FINAL BILL REPORT

SHB 1322

                                  C 272 L 89

BYHouse Committee on Appropriations (originally sponsored by Representatives Hine, Silver, Sayan, McLean, Patrick, D. Sommers, H. Sommers, Bristow, Bowman, Moyer, Day, Peery, Wineberry, Winsley, Fuhrman, Schoon, Holland, Rayburn, Belcher, Braddock, Jesernig, Kremen, Chandler, Brough, Valle, G. Fisher, Betrozoff, R. Fisher, Fraser, Basich, Locke, Haugen, Youngsman, Wolfe, May, R. King, P. King, Pruitt, Hankins, Brekke, Appelwick, H. Myers, Miller, Rasmussen, Ebersole, Jacobsen, Doty, Spanel, Brumsickle, Van Luven, Tate, Wood and Horn;by request of Joint Committee on Pension Policy)

Authorizing cost-of-living adjustments for members of retirement systems.

House Committe on Appropriations

Senate Committee on Ways & Means

SYNOPSIS AS ENACTED

BACKGROUND:

The Public Employees' Retirement System, Plan I (PERS I) and the Teachers' Retirement System, Plan I (TRS I) provide automatic cost of living adjustments (COLAs) for two groups:

1)  Retirees who receive the minimum pension benefit; and

2)  Retirees who elected at the time of retirement to receive an actuarially reduced allowance, which includes a COLA identical to that provided in PERS Plan II and TRS Plan II.  This COLA option was first provided to retirees beginning in 1987.

PERS II and TRS II provide an automatic COLA to all retirees. The COLA is based on increases in the Consumer Price Index (CPI), with a maximum annual increase of 3 percent.

A.  Plan I Benefits vs. Plan II Benefits

Members of PERS II and TRS II who retire with 30 or fewer years of service generally receive smaller initial retirement allowances than PERS I and TRS I members who retire under identical salary histories.  PERS II and TRS II members also must wait until age 65 to be eligible for unreduced benefits.  By comparison, PERS I and TRS I members may retire at any age with 30 years of service, at age 55 with 25 years of service, or at age 60 with 5 years of service.  It costs almost twice as much to provide the same pension benefit to a retiree beginning at age 55 as compared to age 65.

B.  PERS I / TRS I Minimum Benefit

The PERS I and TRS I pension benefits were both increased several times between 1979 and 1987.  The 1987 legislation increased minimums from $13.00 to $13.50 per month for each year of service.  This legislation also provided for future automatic annual adjustments of the minimum, subject to a maximum annual increase of 3 percent.  On July 1, 1988 this automatic COLA raised the minimum to $13.82.

Research done by Joint Committee on Pension Policy (JCPP) staff indicates that most PERS I and TRS I retirees with 30 or more years of service receive between $950 and $1,050 in combined monthly income from the current minimum benefit, social security, and their annuity. Approximately 29 percent of all TRS I retirees (6,025 of 21,000) and 32 percent of all PERS I retirees (13,950 of 43,700) currently receive the minimum pension benefit; most of these persons retired prior to 1973 under less generous benefit formulas than those used by current retirees.

C.  Joint Committee on Pension Policy:  1989 COLA Report

The JCPP was created in 1987. From 1987 through 1988 the JCPP reviewed the issue of COLAs in PERS I and TRS I and in 1989 issued a report:  Plan I COLA Policy in Washington State.  Among its findings, the JCPP concluded that:

1)  The initial benefits provided to PERS I and TRS I retirees were among the most generous in the country, especially when social security benefits are included;

2)  PERS I and TRS I retirees who are not receiving the minimum benefit receive fewer COLAs than retired public employees and teachers in most other states;

3)  The initial combined benefits (retirement and social security) paid to most career employees who retire at age 65 can exceed their pre-retirement take home pay;

4)  According to research done by the 1980 President's Commission on Pension Policy, the income provided by 60 percent of a career employee's PERS I and TRS I benefits, when combined with typical social security benefits, should be sufficient to maintain the standard of living that the employees enjoyed prior to retirement; and

5)  As of December 1987, persons who retired from TRS I between 1973 and 1978, and from PERS I between 1972 and 1976, retained less than 60 percent of the purchasing power of their initial retirement benefit.

SUMMARY:

The minimum pension benefit for retired members of the Public Employee's Retirement System, Plan I (PERS I) and the Teachers' Retirement System Plan I (TRS I) is increased from $13.82 to $14.82 on July 1, 1989.  This is in addition to the automatic cost-of-living adjustments (COLAs) already provided.

Beginning July 1, 1989 a new automatic COLA is provided to PERS I and TRS I retirees who do not qualify for the minimum benefit.  The COLA provides an annual automatic adjustment based on increases in the Consumer Price Index, with a maximum annual income of 3 percent.  Under this COLA adjustments are provided only for those retirees who retain 60 percent or less of the purchasing power of the benefit they received at age 65.

Beneficiaries of persons who die prior to age 65 shall be eligible for the COLA based on the date on which the retired member would have turned 65.

VOTES ON FINAL PASSAGE:

      House 95   0

      Senate    46     0

EFFECTIVE:May 8, 1989