The Law Enforcement Officers' and Fire Fighters' Retirement System Plan 2 (LEOFF 2) provides retirement benefits to full-time, fully-compensated law enforcement officers and firefighters employed by the state, cities, counties, and special districts, who were first employed in an eligible position on or after October 1, 1977.
The basic retirement allowance for LEOFF 2 retirees is equal to 2 percent of the member's average final compensation, calculated on the member's highest consecutive five years of compensation, multiplied by the members years of service. Retirement benefits are available to members at a normal retirement age of 53. Members with at least 20 years of service may take a reduced early retirement benefit beginning at age 50. Early retirement benefits are reduced by up to 3 percent per year before the retiree reaches age 53.
LEOFF 2 benefits are funded by contributions from members, employers, and the state, as well as by investment earnings. Contribution rates are set biennially by the LEOFF 2 Board and are allocated as follows: 50 percent is paid by members, 30 percent is paid by employers, and the remaining 20 percent is paid by the state. Contribution rates established by the LEOFF 2 Board are subject to revision by the Legislature. In addition to setting contribution rates, the LEOFF 2 Board also studies issues related to plan funding and benefits and makes recommendations to the Legislature.
The LEOFF 2 Local Benefits Improvement Account (LEOFF 2 BIA) was created by the Legislature in 2008 as a distinct part of the LEOFF 2 Retirement Fund. Funds in the Benefits Improvement Account are not included in the calculation of contribution rates and may only be used to fund LEOFF 2 benefit improvements. Since the creation of this account there have been two transfers into the account. The first, during the 2013-15 fiscal biennium, $15.8 million was transferred from the LEOFF 2 Retirement Fund to the Benefits Improvement Account. The second transfer, on July 1, 2019, was $300 million transferred from the LEOFF 2 Retirement Fund to the Benefits Improvement Account.
The Public Employees’ Retirement System, the Public Safety Employees’ Retirement System, the School Employees’ Retirement System, and the Teachers’ Retirement Systems Plans 2 and 3 have minimum contribution rates in statute. These minimum rates are 80 percent of the employer normal cost of the plans, calculated under the entry age normal cost method. The minimum rates are reviewed by the State Actuary after each biennial actuarial valuation, and the Actuary may recommend changes to be considered for adoption by the Pension Funding Council (PFC). Any changes by the PFC are subject to revision by the Legislature.
LEOFF 2 members and beneficiaries who are retired on or before February 1, 2021, will receive a one-time lump sum benefit equal to $100 per service credit month. Members and beneficiaries of a member who retired with a line-of-duty disability will receive the greater of a one-time lump sum benefit equal to $100 per service credit month or $20,000. Retirees, or their beneficiaries, receiving a one-time lump sum payment may use the funds to purchase an optional actuarially equivalent life annuity benefit.
Retirement benefits for members entering active service after February 1, 2021, will be based on an increased benefit multiplier of 2.5 percent per years of service after 15 years and up to 25 years. Members that are active on or before February 1, 2021, may choose between the one-time lump sum payment or the increased benefit multiplier.
Minimum contribution rates are established in statute for LEOFF 2. The minimum rate is 90 percent of the normal cost calculated using the entry age normal cost method when the plan's funded status is equal to or greater than 105 percent. If the funded status is below 105 percent, the minimum rate is equal to 100 percent of the normal cost calculated using the entry age normal cost method.
The minimum rates for LEOFF 2 may not be revised by the Pension Funding Council and are not subject to review by the Legislature.
On June 30, 2022, the Washington State Investment Board must transfer the difference between the cost of benefits in the bill and the value of the funds in the LEOFF 2 BIA from the LEOFF 2 Retirement Fund into the LEOFF 2 BIA. On July 31, 2022, the total available balance of the LEOFF 2 BIA must be transferred to the LEOFF 2 Retirement Fund.
To ensure that the funds transferred from the LEOFF 2 Local Benefits Improvement Account are sufficient to pay the full cost of the benefit improvements in the bill, the State Actuary must calculate the rate reduction to be applied to the new minimum rates in time for it to go into effect on June 1, 2025.