BILL REQ. #:  S-3124.1 

READ FIRST TIME 04/19/09.   

     AN ACT Relating to actuarial funding of pension systems; amending RCW 41.45.010, 41.45.035, 41.45.060, 41.45.070, 41.45.150, and 41.45.155; reenacting and amending RCW 41.45.0631; adding a new section to chapter 41.45 RCW; providing an effective date; and declaring an emergency.

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

Sec. 1   RCW 41.45.010 and 2005 c 370 s 4 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 firefighters' 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 firefighters' 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 firefighters' 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 firefighters' retirement system plan 1, not later than June 30, 2024;
     (3) To fully amortize the unfunded actuarial accrued liability in the public employees' retirement system plan 1 and the teachers' retirement system plan 1 within a rolling ten-year period, using methods and assumptions that balance needs for increased benefit security, decreased contribution rate volatility, and affordability of pension contribution rates;
     (4) To establish long-term employer contribution rates which will remain a relatively predictable proportion of the future state budgets; and
     (((4))) (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. 2   RCW 41.45.035 and 2004 c 93 s 2 are each amended to read as follows:
     (1) Beginning July 1, 2001, the following long-term economic assumptions shall be used by the state actuary for the purposes of RCW 41.45.030:
     (a) The growth in inflation assumption shall be 3.5 percent;
     (b) The growth in salaries assumption, exclusive of merit or longevity increases, shall be 4.5 percent;
     (c) The investment rate of return assumption shall be 8 percent; and
     (d) The growth in system membership assumption shall be 1.25 percent for the public employees' retirement system, the public safety employees' retirement system, the school employees' retirement system, and the law enforcement officers' and firefighters' retirement system. The assumption shall be .90 percent for the teachers' retirement system.
     (2) Beginning July 1, 2009, the growth in salaries assumption for the public employees' retirement system, the public safety employees' retirement system, the teachers' retirement system, the school employees' retirement system, plan 1 of the law enforcement officers' and firefighters' retirement system, and the Washington state patrol retirement system, exclusive of merit or longevity increases, shall be the sum of:
     (a) The growth in inflation assumption in subsection (1)(a) of this section; and
     (b) The productivity growth assumption of 0.5 percent.
     (3)(a) Beginning with actuarial studies done after July 1, 2003, changes to plan asset values that vary from the long-term investment rate of return assumption shall be recognized in the actuarial value of assets over a period that varies up to eight years depending on the magnitude of the deviation of each year's investment rate of return relative to the long-term rate of return assumption. Beginning with actuarial studies performed after July 1, 2004, the actuarial value of assets shall not be greater than one hundred thirty percent of the market value of assets as of the valuation date or less than seventy percent of the market value of assets as of the valuation date. Beginning April 1, 2004, the council, by affirmative vote of four councilmembers, may adopt changes to this asset value smoothing technique. Any changes adopted by the council shall be subject to revision by the legislature.
     (b) The state actuary shall periodically review the appropriateness of the asset smoothing method in this section and recommend changes to the ((legislature)) council as necessary. Any changes adopted by the council shall be subject to revision by the legislature.

