Z-1405.2 _______________________________________________
HOUSE BILL 2638
_______________________________________________
State of Washington 57th Legislature 2002 Regular Session
By Representative Sommers; by request of Office of Financial Management
Read first time 01/23/2002. Referred to Committee on Appropriations.
AN ACT Relating to the actuarial funding of the public employees' retirement system, the teachers' retirement system, and the school employees' retirement system; amending RCW 41.45.010, 41.45.050, and 41.45.053; reenacting and amending RCW 41.45.020, 41.45.060, and 41.45.070; creating a new section; and providing an effective date.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
NEW SECTION. Sec. 1. The legislature finds that in 2002 the public employees' retirement system plan 2, the teachers' retirement system plans 2 and 3, and the school employees' retirement system plans 2 and 3 are more than fully funded as defined in RCW 41.45.020. As a result, the legislature declares that it is prudent to impose a full funding limit on the employer contributions to these plans, and a full funding limit to the employee contributions to the public employees' retirement system plan 2, the teachers' retirement system plan 2, and the school employees' retirement system plan 2. The legislature further finds that given the fund balances in these plans, it is appropriate to use another recognized actuarial method, the projected unit credit method, by which to more prudently fund these plans in the future.
Sec. 2. RCW 41.45.010 and 2001 2nd sp.s. c 11 s 2 are each amended to read as follows:
It is the intent of the legislature to provide a dependable and systematic process for funding the benefits provided to members and retirees of the public employees' retirement system, chapter 41.40 RCW; the teachers' retirement system, chapter 41.32 RCW; the law enforcement officers' and fire fighters' retirement systems, chapters 41.26 and 41.26A RCW; the school employees' retirement system, chapter 41.35 RCW; and the Washington state patrol retirement system, chapter 43.43 RCW.
The legislature finds that the funding status of the state retirement systems has improved dramatically since 1989. Because of the big reduction in unfunded pension liabilities, it is now prudent to adjust the long-term economic assumptions that are used in the actuarial studies conducted by the state actuary. The legislature finds that it is reasonable to increase the salary growth assumption in light of Initiative Measure No. 732, to increase the investment return assumption in light of the asset allocation policies and historical returns of the state investment board, and to reestablish June 30, 2024, as the target date to achieve full funding of all liabilities in the public employees' retirement system plan 1 and the teachers' retirement system plan 1.
The funding process established by this chapter is intended to achieve the following goals:
(1) To continue to fully fund the public employees' retirement system plans 2 and 3, the teachers' retirement system plans 2 and 3, the school employees' retirement system plans 2 and 3, and the law enforcement officers' and fire fighters' retirement system plan 2 as provided by law;
(2) To fully amortize the total costs of the public employees' retirement system plan 1 and the teachers' retirement system plan 1, not later than June 30, 2024;
(3) To ensure the actuarial funding of the restated law enforcement officers' and fire fighters' retirement system defined benefit plan, and provide for additional state funding if unfunded liabilities accrue in the future;
(4) To establish predictable long-term employer contribution rates which will remain a relatively constant proportion of the future state budgets, while allowing for adjustments to reflect changing economic, demographic, and financial conditions; and
(5) To fund, to the extent feasible, benefit increases for plan 1 members and all benefits for plan 2 and 3 members over the working lives of those members so that the cost of those benefits are paid by the taxpayers who receive the benefit of those members' service.
Sec. 3. RCW 41.45.020 and 2001 2nd sp.s. c 11 s 4 and 2001 2nd sp.s. c 11 s 3 are each reenacted and amended to read as follows:
As used in this chapter, the following terms have the meanings indicated unless the context clearly requires otherwise.
(1) "Council" means the pension funding council created in RCW 41.45.100.
(2) "Department" means the department of retirement systems.
(3) "Law enforcement officers' and fire fighters' retirement system plan 1" and "law enforcement officers' and fire fighters' retirement system plan 2" means the benefits and funding provisions under chapter 41.26 RCW.
(4) (("Restated
law enforcement officers' and fire fighters' retirement system defined benefit
plan" means the benefits and funding provisions under chapter 41.26A RCW.
