HOUSE BILL REPORT

                  HB 1024

             As Reported By House Committee On:

                       Appropriations

Title:  An act relating to certain retirement system members with more than thirty years of service.

Brief Description:  Providing a retirement option for certain retirement system members.

Sponsors:  Representatives Carlson, H. Sommers, Alexander, D. Sommers, Lambert, Ogden, Conway, Wolfe, Bush, Kastama, G. Chandler, DeBolt, Carrell, Parlette, Talcott, K. Schmidt and Sump; by request of Joint Committee on Pension Policy.

Brief History:

  Committee Activity:

Appropriations:  2/9/99, 2/16/99 [DPS].

           Brief Summary of Substitute Bill

$Allows members of PERS and TRS Plan 1 with 30 years of service to make an irrevocable choice to have future member retirement contributions plus 7.5 percent interest returned to them at retirement.

$Members making such a choice will have their retirement benefit calculated using the service and compensation earned prior to the election.

HOUSE COMMITTEE ON APPROPRIATIONS

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  Signed by 26 members:  Representatives Huff, Republican Co-Chair; H. Sommers, Democratic Co-Chair; Alexander, Republican Vice Chair; Doumit, Democratic Vice Chair; D. Schmidt, Republican Vice Chair; Barlean; Benson; Cody; Crouse; Gombosky; Grant; Keiser; Kenney; Kessler; Lambert; Linville; Lisk; Mastin; McIntire; McMorris; Parlette; Rockefeller; Ruderman; Sullivan; Tokuda and Wensman.

Staff:  Denise Graham (786-7137).

Background:

  The maximum retirement allowance paid by the Public Employees' Retirement System Plan 1 (PERS 1) and Teachers' Retirement System Plan 1 (TRS 1) is generally 60 percent   of a retiree's average final compensation.  This limit is often referred to as the "30-    year cap"  because the 60 percent limit is reached after 30 years of service. 

  PERS 1 and TRS 1 require a 6 percent member contribution for all periods of service.   The member's accumulated contributions are credited quarterly with interest as        determined by the director of the Department of Retirement Systems (DRS) which is 5.5 percent.

  TRS 1 is the only state retirement plan that permits members to withdraw their       accumulated contributions at retirement and still receive a retirement allowance.  If    contributions are withdrawn, the retirement allowance is reduced to reflect the monthly   annuity that could be purchased with the withdrawn contributions.

  A TRS 1 member who works more than 30 years, receives little or no salary increases   after 30 years, and withdraws member accumulated contributions at retirement can     receive a smaller monthly retirement allowance than if the member had retired after just 30 years.  This is because the amount of the accumulated contributions continues to     grow each year, and the amount of annuity that can be purchased increases for every year the member delays retirement.  As a result, the monthly annuity that can be purchased with the contributions increases even if the retirement allowance does not because of the 30 year cap.  The member's retirement allowance is never reduced by working beyond 30   years if the member does not withdraw his or her accumulated contributions.

Summary of Substitute Bill:  Within six months after attaining 30 years of service, a TRS 1 or PERS 1 member may make an irrevocable option to have future employee contributions  returned to the member as a lump sum at retirement.  Interest is paid on the future contributions at 7.5 percent.  The member's retirement allowance is not reduced as a result of the withdrawal of the future contributions.  Employer contributions continue to be required for the periods of service after the member's election.

  If a member makes the irrevocable election, the member's retirement allowance will be calculated using only compensation earned prior to the election.  The one exception to   this limitation is that any eligible cash-outs of sick and annual leave at retirement will be included in the compensation used to calculate the retirement allowance. The total   compensation used for calculating the member's retirement allowance cannot be higher   than if the member had not selected the option created by the bill. Members who already have more than 30 years of service may participate in the election by notifying DRS in   writing no later than December 31, 1999.

Substitute Bill Compared to Original Bill:  In the original bill, the interest on member contributions after 30 years was to be determined by the director of DRS, which is generally 5.5 percent.  The substitute bill provides interest on such member contributions at 7.5 percent.

Appropriation:  None.

Fiscal Note:  Available.

Effective Date of Substitute Bill:  Ninety days after adjournment of session in which bill is passed.

Testimony For:  (Original bill)  This bill was meant to be cost neutral.  Teachers are capable of making the kind of choices offered by this bill.  The purpose of the bill is not to penalize those who want to work more than 30 years.

  (With concerns)  This bill benefits employees only if  they have no salary increases      after 30 years.  Employees making the choice after 30 years to receive their future     contributions at retirement could be hurt under the provisions of the bill if they receive a salary increase after 30 years.  Other options that are not cost neutral should be         considered. 

  Testimony Against:  (Original Bill)  None.

Testified:  (In support)  Representative Don Carlson, prime sponsor; and Bob Maier, Washington Education Association.

  (In support with concerns)  John Kvamme, Washington Association of School   

  Administrators and Association of Washington School Principals; and Lynn McKinnon,   Washington Public Employees' Association.