Washington State

House of Representatives

Office of Program Research

BILL

ANALYSIS

Ways & Means Committee

HB 1545

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

Background:

The Public Employees' Retirement System (PERS) provides retirement benefits to all regularly compensated employees and appointed and elected officials of included employers, unless they fall under a specific exemption. One of the categories of exemption from PERS coverage is for employees that are provided coverage by another state retirement plan such as the Teachers' Retirement System (TRS) or the Law Enforcement Officers' and Fire Fighters' Retirement System (LEOFF).

One retirement plan that exempts an employee from mandatory inclusion in the PERS system is called the Higher Education Retirement Plan (HERP). The higher education laws of Washington permit the governing bodies of the public institutions of higher education, including the boards of regents of the state universities, the boards of trustees of the regional universities, The Evergreen State College, and the State Board for Community and Technical Colleges to define certain employees of their institutions as eligible to participate in the HERP plans. Once positions have been defined as eligible for HERP, the employees are mandated into the HERP plan with the exception that employees with prior service in PERS are offered the choice to remain in PERS. Unlike the other state retirement systems which are described in detail in state law, each employing institution has somewhat more authority to offer particular plan features to employees with the HERP, including choice of investment options.

The HERP plan has two main components. The first is a defined contribution plan that generally provides individuals with an individual account with employer matching contributions. Generally, for employees under age 35, employers and employees each contribute 5 percent of salary to the defined contribution account, between ages 35 and 50, each contribute 7.5 percent of salary, and after age 50, each contribute 10 percent of salary.

The second is a defined benefit "supplemental plan" that provides members with additional benefits if a member's base benefit from the defined contribution account does not equal at least 50 percent of a members two-year average final compensation. To be eligible for the full supplemental defined benefit, a member must earn 25 years of service. Between 10 years and 25 years of service, a partial supplemental benefit is provided. In addition, the full supplement is available at age 65, and partial supplemental benefits are available at the federal Social Security early retirement age (62) on a reduced basis. The supplemental benefit is also available in cases of disability without reductions for age.

Among the most common benefit offering in the HERP plan is participation in the Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF) program, though other programs may be offered by institutions.

The Higher Education Coordinating Board (HECB) is a 10-member citizen board and state agency that administers the state's student financial aid program and provides planning and policy analysis for the higher education system in Washington, but is not a board governing the state's higher educational institutions, and so cannot offer employees participation in the HERP plans. The HECB employs about 85 employees that belong to the PERS system.