Law Enforcement Officers' and Firefighters' Retirement System Plan 1.
The Law Enforcement Officers' and Firefighters' Retirement System Plan 1 (LEOFF 1) provides defined retirement benefits to law enforcement officers and firefighters employed by the state, cities, counties, and special districts. The Legislature established LEOFF 1 in 1969 by merging various municipal police and firefighter pension systems, and transferring the members to the new state-sponsored system. In 1977 the original LEOFF 1 was closed to new members and subsequent employees became members of LEOFF 2.
The LEOFF 1 annuitants—retired and disabled members and survivor beneficiaries—receive an average annual benefit of $5,413, as of the 2023 Actuarial Valuation, and receive an uncapped cost-of-living-adjustment annually based on the Seattle Area Consumer Price Index (Seattle-CPI). About 40 percent of LEOFF 1 members receive disability benefits, which are 50 percent of final average salary, exempt from income tax, and fully indexed to Seattle-CPI. Retired and disabled LEOFF 1 members also receive coverage for all necessary medical services not payable from some other source.
Law Enforcement Officers' and Firefighters' Retirement System Plan 1 Funding.
The LEOFF 1 has been funded by a combination of contributions from the employers: contributions from local government employers, employees, and the state. About 80 percent of the contributions made to LEOFF 1 were provided from the State General Fund, with the other 20 percent being evenly divided between employers and employees.
In June of 2000, as a result of LEOFF 1 reaching a fully funded status, contributions to LEOFF 1 by the state, employers, and employees, were suspended.
As of the 2023 Actuarial Valuation, LEOFF 1 is 149 percent funded using an Actuarial Value of Assets, with approximately 6,154 annuitants, and seven active members. On a Market Value of Assets basis, at the beginning of the 2025-27 fiscal biennium, LEOFF 1 is expected to have a surplus of about $3.1 billion and be 176 percent funded; while at the end of the 2025-27 fiscal biennium, LEOFF 1 is expected to have a surplus of about $4 billion on a Market Value of Assets basis, representing a per-annuitant surplus of about $750,000.
Termination of Retirement Plans.
Federal rules that apply to governmental pension plans permit the termination of pension plans, which essentially means the settling of obligations of the pension plan. Pension plans may also be restated or recreated under a new legal framework under federal rules, and private sector plans are required to regularly restate pension plans in order to maintain compliance with the extensive regulatory framework that exists for plans subject to the Employee Retirement Income Security Act of 1974 (ERISA), the United States Department of Labor (USDOL), and Federal Internal Revenue Service (IRS) rules.
State governmental pension plans are not subject to ERISA, and most USDOL and many IRS rules also do not apply. Some federal rules do apply to state governmental retirement plans, and those rules must be followed in order for plan members to receive the favorable income tax treatment available for contributions and benefits from federal tax-qualified retirement plans.
Separate from tax-qualification concerns, state law provides statutory and constitutional protections for the benefits promised to pension plan members expressed in the line of pension case law referred to as the Bakenhus line, referring to the 1956 Washington Supreme Court decision Bakenhus v. City of Seattle, 48 Wn.2d 695.
The Law Enforcement Officers' and Firefighters' Retirement System Plan 1 (LEOFF 1) is terminated and the Restated Law Enforcement Officers' and Firefighters' Retirement System (Restated LEOFF) is created on June 30, 2029. The benefits paid to the annuitants of LEOFF 1 are unchanged as they are transferred to the Restated LEOFF.
On June 30, 2029, the State Treasurer (Treasurer) must transfer funds equal to 120 percent of LEOFF 1 liabilities into the Restated LEOFF, and the remainder will be transferred into the Pension Funding Stabilization Account (PFSA). During the 2027-29 fiscal biennium, the Legislature may direct the Treasurer to make transfers of money in the PFSA to the State General Fund.
Prior to the termination of LEOFF 1, members active on February 1, 2025, may choose to irrevocably enter annuitant status and have benefit payments commence. Those that do will have benefits calculated with an additional five years of service credit, and receive a onetime lump sum benefit of $25,000. Eligible active members must choose to enter annuitant status under this option by January 1, 2026.
The Department of Retirement Systems (DRS) is required to seek appropriate guidance from the Federal Internal Revenue Service (IRS) to ensure continuous compliance of LEOFF 1 and the Restated LEOFF. If the IRS formally determines changes are required, the DRS shall promptly inform the Governor and Legislature.
Extensive technical changes are made to remove sections and references to LEOFF 1 in the existing parts of the LEOFF chapter of the Revised Code of Washington (chapter 41.26 RCW), as that chapter also covers LEOFF 2. Repealed sections of LEOFF 1 are recreated in a new Restated LEOFF chapter without changes to benefits. Numerous sections of law that refer to LEOFF 1 are revised to reflect the creation of the Restated LEOFF.
A savings clause and a nonseverability clause are created.
The substitute bill made technical changes, including clarifying that the federal internal revenue process of restating Law Enforcement Officers' and Firefighters' Retirement System Plan 1 (LEOFF 1) occurs prior to the termination of the plan. The substitute bill also recognizes that the reversion of surplus assets to the state occurs only after actuarially sufficient assets have been transferred to the new plan, and that if required by the Federal Internal Revenue Service, any funds reverted back to LEOFF 1 must be reverted back with interest.
(In support) None.
(Opposed) This bill does not provide the state with any budget relief until 2029, and even then it is only onetime. The Senate proposal provides ongoing relief and a long-term benefit. About 100 old and vulnerable members of LEOFF 1 should be protected. LEOFF 1 would in reality be left underfunded by this plan, because the assumptions used to value the plan are too liberal. This bill overstates the funding levels and the amount that the state contributed to LEOFF 1. The funds came from the members that contributed to the plan. LEOFF 1 members accepted low pay in return for a generous retirement, so please leave the plan as it is now. Many retirees do not receive social security. Please sit down with the representatives of LEOFF 1 retirees and work with us to find a different solution.
(Other) Employers made about 11.5 percent of the contributions to the LEOFF 1 fund and have ongoing medical liabilities. Some of the surplus assets should be devoted to the retiree medical costs. This is a better option for police and fire retirees than the Senate proposal that diverts the LEOFF 1 fund to Cost-of-Living Adjustments in the Public Employees' and Teachers' Retirement System Plans 1. This bill should be amended to offer some improvements to both LEOFF 1 and LEOFF 2 retirees, as was done several years ago. Current firefighters believe that the 120 percent funding level is too low, and would prefer 125 percent. The longer timeline to work out legal and implementation issues is appreciated.
(Opposed) Michael Duchemin, Retired Firefighters of Washington; Peter Diedrick, Washington State School Retirees' Association; Joyce Willms, LEOFF1 Coalition; and Joyce Willms, Thurston County Council on Aging.
(Other) Candice Bock, Association of Washington Cities; Clair Olivers, Retired Public Employees Council of WA; David Maehren; Dennis Lawson, Washington State Council of Fire Fighters; Teresa Taylor, (WACOPS) Washington Council of Police and Sheriffs; and Patrick McElligott, Tacoma Professional Firefighters Local 31.