(5))) "Public employees' retirement system plan
1," "public employees' retirement system plan 2," and
"public employees' retirement system plan 3" mean the benefits and
funding provisions under chapter 41.40 RCW.
(((6))) (5)
"Teachers' retirement system plan 1," "teachers' retirement
system plan 2," and "teachers' retirement system plan 3" mean
the benefits and funding provisions under chapter 41.32 RCW.
(((7))) (6)
"School employees' retirement system plan 2" and "school
employees' retirement system plan 3" mean the benefits and funding
provisions under chapter 41.35 RCW.
(((8))) (7)
"Washington state patrol retirement system" means the retirement
benefits provided under chapter 43.43 RCW.
(((9))) (8)
"Unfunded liability" means the unfunded actuarial accrued liability
of a retirement system.
(((10))) (9)
"Actuary" or "state actuary" means the state actuary
employed under chapter 44.44 RCW.
(((11))) (10)
"State retirement systems" means the retirement systems listed in RCW
41.50.030.
(((12))) (11)
"Classified employee" means a member of the Washington school employees'
retirement system plan 2 or plan 3 as defined in RCW 41.35.010.
(((13))) (12)
"Teacher" means a member of the teachers' retirement system as
defined in RCW 41.32.010(15).
(13) "Fully funded" or "to fully fund" means the plan has no unfunded liabilities according to the actuarial method specified by statute.
(14) "Full funding limit" means that a plan is fully funded and that it will remain fully funded at the end of the rate adoption period in RCW 41.45.060 without employer contributions during that rate adoption period.
Sec. 4. RCW 41.45.050 and 2001 2nd sp.s. c 11 s 8 are each amended to read as follows:
(1) Employers of members of the public employees' retirement system, the teachers' retirement system, the school employees' retirement system, and the Washington state patrol retirement system shall make contributions to those systems based on the rates established in RCW 41.45.060, 41.45.053, and 41.45.070.
(2) The state shall make contributions to the law enforcement officers' and fire fighters' retirement system plan 2 based on the rates established in RCW 41.45.060, 41.45.053, and 41.45.070. The state treasurer shall transfer the required contributions each month on the basis of salary data provided by the department.
(3) ((The state
shall ensure the systematic actuarial funding of the restated law enforcement
officers' and fire fighters' retirement system defined benefit plan in the
manner provided by chapter 41.26A RCW.
(4))) The department shall bill employers, and the
state shall make contributions to the law enforcement officers' and fire
fighters' retirement system plan 2, using the combined rates established in RCW
41.45.060, 41.45.053, and 41.45.070 regardless of the level of appropriation
provided in the biennial budget. Any member of an affected retirement system
may, by mandamus or other appropriate proceeding, require the transfer and
payment of funds as directed in this section.
(((5))) (4)
The contributions received for the public employees' retirement system shall be
allocated between the public employees' retirement system plan 1 fund and the
public employees' retirement system combined plan 2 and plan 3 fund as
follows: The contributions necessary to fully fund the public employees'
retirement system combined plan 2 and plan 3 employer contribution shall first
be deposited in the public employees' retirement system combined plan 2 and
plan 3 fund unless a full funding limit is in effect. All remaining
public employees' retirement system employer contributions shall be deposited
in the public employees' retirement system plan 1 fund.
(((6))) (5)
The contributions received for the teachers' retirement system shall be
allocated between the plan 1 fund and the combined plan 2 and plan 3 fund as
follows: The contributions necessary to fully fund the combined plan 2 and
plan 3 employer contribution shall first be deposited in the combined plan 2
and plan 3 fund unless a full funding limit is in effect. All remaining
teachers' retirement system employer contributions shall be deposited in the
plan 1 fund.
(((7))) (6)
The contributions received for the school employees' retirement system shall be
allocated between the public employees' retirement system plan 1 fund and the
school employees' retirement system combined plan 2 and plan 3 fund as
follows: The contributions necessary to fully fund the combined plan 2 and
plan 3 employer contribution shall first be deposited in the combined plan 2
and plan 3 fund unless a full funding limit is in effect. All remaining
school employees' retirement system employer contributions shall be deposited
in the public employees' retirement system plan 1 fund.
