Washington State

House of Representatives

Office of Program Research

BILL

ANALYSIS

Ways & Means Committee

HJR 4219

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

Brief Summary of Bill

Specifies that retirement benefits under retirement plans administered by the State of Washington should be funded over the working lives of plan members.
Requires contributions for plans open to new entrants that are less than fully funded to represent at least 80 percent of normal cost calculated under the entry age normal cost method.
Requires that contributions for amortizing the unfunded liabilities in the Public Employees’ Retirement System Plan 1 be no less than 5.25 percent of pay, and for the Teachers’ Retirement System Plan 1 no less than 8 percent of pay until the plans are at least 100 percent funded.
Requires the Legislature to adopt policies that ensure unfunded liabilities neither re-emerge in the plans closed to new members, nor emerge in the open plans.
Limits the effective date of Legislative changes to actuarial methods or economic assumptions that reduce long-term annual pension costs to the later of two years following the date of enactment or the beginning of the next fiscal biennium.
Applies to any defined benefit plan provision except the Judges Retirement System, the Judicial Retirement System, the Law Enforcement Officers’ and Fire Fighters’ Retirement System Plan 1, and the Volunteer Firefighters’ and Reserve Officers’ Relief and Pension Fund.

Background:

Washington State provides the employees of the state government, school districts, and local governments retirement benefits through a variety of defined benefit, defined contribution, and mixed state retirement plans. Generally, the benefits are organized by system, each of which covers general employees, the Public Employees’ Retirement System (PERS), or specific types of employees. Among the largest plans are PERS, the Teachers’ Retirement System (TRS), the School Employees’ Retirement System (SERS), the Higher Education Employees’ Retirement Plans (HERP), and the Law Enforcement Officers’ and Fire Fighters’ Retirement System (LEOFF). Each system is divided into different plans, which generally correspond to different benefit formulas that are offered to employees. Most of the Plans 1, including PERS Plan 1, TRS Plan 1, and LEOFF Plan 1 were closed to new entrants in 1977, and the Plans 2 were offered to new employees after that time. As of the 2009 Actuarial Valuation, PERS Plan 1 and TRS Plan 1 had a combined Unfunded Accrued Actuarial Liability of about $7 billion. In total, the plans cover about 510,000 active members and retirees.

The Legislature is responsible for determining the benefit formulas and the ultimate funding decisions for each of the systems and plans, though various responsibilities related to this task have been delegated to various agencies and committees. Several of these entities have responsibilities related to the funding of the plans.

The Pension Funding Council (PFC) was created by the Legislature in 1998 to adopt the long-term economic assumptions and employer contribution rates for most of the state's retirement systems. The PFC also administers audits of the actuarial analysis produced for the PFC by the State Actuary. The membership of the PFC consists of the chair and ranking minority members of the Senate Ways and Means Committee and the House Appropriations Committee, and the directors of the Office of Financial Management (OFM) and the Department of Retirement Systems (DRS).

The Office of the State Actuary is responsible for recommending appropriate member and employer contribution rates for the Public Employees', Teachers', School Employees', and Washington State Patrol Retirement Systems (WSPRS) and the Law Enforcement Officers' and Fire Fighters' (LEOFF) Retirement System Plan 1 to the PFC. The PFC holds meetings during the summer of even-numbered years, and is required to adopt the pension contribution rates for the upcoming fiscal biennium no later than July 31 of those even-numbered years.

Prior to the adoption of contribution rates, the PFC submits the audited contribution rates to the Select Committee on Pension Policy (SCPP), which may make recommendations on changes to assumptions or rates. The contribution rates adopted by the PFC are subject to revision by the Legislature.

Every four years the State Actuary conducts a study of the experience and financial condition of the retirement systems and submits the findings to the PFC for review. The PFC may adopt changes to the long-term economic assumptions used by the State Actuary and by the DRS. These assumptions include the long-term rate of investment return, the long-term rate wage growth, and inflation.

Summary of Bill:

The State Constitution is amended as follows:

The retirement benefits under each of the retirement plans administered by the State of Washington should, to the maximum extent possible, be funded over the working lives of plan members. The contributions for plans open to new entrants that are less than fully funded must represent at least 80 percent of normal cost calculated under the entry age normal cost method.

Employer contribution rates for amortizing the unfunded liabilities in the Public Employees’ Retirement System Plan 1 must be no less than 5.25 percent of pay, and for the Teachers’ Retirement System Plan 1 no less than 8 percent of pay until the plans are at least 100 percent funded. The Legislature is required to adopt policies that reasonably ensure unfunded liabilities neither re-emerge in the plans closed to new members, nor emerge in the open plans.

The effective date of legislative changes to actuarial methods or economic assumptions that reduce long-term annual pension costs is delayed until the later of two years following the date of enactment or the beginning of the next fiscal biennium.

The terms of the amendment apply to any defined benefit plan provision except the Judges Retirement System, the Judicial Retirement System, the Law Enforcement Officers’ and Fire Fighters’ Retirement System Plan 1, and the Volunteer Firefighters’ and Reserve Officers’ Relief and Pension Fund.