Sec. 3   RCW 41.45.060 and 2007 c 280 s 2 are each amended to read as follows:
     (1) The state actuary shall provide preliminary actuarial valuation results based on 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.
     (2) Not later than July 31, 2008, 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 firefighters' 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; and
     (c) Basic employer contribution rates 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 council may adopt annual rate changes for any plan for any rate-setting period. 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 firefighters' 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; and
     (c) To fully fund the public employees' retirement system plan 1 and the teachers' retirement system plan 1 in accordance with RCW 41.45.070, 41.45.150, and this section.
     (4) The aggregate actuarial cost method shall be used to calculate a combined plan 2 and 3 ((employer contribution rate and)) normal cost, a Washington state patrol retirement system ((contribution rate)) normal cost, and a public safety employees' retirement system normal cost.
     (5) A modified entry age normal cost method, as set forth in this chapter, shall be used to calculate employer contributions to the public employees' retirement system plan 1 and the teachers' retirement system plan 1.
     (6) The employer contribution rate for the public employees' retirement system and the school employees' retirement system shall equal the sum of:
     (a) The amount required to pay the combined plan 2 and plan 3 normal cost for the system, subject to any minimum rates applied pursuant to RCW 41.45.155; plus
     (b) The amount required to amortize the unfunded actuarial accrued liability in plan 1 of the public employees' retirement system over a rolling ten-year period using projected future salary growth and growth in system membership, and subject to any minimum or maximum rates applied pursuant to RCW 41.45.150; plus
     (c) The amounts required to amortize the costs of any benefit improvements in plan 1 of the public employees' retirement system that become effective after June 30, 2009. The cost of each benefit improvement shall be amortized over a fixed ten-year period using projected future salary growth and growth in system membership. The amounts required under this subsection are not subject to, and are collected in addition to, any minimum or maximum rates applied pursuant to RCW 41.45.150.
     (7) The employer contribution rate for the public safety employees' retirement system shall equal the sum of:
     (a) The amount required to pay the normal cost for the system, subject to any minimum rates applied pursuant to RCW 41.45.155; plus
     (b) The amount required to amortize the unfunded actuarial accrued liability in plan 1 of the public employees' retirement system over a rolling ten-year period using projected future salary growth and growth in system membership, and subject to any minimum or maximum rates applied pursuant to RCW 41.45.150; plus
     (c) The amounts required to amortize the costs of any benefit improvements in plan 1 of the public employees' retirement system that become effective after June 30, 2009. The cost of each benefit improvement shall be amortized over a fixed ten-year period using projected future salary growth and growth in system membership. The amounts required under this subsection are not subject to, and are collected in addition to, any minimum or maximum rates applied pursuant to RCW 41.45.150.
     (8) The employer contribution rate for the teachers' retirement system shall equal the sum of:
     (a) The amount required to pay the combined plan 2 and plan 3 normal cost for the system, subject to any minimum rates applied pursuant to RCW 41.45.155; plus
     (b) The amount required to amortize the unfunded actuarial accrued liability in plan 1 of the teachers' retirement system over a rolling ten-year period using projected future salary growth and growth in system membership, and subject to any minimum or maximum rates applied pursuant to RCW 41.45.150; plus
     (c) The amounts required to amortize the costs of any benefit improvements in plan 1 of the teachers' retirement system that become effective after June 30, 2009. The cost of each benefit improvement shall be amortized over a fixed ten-year period using projected future salary growth and growth in system membership. The amounts required under this subsection are not subject to, and are collected in addition to, any minimum or maximum rates applied pursuant to RCW 41.45.150.
     (((5))) (9) 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))) (10) The director shall collect those rates adopted by the council. The rates established in RCW 41.45.062, or by the council, shall be subject to revision by the legislature.
     (((7))) (11) The state actuary shall prepare final actuarial valuation results based on the economic assumptions, asset value smoothing technique, and contribution rates included in or adopted under RCW 41.45.030, 41.45.035, and this section.

Sec. 4   RCW 41.45.070 and 2007 c 491 s 12 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), (7), and (9) 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 firefighters' 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 firefighters' 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 firefighters' 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) Beginning July 1, 2009, the supplemental rate charged under this section to fund benefit increases provided to active members of the public employees' retirement system plan 1((,)) and the teachers' retirement system plan 1((, and Washington state patrol retirement system,)) shall be calculated as the level percentage of all ((members')) system pay needed to fund the cost of the benefit ((not later than June 30, 2024)) over a fixed ten-year period, using projected future salary growth and growth in system membership. The supplemental rate to fund benefit increases provided to active members of the public employees' retirement system plan 1 shall be charged to all system employers in the public employees' retirement system, the school employees' retirement system, and the public safety employees' retirement system. The supplemental rate to fund benefit increases provided to active members of the teachers' retirement system plan 1 shall be charged to all system employers in the teachers' retirement system.
     (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, or the Washington state patrol retirement system 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, 41.45.0631, 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. Beginning July 1, 2009, the supplemental rate charged under this section to fund increases in the 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)) over a fixed ten-year period, using projected future salary growth and growth in system membership. The supplemental rate to fund increases in the automatic postretirement adjustments for active members or retired members of the public employees' retirement system plan 1 shall be charged to all system employers in the public employees' retirement system, the school employees' retirement system, and the public safety employees' retirement system. The supplemental rate to fund increases in automatic postretirement adjustments for active members or retired members of the teachers' retirement system plan 1 shall be charged to all system employers in the teachers' retirement system.
     (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) A supplemental rate shall not be charged to pay for the cost of additional benefits granted to members and survivors pursuant to chapter 94, Laws of 2006.
     (9) A supplemental rate shall not be charged to pay for the cost of the additional benefits granted to members of the teachers' retirement system and the school employees' retirement system plans 2 and 3 in sections 2, 4, 6, and 8, chapter 491, Laws of 2007 until September 1, 2008. A supplemental rate shall not be charged to pay for the cost of the additional benefits granted to members of the public employees' retirement system plans 2 and 3 under sections 9 and 10, chapter 491, Laws of 2007 until July 1, 2008.

