BILL REQ. #:  S-3076.1 

READ FIRST TIME 04/06/05.   

     AN ACT Relating to public pensions; amending RCW 41.31.010, 41.31.020, 41.31A.020, 41.45.060, 41.45.070, 41.45.010, 41.45.010, and 41.45.054; reenacting and amending RCW 41.45.060 and 41.45.070; adding a new section to chapter 41.31 RCW; adding a new section to chapter 41.31A RCW; 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 41.31.010 and 1998 c 340 s 1 are each amended to read as follows:
     Beginning July 1, 1998, and on January 1st of even-numbered years ((thereafter)) until January 1, 2005, the annual increase amount as defined in RCW 41.32.010 and 41.40.010 shall be increased by the gain-sharing increase amount, if any. The monthly retirement allowance of a person in receipt of the benefit provided in RCW 41.32.489 or 41.40.197 shall immediately be adjusted to reflect any increase.

Sec. 2   RCW 41.31.020 and 1998 c 340 s 2 are each amended to read as follows:
     (1) The gain-sharing increase amount, if authorized by the legislature, shall be the amount of increase, rounded to the nearest cent, that can be fully funded in actuarial present value by the amount of extraordinary investment gains, if any. The amount of extraordinary investment gains shall be calculated as follows:
     (a) One-half of the sum of the value of the net assets held in trust for pension benefits in the teachers' retirement system plan 1 fund and the public employees' retirement system plan 1 fund at the close of the previous state fiscal year;
     (b) Multiplied by the amount which the compound average of investment returns on those assets over the previous four state fiscal years exceeds ten percent.
     (2) The gain-sharing increase amount for July 1998, as provided for in RCW 41.31.010, is ten cents.

NEW SECTION.  Sec. 3   A new section is added to chapter 41.31 RCW to read as follows:
     Beginning July 1, 2005, and on July 1st of even-numbered years thereafter, the legislature may authorize an increase as provided in RCW 41.31.020.

NEW SECTION.  Sec. 4   A new section is added to chapter 41.31A RCW to read as follows:
     Beginning July 1, 2005, and on July 1st of even-numbered years thereafter, the legislature may authorize an increase as provided in RCW 41.31A.020.

Sec. 5   RCW 41.31A.020 and 2003 c 294 s 4 are each amended to read as follows:
     (1) On January 1, 2004, and on January 1st of even-numbered years ((thereafter)) until January 1, 2005, the member account of a person meeting the requirements of this section shall be credited by the extraordinary investment gain amount.
     (2) The following persons shall be eligible for the benefit provided in subsection (1) of this section or as authorized by section 4 of this act:
     (a) Any member of the teachers' retirement system plan 3, the Washington school employees' retirement system plan 3, or the public employees' retirement system plan 3 who earned service credit during the twelve-month period from September 1st to August 31st immediately preceding the distribution and had a balance of at least one thousand dollars in their member account on August 31st of the year immediately preceding the distribution; or
     (b) Any person in receipt of a benefit pursuant to RCW 41.32.875, 41.35.680, or 41.40.820; or
     (c) Any person who is a retiree pursuant to RCW 41.34.020(8) and who:
     (i) Completed ten service credit years; or
     (ii) Completed five service credit years, including twelve service months after attaining age fifty-four; or
     (d) Any teacher who is a retiree pursuant to RCW 41.34.020(8) and who has completed five service credit years by July 1, 1996, under plan 2 and who transferred to plan 3 under RCW 41.32.817; or
     (e) Any classified employee who is a retiree pursuant to RCW 41.34.020(8) and who has completed five service credit years by September 1, 2000, and who transferred to plan 3 under RCW 41.35.510; or
     (f) Any public employee who is a retiree pursuant to RCW 41.34.020(8) and who has completed five service credit years by March 1, 2002, and who transferred to plan 3 under RCW 41.40.795; or
     (g) Any person who had a balance of at least one thousand dollars in their member account on August 31st of the year immediately preceding the distribution and who:
     (i) Completed ten service credit years; or
     (ii) Completed five service credit years, including twelve service months after attaining age fifty-four; or
     (h) Any teacher who had a balance of at least one thousand dollars in their member account on August 31st of the year immediately preceding the distribution and who has completed five service credit years by July 1, 1996, under plan 2 and who transferred to plan 3 under RCW 41.32.817; or
     (i) Any classified employee who had a balance of at least one thousand dollars in their member account on August 31st of the year immediately preceding the distribution and who has completed five service credit years by September 1, 2000, and who transferred to plan 3 under RCW 41.35.510; or
     (j) Any public employee who had a balance of at least one thousand dollars in their member account on August 31st of the year immediately preceding the distribution and who has completed five service credit years by March 1, 2002, and who transferred to plan 3 under RCW 41.40.795.
     (3) The extraordinary investment gain amount, if authorized by the legislature, shall be calculated as follows:
     (a) One-half of the sum of the value of the net assets held in trust for pension benefits in the teachers' retirement system combined plan 2 and 3 fund, the Washington school employees' retirement system combined plan 2 and 3 fund, and the public employees' retirement system combined plan 2 and 3 fund at the close of the previous state fiscal year not including the amount attributable to member accounts;
     (b) Multiplied by the amount which the compound average of investment returns on those assets over the previous four state fiscal years exceeds ten percent;
     (c) Multiplied by the proportion of:
     (i) The sum of the service credit on August 31st of the previous year of all persons eligible for the benefit provided in subsection (1) of this section; to
     (ii) The sum of the service credit on August 31st of the previous year of:
     (A) All persons eligible for the benefit provided in subsection (1) of this section;
     (B) Any person who earned service credit in the teachers' retirement system plan 2, the Washington school employees' retirement system plan 2, or the public employees' retirement system plan 2 during the twelve-month period from September 1st to August 31st immediately preceding the distribution;
     (C) Any person in receipt of a benefit pursuant to RCW 41.32.765, 41.35.420, or 41.40.630; and
     (D) Any person with five or more years of service in the teachers' retirement system plan 2, the Washington school employees' retirement system plan 2, or the public employees' retirement system plan 2;
     (d) Divided proportionally among persons eligible for the benefit provided in subsection (1) of this section on the basis of their service credit total on August 31st of the previous year.
     (4) The legislature reserves the right to amend or repeal this section in the future and no member or beneficiary has a contractual right to receive this distribution not granted prior to that time.