(((8))) (7)
The contributions received for the law enforcement officers' and fire fighters'
retirement system plan 2 shall be deposited in the law enforcement officers'
and fire fighters' retirement system plan 2 fund.
Sec. 5. RCW 41.45.053 and 2001 2nd sp.s. c 11 s 9 are each amended to read as follows:
(1) The basic employer
and state contribution rates, and plan 2 member contribution rates, are changed
to reflect the 1999 combined actuarial valuation studies conducted by the
office of the state actuary, adjusted solely for the changes in the long-term
economic assumptions contained in RCW 41.45.035, ((and)) for the
reestablishment of the June 30, 2024, target date for funding all plan 1
liabilities, and to reflect changes in actuarial methods, including full
funding limits and the projected unit credit method adopted by the 2002
legislature.
Beginning July 1, ((2001))
2002, the following employer contribution rates shall be charged:
(a) ((1.54)) 0.70
percent for the public employees' retirement system; and
(b) 2.70 percent for the law enforcement officers' and fire fighters' retirement system plan 2.
(2) Beginning July 1, 2001, the basic state contribution rate for the law enforcement officers' and fire fighters' retirement system plan 2 shall be 1.80 percent.
(3) Beginning September
1, ((2001)) 2002, the following employer contribution rates shall
be charged:
(a) ((1.54)) 0.70
percent for the school employees' retirement system; and
(b) ((2.75)) 0.80
percent for the teachers' retirement system.
(4) Beginning July 1,
((2001)) 2002, the following member contribution rates shall be
charged:
(a) ((0.88)) 0
percent for the public employees' retirement system plan 2; and
(b) 4.50 percent for the law enforcement officers' and fire fighters' retirement system plan 2.
(5) Beginning September
1, ((2001)) 2002, the following member contribution rates shall
be charged:
(a) ((0.88)) 0
percent for the school employees' retirement system plan 2; and
(b) ((1.23)) 0
percent for the teachers' retirement system plan 2.
(((6) The
contribution rates in this section shall be collected through June 30, 2003.))
Sec. 6. RCW 41.45.060 and 2001 2nd sp.s. c 11 s 10 and 2001 c 329 s 10 are each reenacted and amended to read as follows:
(1) The state actuary shall provide actuarial valuation results based on the economic assumptions and asset value smoothing technique included in RCW 41.45.035 or adopted by the council under RCW 41.45.030 or 41.45.035.
(2) Not later than September 30, 2002, and every two years thereafter, consistent with the economic assumptions and asset value smoothing technique included in RCW 41.45.035 or adopted under RCW 41.45.030 or 41.45.035, the council shall adopt and may make changes to:
(a) A basic state contribution rate for the law enforcement officers' and fire fighters' retirement system;
(b) Basic employer contribution rates for the public employees' retirement system, the teachers' retirement system, and the Washington state patrol retirement system to be used in the ensuing biennial period; and
(c) A basic employer contribution rate for the school employees' retirement system for funding both that system and the public employees' retirement system plan 1.
The contribution rates adopted by the council shall be subject to revision by the legislature.
(3) The employer and state contribution rates adopted by the council shall be the level percentages of pay that are needed:
(a) To fully amortize
the total costs of the public employees' retirement system plan 1, the
teachers' retirement system plan 1, and the law enforcement officers' and fire
fighters' retirement system plan 1 not later than June 30, 2024, except as
provided in subsection (((5))) (7) of this section. The net
contribution rate developed in subsection (4) of this section shall be used as the
normal cost;
(b) To also continue to fully fund the public employees' retirement system plans 2 and 3, the teachers' retirement system plans 2 and 3, the school employees' retirement system plans 2 and 3, and the law enforcement officers' and fire fighters' retirement system plan 2 in accordance with RCW 41.45.061, 41.45.067, and this section; and
(c) For the law enforcement officers' and fire fighters' system plan 2 the rate charged to employers, except as provided in RCW 41.26.450, shall be thirty percent of the cost of the retirement system and the rate charged to the state shall be twenty percent of the cost of the retirement system.
(4) The ((aggregate
actuarial cost)) projected unit credit method with a fifteen-year
amortization of unfunded liabilities shall be used to calculate a combined
plan 2 and 3 employer contribution rate ((and a)). The aggregate
actuarial cost method shall be used to calculate the Washington state
patrol retirement system contribution rate.