Sec. 5   RCW 41.45.150 and 2006 c 365 s 2 are each amended to read as follows:
     (1) Beginning July 1, 2009, and ending June 30, 2015, maximum annual contribution rates are established for the portion of the employer contribution rate for the public employees' retirement system and the public safety employees' retirement system that is used for the sole purpose of amortizing that portion of the unfunded actuarial accrued liability in the public employees' retirement system plan 1 that excludes any amounts required to amortize plan 1 benefit improvements effective after June 30, 2009. The maximum rates are:

Sec. 6   RCW 41.45.155 and 2006 c 365 s 3 are each amended to read as follows:
     (1) Beginning July 1, ((2009)) 2011, a minimum contribution rate is established for the plans 2 and 3 normal cost as part of the basic ((state and)) employer contribution rate for the public employees' retirement system. The minimum contribution rate for the plans 2 and 3 employer normal cost shall equal the total contribution rate required to fund eighty percent of the plans 2 and 3 employer normal cost as calculated under the entry age normal cost method. This minimum rate, when applicable, shall be collected in addition to any contribution rate required to amortize past gain-sharing distributions in plan 3.
     (2) Beginning July 1, 2011, a minimum contribution rate is established for the plan 2 normal cost as part of the basic employer contribution rate for the public safety employees' retirement system. The minimum contribution rate for the plan 2 normal cost shall equal the total contribution rate required to fund eighty percent of the plan 2 normal cost as calculated under the entry age normal cost method.
     (3) Beginning September 1, ((2009)) 2011, a minimum contribution rate is established for the plans 2 and 3 normal cost as part of the basic ((state and)) employer contribution rate for the school employees' retirement system. The minimum contribution rate for the plans 2 and 3 employer normal cost shall equal the total contribution rate required to fund eighty percent of the plans 2 and 3 employer normal cost as calculated under the entry age normal cost method. This minimum rate, when applicable, shall be collected in addition to any contribution rate required to amortize past gain-sharing distributions in plan 3.
     (((3))) (4) Beginning September 1, ((2009)) 2011, a minimum contribution rate is established for the plans 2 and 3 normal cost as part of the basic ((state and)) employer contribution rate for the teachers' retirement system. The minimum contribution rate for the plans 2 and 3 employer normal cost shall equal the total contribution rate required to fund eighty percent of the plans 2 and 3 employer normal cost as calculated under the entry age normal cost method. This minimum rate, when applicable, shall be collected in addition to any contribution rate required to amortize past gain-sharing distributions in plan 3.
     (((4))) (5) Upon completion of each biennial actuarial valuation, the state actuary shall review the appropriateness of these minimum contribution rates and recommend to the ((legislature)) council any adjustments as may be needed due to material changes in benefits or actuarial assumptions, methods, or experience. Any changes adopted by the council shall be subject to revision by the legislature.

