SENATE BILL REPORT

ESHB 1954

BYHouse Committee on Ways & Means/Appropriations (originally sponsored by Representatives H. Sommers and Peery)

Modifying provisions relating to retirement benefits based on excess compensation.

House Committe on Ways & Means/Appropriations

Senate Committee on Ways & Means

Senate Hearing Date(s):February 26, 1988; February 27, 1988

Majority Report:  Do pass.

      Signed by Senators McDonald, Chairman; Craswell, Vice Chairman; Bauer, Bluechel, Cantu, Deccio, Hayner, Johnson, Lee, Newhouse, Smith, Williams, Zimmerman.

Senate Staff:Charles Langen (786-7715)

                  February 28, 1988

AS REPORTED BY COMMITTEE ON WAYS & MEANS, FEBRUARY 27, 1988

BACKGROUND:

The benefit formula under Teachers Retirement System Plan I (TRS I) is 2 percent times average final compensation times years of service.  Average final compensation is based on the two highest years of compensation.  Significant increases in employee compensation during a two-year period can result in a substantial increase in the size of the employee's retirement benefit.  This is commonly referred to as "pension ballooning".  Salary increases, annual leave cashout, payments for personal expenses, and severance pay have contributed to ballooning.

In 1982, the Legislature sought to limit ballooning by limiting cashouts of annual leave.  The Supreme Court, however, held that the state could not prohibit such actions.  The only option available to the state was to bill employers for the extra cost imposed on the retirement system as a result of the payment.  Legislation was enacted in 1984 that defined excess compensation for the purpose of retirement benefit calculation and allowed the state to bill employers for the cost of granting that compensation.

In 1987, school districts were authorized to provide supplemental contracts for teachers for additional time, responsibilities, or incentives, with the intent that the costs be absorbed by local districts.  Also in 1987, state salary controls for school administrators were removed.  In certain cases, administrators may negotiate special contracts on an individual basis.  Since enactment of the 1987 legislation, there has been concern that supplemental contracts for teachers and administrators may create an opportunity for pension ballooning.

SUMMARY:

Excess compensation includes payments to school district chief executive officers, chief administrative officers, or confidential employees made under contract amendment, or under supplemental contract which involved newly assigned responsibilities during the last two years before retirement.  The director of the Department of Retirement Systems may find that payments are not excess compensation if the employer can demonstrate that there were compelling management or educational reasons for the amended or supplemental contract.  The burden of proof rests with the employer.

Appropriation:    none

Revenue:    none

Fiscal Note:      available

Senate Committee - Testified: Dr. Robert Hollister, Director, Department of Retirement Systems; Kris Van Gorkom, School Administrators' Association