Sec. 6   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 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) 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.
     (7) For benefit increases under chapter 41.31 or 41.31A RCW, the basic contribution rate shall include the cost of the increases beginning with the next valuation after the effective date of the increase.

Sec. 7   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 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) 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.
     (7) For benefit increases under chapter 41.31 or 41.31A RCW, the basic contribution rate shall include the cost of the increases beginning with the next valuation after the effective date of the increase.

Sec. 8   RCW 41.45.070 and 2003 1st sp.s. c 11 s 3 and 2003 c 92 s 5 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 41.45.054, 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. 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 and shall be charged regardless of language to the contrary contained in the statute which authorizes additional benefits.
     (2) In addition to the basic member, employer, and state contribution rate established in RCW 41.45.0604 for the law enforcement officers' and fire fighters' retirement system plan 2, the department shall also establish supplemental rates 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, these supplemental rates shall be calculated by the actuary retained by the law enforcement officers' and fire fighters' board and the state actuary through the process provided in RCW 41.26.720(1)(a) 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, or the school employees' retirement system plan 2 and plan 3 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.
     (8) For benefit increases under chapter 41.31 or 41.31A RCW, the basic contribution rate shall include the cost of the increases beginning with the next valuation after the effective date of the increase.

Sec. 9   RCW 41.45.070 and 2004 c 242 s 41 are each amended to read as follows:
     (1) In addition to the basic employer contribution rate established in RCW 41.45.060 or 41.45.054, the department shall also charge employers of public employees' retirement system, teachers' retirement system, school employees' retirement system, public safety 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. 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 and shall be charged regardless of language to the contrary contained in the statute which authorizes additional benefits.
     (2) In addition to the basic member, employer, and state contribution rate established in RCW 41.45.0604 for the law enforcement officers' and fire fighters' retirement system plan 2, the department shall also establish supplemental rates 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, these supplemental rates shall be calculated by the actuary retained by the law enforcement officers' and fire fighters' board and the state actuary through the process provided in RCW 41.26.720(1)(a) 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, the public safety employees' retirement system plan 2, or the school employees' retirement system plan 2 and plan 3 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.
     (8) For benefit increases under chapter 41.31 or 41.31A RCW, the basic contribution rate shall include the cost of the increases beginning with the next valuation after the effective date of the increase.

Sec. 10   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. 11   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. 12   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)) 2003 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) Beginning July 1, ((2003)) 2005, the following employer contribution rate((s)) shall be charged:
     (((a) 1.18)) 3.38 percent for the public employees' retirement system((; and
     (b) 3.03 percent for the law enforcement officers' and fire fighters' retirement system plan 2.
     (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))) (2) Beginning September 1, ((2003)) 2005, the following employer contribution rates shall be charged:
     (a) ((0.84)) 3.51 percent for the school employees' retirement system; and
     (b) ((1.17)) 2.74 percent for the teachers' retirement system.
     (((4))) (3) Beginning July 1, ((2003)) 2005, the following member contribution rate((s)) shall be charged:
     (((a) 1.18)) 3.38 percent for the public employees' retirement system plan 2((; and
     (b) 5.05 percent for the law enforcement officers' and fire fighters' retirement system plan 2)).
     (((5))) (4) Beginning September 1, ((2003)) 2005, the following member contribution rates shall be charged:
     (a) ((0.84)) 3.51 percent for the school employees' retirement system plan 2; and
     (b) ((0.87)) 2.48 percent for the teachers' retirement system plan 2.
     (((6))) (5) The contribution rates in this section shall be collected through June 30, ((2005)) 2007, for the public employees' retirement system ((and the law enforcement officers' and fire fighters' retirement system,)) and August 31st, ((2005)) 2007, 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.))

NEW SECTION.  Sec. 13   This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect July 1, 2005, except for sections 7, 9, and 11 of this act which take effect July 1, 2006.

NEW SECTION.  Sec. 14   Sections 6, 8, and 10 of this act expire July 1, 2006.