan 3, he or she becomes a member of Plan 3.

The TRS and the SERS Plans 2 and 3 each have similar provisions providing choice of Plans 2 and 3 as PERS 2/3. The choice of Plan 2 for new employees was added by the Legislature in 2007 with the adoption of House Bill 2391, a bill that also repealed gain-sharing provisions and enacted a number of other benefit enhancements to several plans of the state retirement systems. Prior to this 2007 change, and after the creation of the TRS 3 and the SERS 3, only Plan 3 was available to new members of those retirement systems.

Summary of Engrossed Substitute Bill:

For members that first become employed by a PERS, TRS, or SERS employer on or after July 1, 2020, the default plan for members that do not choose a plan within 90 days is changed from Plan 3 to Plan 2.

The bill contains a severability clause, indicating that if any provision of the act or its application to any person or circumstance is held invalid, the remainder of the bill is unaffected.

Appropriation: None.

Fiscal Note: Available.

Effective Date: The bill contains an emergency clause and takes effect on January 1, 2020.

Staff Summary of Public Testimony:

(In support) There are many employees that default into Plan 3 and later regret it. This is about default—some people at the time of hiring have a lot of things on their minds besides the long-term decision of a retirement plan. If you are not making a deliberate choice, Plan 3 is the wrong choice. This bill has been before this committee many times. Plan 3 is a good plan for some people, but not for those that do not pay close attention. This is an employee-friendly bill, but not a huge change. It may have been lost in the process in previous years.

(Opposed) None.

Persons Testifying: Representative Stanford, prime sponsor; Neva Luke, Washington Education Association; Fred Yancey, Washington Association of School Administrators; Peter Diedrick, Washington State School Retirees' Association; Matt Zuvich, Washington Federation of State Employees; and Seamus Petrie, Washington Public Employees Association.

Persons Signed In To Testify But Not Testifying: None.