Sec. 7   RCW 41.45.0631 and 2007 c 300 s 1 and 2007 c 280 s 5 are each reenacted and amended to read as follows:
     (1) The allocation of costs between the employer and members of the Washington state patrol retirement system shall be made only after the application of any minimum total contribution rate that may be in effect for the system under subsection (4) of this section. For benefit improvements effective on or after July 1, 2007, costs shall be shared equally by members and the employer, and any cap on member contributions shall be adjusted accordingly. The member contribution rate shall be based on the adjusted total contribution rate described in subsection (2) of this section. Beginning July 1, 2007, the required member contribution rate for members of the Washington state patrol retirement system shall be the lesser of the following: (a) One-half of the adjusted total contribution rate for the system; or (b) seven percent, plus fifty percent of the contribution rate increase caused by any benefit improvements effective on or after July 1, 2007.
     (2) The employer shall continue to pay for all costs attributable to distributions under RCW 43.43.270(2) for survivors of members who became disabled under RCW 43.43.040(2) prior to July 1, 2006, until such costs are fully paid. In order to avoid charging members for these costs, the total required contribution rate shall be adjusted to exclude these costs. The result of the adjustment shall be the adjusted total contribution rate that is to be used to calculate the required member contribution rate.
     (3) The employer rate shall be the contribution rate required to cover all total system costs that are not covered by the member contribution rate.
     (4) Beginning July 1, 2009, a minimum total contribution rate is established for the Washington state patrol retirement system. The total Washington state patrol retirement system contribution rate ((as adopted by the pension funding council and subject to revision by the legislature)) may exceed, but may not drop below, the established minimum total contribution rate. From July 1, 2009, through June 30, 2011, the minimum total contribution rate shall equal the total contribution rate required to fund fifty percent of the Washington state patrol retirement system's normal cost as calculated under the entry age normal cost method. Beginning July 1, 2011, the minimum total contribution rate shall equal the total contribution rate required to fund seventy percent of the Washington state patrol retirement system's normal cost as calculated under the entry age normal cost method. This minimum rate, when applicable, shall be collected in addition to any contribution rate required to amortize any unfunded costs attributable to distributions under RCW 43.43.270(2) for survivors of members who became disabled under RCW 43.43.040(2) prior to July 1, 2006.
     (5) Upon completion of each biennial actuarial valuation, the state actuary shall review the appropriateness of this minimum total contribution rate and recommend to the ((legislature)) council any adjustments as may be needed. Any changes adopted by the council shall be subject to revision by the legislature.

NEW SECTION.  Sec. 8   A new section is added to chapter 41.45 RCW to read as follows, but because of its temporary nature is not codified:
     The legislature hereby revises the contribution rates adopted by the council at its July 22, 2008, meeting to exclude assumed improvements for projected mortality, and to implement the changes in RCW 41.45.010, 41.45.035, 41.45.060, 41.45.070, 41.45.150, 41.45.155, and 41.45.0631, resulting in the following required contribution rates:
     (1) Beginning July 1, 2009, and ending June 30, 2011, the required basic employer contribution rate for the public employees' retirement system shall be 5.25 percent, of which 1.25 percent shall be used for the sole purpose of amortizing the unfunded actuarial accrued liability in plan 1 of the public employees' retirement system.
     (2) Beginning July 1, 2009, and ending June 30, 2011, the required basic employer contribution rate for the public safety employees' retirement system shall be 7.80 percent, of which 1.25 percent shall be used for the sole purpose of amortizing the unfunded actuarial accrued liability in plan 1 of the public employees' retirement system.
     (3) Beginning September 1, 2009, and ending August 31, 2011, the required basic employer contribution rate for the teachers' retirement system shall be 6.17 percent, of which 2.04 percent shall be used for the sole purpose of amortizing the unfunded actuarial accrued liability in plan 1 of the teachers' retirement system.
     (4) Beginning September 1, 2009, and ending August 31, 2011, the required basic employer contribution rate for the school employees' retirement system shall be 5.39 percent, of which 1.25 percent shall be used for the sole purpose of amortizing the unfunded actuarial accrued liability in plan 1 of the public employees' retirement system.
     (5) Beginning July 1, 2009, and ending June 30, 2011, the required basic employer contribution rate for plan 1 of the law enforcement officers' and firefighters' retirement system shall be 0.00 percent.
     (6) Beginning July 1, 2009, and ending June 30, 2011, the required basic employer contribution rate for the Washington state patrol retirement system shall be 6.17 percent.
     (7) Beginning July 1, 2009, and ending June 30, 2011, the required plan 2 member contribution rate for the public employees' retirement system shall be 3.89 percent.
     (8) Beginning July 1, 2009, and ending June 30, 2011, the required plan 2 member contribution rate for the public safety employees' retirement system shall be 6.55 percent.
     (9) Beginning September 1, 2009, and ending August 31, 2011, the required plan 2 member contribution rate for the teachers' retirement system shall be 3.36 percent.
     (10) Beginning September 1, 2009, and ending August 31, 2011, the required plan 2 member contribution rate for the school employees' retirement system shall be 3.14 percent.
     (11) Beginning July 1, 2009, and ending June 30, 2011, the required member contribution rate for plan 1 of the law enforcement officers' and firefighters' retirement system shall be 0.00 percent.
     (12) Beginning July 1, 2009, and ending June 30, 2011, the required member contribution rate for the Washington state patrol retirement system shall be 4.85 percent.

NEW SECTION.  Sec. 9   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, 2009.