Washington State House of Representatives Office of Program Research	BILL ANALYSIS
Appropriations Committee

HB 2632

Brief Description:  Pertaining to the higher education retirement plan.

Sponsors:  Representatives Sommers, Cox, Kenney and McIntire.

Brief Summary of Bill

$Eliminates supplemental payments to persons who enter employment after July 1, 2002.

$Repeals the legislative intent statement that contribution levels are to be adjusted if retirement income exceeds sixty percent of the average of the two highest consecutive years of salary.

Hearing Date:  2/7/02

Staff:  Laurie Schaffler (786‑7143).

Background:

Faculty and some administrative staff of state institutions of higher education are not covered by state‑administered defined benefit pension plans such as the Public Employees' Retirement System (PERS) and the Teachers' Retirement System (TRS).  Instead, the governing boards of the state's public four‑year universities, the Evergreen State College and the state board for community and technical colleges are authorized to provide old age annuities or retirement income plans for their faculty and other employees.  These plans are privately administered defined contribution plans.  Teachers Insurance and Annuity Association/College Retirement Equities Fund (TIAA/CREF) is an example of such a plan, though there are other plans.  In a defined contribution plan, the employer and employee both make contributions, which are invested and produce a return that depends on the market, so no particular benefit is guaranteed.

Even though this is a defined contribution plan, the state guarantees the initial benefit at retirement to be fifty percent of the average annual salary paid to the retiree for his or her highest two consecutive years of full time service.  If the retirement benefit does not meet fifty percent of the highest two‑years' average annual salary, the state supplements the retirement income to meet that level.  This benefit is fixed for the retiree's life.

For higher education employees, contribution levels are intended to be set so that maximum retirement income payout levels do not exceed sixty percent of the average of the highest of two consecutive years' salary.  If a periodic review determines that retirement income levels are in excess of sixty percent of the average of the highest of two consecutive years' salary, contribution rates are to be adjusted.

Summary of Bill:

Legislative intent is declared that the state should neither guarantee nor limit the benefits in a defined contribution system.

Supplemental payment will be provided to a person who entered employment prior to July 1, 2002.

The bill repeals the legislative intent statement that contribution levels are to be adjusted if retirement income exceeds sixty percent of the average of the two highest consecutive years of salary.

Appropriation:  None.

Fiscal Note:  Not Requested.

Effective Date:  The bill takes effect on July 1, 2002.