HOUSE BILL REPORT
HB 1322
BYRepresentatives 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
Majority Report: The substitute bill be substituted therefore and the substitute bill do pass. (22)
Signed by Representatives Locke, Chair; Grant, Vice Chair; H. Sommers, Vice Chair; Silver, Ranking Republican Member; Youngsman, Assistant Ranking Republican Member; Appelwick, Belcher, Bowman, Braddock, Brekke, Bristow, Dorn, Ebersole, Hine, May, Nealey, Peery, Rust, Sayan, Spanel, Valle and Wineberry.
House Staff:Randy Acker (786-7136)
AS REPORTED BY COMMITTEE ON APPROPRIATIONS FEBRUARY 24, 1989
BACKGROUND:
The Public Employees Retirement System, Plan I (PERS I) and the Teachers Retirement System, Plan I (TRS I) currently provide automatic cost of living adjustments (COLAs) for only 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 included a COLA identical to that provided in PERS II and TRS 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 and if inflation continues at present levels it will automatically increase on July 1, 1989 to $14.23 and on July 1, 1990 to $14.66, per month, per year of service.
For example: A TRS I or PERS I retiree with 30 years of service is currently guaranteed a minimum pension of approximately $415 per month and this amount will automatically increase to about $440 per month as of July 1, 1990, depending on inflation.
Research done by Joint Committee on Pension Policy 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 Joint Committee on Pension Policy (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 the findings included in the report were 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 on 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:
SUBSTITUTE BILL:
1) The minimum pension benefit is increased from $13.82 to $14.82 on July 1, 1989, in addition to the automatic COLAs already provided for July 1, 1989 and July 1, 1990.
2) Beginning July 1, 1989 a new automatic COLA is provided to retired members of PERS I and TRS I who do not qualify for the minimum benefit. The design of the new COLA is identical to the COLA provided in PERS II and TRS II except that it provides adjustments 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 when the retired member would have turned 65.
SUBSTITUTE BILL COMPARED TO ORIGINAL: Technical errors are corrected and an emergency clause is added.
Fiscal Note: Available.
Effective Date:The bill contains an emergency clause and takes effect July 1, 1989.
House Committee ‑ Testified For: Representative Lorraine Hine, Joint Committee on Pension Policy; Gus Schwartz, Retired Public Employees Council; Eloise Stendal and Harold Anderson, WA State Retired Teachers Association; Fred Mills, American Association of Retired Persons; Olaf Kvamme, WA Association of School Administrators; Karen Davis, WA Education Association; Mike Watson, WA State Retirement Systems Advisory Committee.
House Committee - Testified Against: None Presented.
House Committee - Testimony For: The Joint Committee on Pension Policy studied Cost of Living Adjustments for PERS I and TRS I retirees during 1987 and 1988. This bill provides a policy based COLA for these retirees. It is the result of extensive committee work and public input, and is strongly supported by retired public employees and teachers. These retirees greatly appreciate the work of the Joint Committee and strongly urge passage of this legislation.
House Committee - Testimony Against: None Presented.