SENATE BILL REPORT

HB 1067

BYRepresentatives Unsoeld, Belcher, Jacobsen, Lux and H. Sommers 

Revising actuarially equivalent options for public retirement allowances.

House Committe on Ways & Means/Appropriations

Senate Committee on Ways & Means

Majority Report:  Do pass.

      Signed by Senators McDermott, Chairman; Gaspard, Vice Chairman; Bauer, Cantu, Craswell, Fleming, Hayner, Kreidler, McDonald, Moore, Owen, Rasmussen, Rinehart, Talmadge, Vognild, Williams, Wojahn, Zimmerman.

Senate Staff:Chuck Langen (786-7715)

                  March 27, 1987

AS REPORTED BY COMMITTEE ON WAYS & MEANS, MARCH 26, 1987

BACKGROUND:

A member of the Public Employees' Retirement System Plan I (PERS I) and Teachers' Retirement System Plan I (TRS I) is eligible to receive a service retirement allowance equal to 2 percent of his or her average final compensation times the number of years of service. Average final compensation is figured over the two highest consecutive years of employment.  Members eligible for retirement select the manner in which their retirement benefit is to be paid from three options which are calculated so as to be actuarially equivalent to each other:

Option 1. The member receives his or her full retirement allowance until death.  If he or she dies before the retirement allowance payments equal the amount of the member's accumulated contributions, then the balance is paid to the person designated by the member.

Option 2. The member receives a reduced retirement allowance, which upon his or her death is continued throughout the life of, and is paid to, the person designated by the member.

Option 3. The member receives a reduced retirement allowance, which upon his or her death is reduced by one half and continued throughout the life of, and paid to, the person designated by the member.

PERS I and TRS I do not provide cost-of-living adjustments (COLAs).  PERS II and TRS II provide an automatic COLA tied to the consumer price index (maximum annual increase of 3 percent).

A 1984 nationwide study of teachers retirement benefits ranked TRS I fifth in the U.S. on the basis of initial benefits. Another study showed that the benefit formula for PERS is more generous than the benefit formula for public employees in 31 states. Only two state had benefit formulas more generous than that of PERS.

SUMMARY:

A fourth option is added to the manner in which retirement benefits can be paid to eligible members of Public Employees' Retirement System Plan I (PERS I) and Teachers' Retirement System Plan I (TRS I). Under this option members may add an annual cost-of-living adjustment (COLA) to the retirement allowance provided by any of the three current options. The COLA, indexed to the Consumer Price Index (Seattle) may not exceed 3 percent.  The cost of the COLA is offset by making an actuarial reduction in the amount of the member's retirement allowance.

Fiscal Note:      requested

Senate Committee - Testified: Jerry Allard, Acting State Actuary