HOUSE BILL ANALYSIS

                  HB 2544

Brief Description:  Funding the state retirement systems.

Background:

It is required by statute that pension contribution rates be set at the level percentage of pay needed to accomplish the following:

CTo fully fund the Public Employees' Retirement System (PERS) Plan 1, the Teachers= Retirement System (TRS) Plan I, the Law Enforcement Officers= and Fire Fighters= (LEOFF) retirement system Plan I, and to pay off the unfunded liability in the Washington State Patrol Retirement System not later than June 30, 2024; and 

CTo continue to fully fund PERS, TRS and LEOFF Plan II, and TRS Plan III. 

In addition to these requirements, the statutes state that the rate setting process is also intended to achieve the goal of establishing predictable long-term employer contribution rates which will remain a relatively constant proportion of future state budgets.

The Rate-Setting Process

CIn odd-numbered years, the Economic and Revenue Forecast Council adopts the following long-term economic assumptions: growth in system membership; growth in salaries; growth in inflation; and investment rate of return.

CThe State Actuary uses these long-term economic assumptions in conducting actuarial valuations of the pension systems.

CIn even-numbered years, based on the results of the actuarial valuations, the Economic and Revenue Forecast Council adopts the pension contribution rates to be used in the ensuing biennium. 

The Economic and Revenue Forecast Council is a six-member council consisting of four legislators, the director of the Office of Financial Management, and the director of the Department of Revenue. 

The State Actuary is the executive head of the Office of the State Actuary, which is an office within the legislative branch.  The State Actuary is appointed by the Joint Committee on Pension Policy.

The Joint Committee on Pension Policy (JCPP) is a statutorily created legislative committee consisting of eight members appointed by the President of the Senate, four from each party, and eight members appointed by the Speaker of the House of Representatives, four from each party. The committee must establish an executive committee of four members, representing the majority and minority caucuses of each house.

Summary:

The Pension Funding Council is created and consists of the following members:

CThe director of the Department of Retirement Systems;

CThe director of the Office of Financial Management; and

CThe executive members of the Joint Committee on Pension Policy.

Pension Funding Council responsibilities: 

CAdopt changes to the following long-term economic assumptions:  growth in system membership; growth in salaries; growth in inflation; and investment rate of return; and 

CAdopt pension contribution rates in every even-numbered year to be used in the ensuing biennium.

A pension funding work group is created and consists of one staff person selected by the executive head or chairperson of the following agencies or committees: 

Cthe Department of Retirement Systems;

Cthe Office of Financial Management;

Cthe State Investment Board;

Cthe Senate Ways and Means Committee;

Cthe House Appropriations Committee; and

Cthe Economic and Revenue Forecast Council.

The State Actuary provides all information related to economic assumptions and contribution rates to the work group.

Responsibilities of the work group:

CProvide support and recommendations to the Pension Funding Council;

CDevelop contribution rate recommendations for the Pension Funding Council;

CSeek out recommendations from affected employee and employer groups and conduct open public meetings on their recommendations; and

CResponsible for soliciting and administering a concurrent actuarial audit of the State

Actuary=s actuarial valuations used for rate-setting purposes, and reviewing the results of the audit.

Effective Date:  Ninety days after adjournment of session in which bill is passed.

Fiscal Note:  Requested on January 16, 1998.