HOUSE BILL REPORT

HB 1954

BYRepresentatives H. Sommers  and Peery

Modifying provisions relating to retirement benefits based on excess compensation.

House Committe on Ways & Means/Appropriations

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass. (22)

      Signed by Representatives Locke, Chair; Belcher, Braddock, Brekke, Bristow, Brough, Butterfield, Ebersole, Fuhrman, Grant, Grimm, Hine, Holland, McLean, Nealey, Peery, Silver, H. Sommers, Spanel, Sprenkle, Wang and B. Williams.

House Staff:      Randy Acker (786-7136)

AS REPORTED BY COMMITTEE ON WAYS & MEANS/APPROPRIATIONS

FEBRUARY 7, 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:

SUBSTITUTE BILL:  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, at the director's sole discretion, may find that payments are not excess compensation if the employer can demonstrate that they were not primarily for the purpose of increasing the employee's pension and that there were compelling management or educational reasons for the amended or supplemental contract.  The burden of proof rests with the employer.

SUBSTITUTE BILL COMPARED TO ORIGINAL:  The substitute bill addresses payments made to administrative personnel above the building management level, whereas the original bill addressed payments made to K-12 certificated instructional staff.  The substitute bill limits inclusion of payments as excess compensation to those made for newly assigned duties during the last two years before retirement. The director of the Department of Retirement Systems, is authorized to find, at the director's sole discretion, that payments are not excess compensation if certain conditions can be demonstrated by the employer.

Fiscal Note:      Requested February 2, 1988.

House Committee ‑ Testified For:    None Presented.

House Committee - Testified Against:      Karen Davis, Washington Education Association; Kris Van Gorkom, School Administrator's Association (PSHB 1954); Richard Stimson, Association of Washington School Principals (PSHB 1954).

House Committee - Testimony For:    None Presented.

House Committee - Testimony Against:      The abuses of supplemental contracts with regard to pension ballooning have not come from teachers.  This bill, which focuses on teachers, would not address the problem.

PSHB 1954:  Many administrators use contract amendments and supplemental contracts.  Under this bill supplemental contracts for coaching positions held by principals would be considered excess compensation.  This would create problems for districts where principals hold coaching positions.