(5) The state actuary shall apply the full funding limit to the public employees' retirement systems, the teachers' retirement systems, and the school employees' retirement systems. For any plans that meet the full funding limit, additional employer contributions or plan 2 employee contributions shall not be included.
(6) The full funding limit shall not remove the requirement for a contribution rate to fund the cost of any benefit increases adopted after the effective date of this section, except for those benefit increases granted to members under chapter 41.31 or 41.31A RCW.
(7) The council shall immediately notify the directors of the office of financial management and department of retirement systems of the state and employer contribution rates adopted. The rates shall be effective for the ensuing biennial period, subject to any legislative modifications.
(((6))) (8)
The director of the department of retirement systems shall collect the rates
established in RCW 41.45.053 through June 30, 2003. Thereafter, the director
shall collect those rates adopted by the council and approved or amended by
the legislature. The rates established in RCW 41.45.053, or by the
council, shall be subject to revision by the council.
Sec. 7. RCW 41.45.070 and 2001 2nd sp.s. c 11 s 16 and 2001 2nd sp.s. c 11 s 15 are each reenacted and amended to read as follows:
(1) In addition to the basic employer contribution rate established in RCW 41.45.060 or 41.45.053, the department shall also charge employers of public employees' retirement system, teachers' retirement system, school employees' retirement system, or Washington state patrol retirement system members an additional supplemental rate to pay for the cost of additional benefits, if any, granted to members of those systems after the effective date of this section. Except as provided in subsections (6) and (7) of this section, the supplemental contribution rates required by this section shall be calculated by the state actuary, shall not be subject to a full funding limit for the affected plan, and shall be charged regardless of language to the contrary contained in the statute which authorizes additional benefits.
(2) In addition to the basic state contribution rate established in RCW 41.45.060 or 41.45.053 for the law enforcement officers' and fire fighters' retirement system plan 2, the department shall also establish a supplemental rate to pay for the cost of additional benefits, if any, granted to members of the law enforcement officers' and fire fighters' retirement system plan 2. Except as provided in subsection (6) of this section, this supplemental rate shall be calculated by the state actuary and the state treasurer shall transfer the additional required contributions regardless of language to the contrary contained in the statute which authorizes the additional benefits.
(3) The supplemental rate charged under this section to fund benefit increases provided to active members of the public employees' retirement system plan 1, the teachers' retirement system plan 1, and Washington state patrol retirement system, shall be calculated as the level percentage of all members' pay needed to fund the cost of the benefit not later than June 30, 2024.
(4) The supplemental
rate charged under this section to fund benefit increases provided to active
and retired members of the public employees' retirement system plan 2 and plan
3, the teachers' retirement system plan 2 and plan 3, and the school
employees' retirement system plan 2 and plan 3((, or)) shall be
sufficient to amortize the cost of the benefit over a fifteen-year period. The
supplemental rate charged under this section to fund benefit increases
provided to the law enforcement officers' and fire fighters' retirement
system plan 2, shall be calculated as the level percentage of all members' pay
needed to fund the cost of the benefit, as calculated under RCW 41.45.060,
41.45.061, or 41.45.067.
(5) The supplemental rate charged under this section to fund postretirement adjustments which are provided on a nonautomatic basis to current retirees shall be calculated as the percentage of pay needed to fund the adjustments as they are paid to the retirees. The supplemental rate charged under this section to fund automatic postretirement adjustments for active or retired members of the public employees' retirement system plan 1 and the teachers' retirement system plan 1 shall be calculated as the level percentage of pay needed to fund the cost of the automatic adjustments not later than June 30, 2024.
(6) A supplemental rate shall not be charged to pay for the cost of additional benefits granted to members pursuant to chapter 340, Laws of 1998.
(7) A supplemental rate shall not be charged to pay for the cost of additional benefits granted to members pursuant to chapter 41.31A RCW; section 309, chapter 341, Laws of 1998; or section 701, chapter 341, Laws of 1998.
NEW SECTION. Sec. 8. This act takes effect July 1, 2002.
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