HOUSE BILL ANALYSIS

                  HB 2745

Title:  An act relating to the Washington school employees' retirement system plan 2 and plan 3.

Brief Description:  Modifying the Washington school employees' retirement system plan 2 and 3.

Sponsors:  Representatives Lambert, H. Sommers, Alexander, Wolfe, Carlson, Doumit, Ogden, Conway, Delvin, Boldt, Anderson, Hurst, Lovick, Constantine, Haigh, Linville, Keiser, Edmonds, Stensen, Talcott, Scott, Wood, D. Sommers, Kagi, Morris, McDonald, Kenney, Rockefeller and Santos; by request of Joint Committee on Pension Policy.

Background: SERS 3 Transfer Payment.  The School Employees= Retirement System (SERS) Plan 2 and Plan 3 were created by legislation adopted in 1998 and will open to membership as of September 1, 2000.  All classified employees of school districts and educational service districts who are members of the Public Employees= Retirement System (PERS) Plan 2 will automatically be transferred to SERS 2, which has identical benefits to PERS 2.  All SERS 2 members will then have the opportunity to transfer to SERS 3.  New classified staff hired after September 1, 2000 are required to be members of SERS 3.

The legislation creating SERS 3 was proposed by the Joint Committee on Pension Policy (JCPP).  One of the principles followed in developing SERS 3 was that the creation of the new plan, and movement of members to SERS 3, should be cost neutral to the state.

Members of SERS 2 can make an irrevocable decision to join SERS 3 by transferring their service credit and contributions.  If a SERS 2 member elects to switch to SERS 3, the member=s accumulated contributions (which include employee contributions plus 5.5 percent interest) are transferred to an individual defined contribution account.  If a SERS 2 member chooses to transfer to SERS 3 before March 1, 2001, an additional payment of 65 percent of the member=s accumulated contributions as of January 1, 2000 will be deposited into the member=s defined contribution account.

The purpose of the additional transfer payment is to maintain the cost neutrality of the move of members from SERS 2 to SERS 3.  The Office of the State Actuary has determined that the appropriate transfer payment amount should be 130 percent of accumulated member contributions to meet that goal.

SERS 2 Contribution Rates.  Current law provides that the SERS 2 member contribution rate shall be set at the PERS 2 rate in effect on September 1, 2000, but shall never exceed the employer contribution rate for SERS 2 and 3.  On July 1, 1999, the PERS 2 member and employer rates were both reduced from 4.65 percent of pay to 1.85 percent of pay.

Eligibility for PEBB Retiree Health Insurance.  The retiree health insurance plans offered by the Public Employees= Benefits Board are available to school employees who retire from PERS or the Teachers= Retirement System (TRS).

Summary:  The transfer payment made to the defined contribution accounts of classified school employees who transfer from SERS Plan 2 to SERS Plan 3 before March 1, 2001, is increased from 65 percent to 130 percent.  The required contribution rate for members of SERS Plan 2 must equal the employer contribution rate for SERS Plan 2 and 3, with certain exceptions.  SERS 2 and SERS 3 retirees are eligible for coverage under health insurance plans offered by the public employees= benefits board.

Appropriation:  None.

Effective Date:  The bill takes effect on September 1, 2000.

Fiscal Note:  Received.