BILL REQ. #:  Z-0379.1 

Read first time 01/11/2005.   Referred to Committee on Appropriations.

     AN ACT Relating to pension funding methodology; amending RCW 41.45.010, 41.45.010, 41.45.054, and 41.45.060; reenacting and amending RCW 41.45.060; providing effective dates; providing an expiration date; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1   RCW 41.45.010 and 2002 c 26 s 3 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, chapter 41.26 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, the teachers' retirement system plan 1, and the law enforcement officers' and fire fighters' 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, the teachers' retirement system plan 1, and the law enforcement officers' and fire fighters' retirement system plan 1, not later than June 30, 2024;
     (3) To establish ((predictable)) long-term employer contribution rates which will remain a relatively ((constant)) predictable proportion of the future state budgets; and
     (4) 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. 2   RCW 41.45.010 and 2004 c 242 s 36 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, chapter 41.26 RCW; the school employees' retirement system, chapter 41.35 RCW; the public safety employees' retirement system, chapter 41.37 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, the teachers' retirement system plan 1, and the law enforcement officers' and fire fighters' retirement system plan 1.
     The funding process established by this chapter is intended to achieve the following goals:
     (1) 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, the public safety employees' retirement system plan 2, 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, the teachers' retirement system plan 1, and the law enforcement officers' and fire fighters' retirement system plan 1, not later than June 30, 2024;
     (3) To establish ((predictable)) long-term employer contribution rates which will remain a relatively ((constant)) predictable proportion of the future state budgets; and
     (4) 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 41.45.054 and 2003 1st sp.s. c 11 s 2 are each amended to read as follows:
     The basic employer and state contribution rates and plan 2 member contribution rates are changed to reflect the ((2000)) 2002 actuarial valuation((, incorporating the 1995-2000 actuarial experience study conducted by the office of the state actuary. The results of the 2001 actuarial valuation for the public employees' retirement system, the teachers' retirement system, and the school employees' retirement system shall be restated as a result of the new asset smoothing method adopted in RCW 41.45.035,)) and suspension of payments on the unfunded liability in the public employees' retirement system and teachers' retirement system, to collect the following contribution rates:
     (1)(a) Beginning July 1, ((2003)) 2005, the following employer contribution rates shall be charged:
     (((a) 1.18)) (i) 1.75 percent for the public employees' retirement system; and
     (((b))) (ii) 3.03 percent for the law enforcement officers' and fire fighters' retirement system plan 2.
     (b) Beginning July 1, 2006, the employer contribution rate of 2.50 percent for the public employees' retirement system shall be charged.
     (2) Beginning July 1, 2003, the basic state contribution rate for the law enforcement officers' and fire fighters' retirement system plan 2 shall be 2.02 percent.
     (3)(a) Beginning September 1, ((2003)) 2005, the following employer contribution rates shall be charged:
     (((a) 0.84)) (i) 2.00 percent for the school employees' retirement system; and
     (((b) 1.17)) (ii) 1.30 percent for the teachers' retirement system.
     (b) Beginning September 1, 2006, the following employer contribution rates shall be charged:
     (i) 2.75 percent for the school employees' retirement system; and
     (ii) 1.58 percent for the teachers' retirement system.
     (4)(a) Beginning July 1, ((2003)) 2005, the following member contribution rates shall be charged:
     (((a) 1.18)) (i) 1.75 percent for the public employees' retirement system plan 2; and
     (((b))) (ii) 5.05 percent for the law enforcement officers' and fire fighters' retirement system plan 2.
     (b) Beginning July 1, 2006, the member contribution rate of 2.50 percent for the public employees' retirement system plan 2 shall be charged.
     (5)(a) Beginning September 1, 2003, the following member contribution rates shall be charged:
     (((a) 0.84)) (i) 2.00 percent for the school employees' retirement system plan 2; and
     (((b) 0.87)) (ii) 1.00 percent for the teachers' retirement system plan 2.
     (((6) The contribution rates in this section shall be collected through June 30, 2005, for the public employees' retirement system and the law enforcement officers' and fire fighters' retirement system, and August 31st, 2005, for the school employees' retirement system and the teachers' retirement system.
     (7) The July 1, 2003, contribution rate changes provided in this section shall be implemented notwithstanding the thirty-day advanced notice provisions of RCW 41.45.067.))
     (b) Beginning September 1, 2006, the following member contribution rates shall be charged:
     (i) 2.75 percent for the school employees' retirement system plan 2; and
     (ii) 1.30 percent for the teachers' retirement system plan 2.

Sec. 4   RCW 41.45.060 and 2003 c 294 s 10 and 2003 c 92 s 3 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 plan 1;
     (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; and
     (b) To also continue to fully fund the public employees' retirement system plans 2 and 3, the teachers' retirement system plans 2 and 3, and the school employees' retirement system plans 2 and 3 in accordance with RCW 41.45.061, 41.45.067, and this section.
     (4) The aggregate actuarial cost method shall be used to calculate ((a combined plan 2 and 3 employer contribution rate and)) a Washington state patrol retirement system contribution rate.
     (5) The projected unit credit method shall be used to calculate a combined plan 2 and 3 employer contribution rate for the public employees' retirement system, the teachers' retirement system, and the school employees' retirement system.
     (6) 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))) (7) 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. The rates established in RCW 41.45.053, or by the council, shall be subject to revision by the council.

Sec. 5   RCW 41.45.060 and 2004 c 242 s 39 are each 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 plan 1;
     (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 and the public safety employees' retirement system for funding both those systems 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; and
     (b) To fully fund the public employees' retirement system plans 2 and 3, the teachers' retirement system plans 2 and 3, the public safety employees' retirement system plan 2, and the school employees' retirement system plans 2 and 3 in accordance with RCW 41.45.061, 41.45.067, and this section.
     (4) The aggregate actuarial cost method shall be used to calculate ((a combined plan 2 and 3 employer contribution rate and)) a Washington state patrol retirement system contribution rate.
     (5) The projected unit credit method shall be used to calculate a combined plan 2 and 3 employer contribution rate for the public employees' retirement system, the teachers' retirement system, and the school employees' retirement system.
     (6) 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))) (7) The director shall collect those rates adopted by the council. The rates established in RCW 41.45.054, or by the council, shall be subject to revision by the legislature.

NEW SECTION.  Sec. 6   (1) Sections 1, 3, and 4 of this act are necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and take effect July 1, 2005.
     (2) Sections 2 and 5 of this act take effect July 1, 2006.

NEW SECTION.  Sec. 7   Sections 1 and 4 of this act expire July 1, 2006.