HOUSE BILL REPORT

HB 2644

BYRepresentatives Silver, Hine, Sayan, McLean, D. Sommers, H. Sommers, Peery and Spanel; by request of Joint Committee on Pension Policy

Revising provisions relating to retirement systems.

House Committe on Appropriations

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  (18)

      Signed by Representatives Silver, Ranking Republican Member; Youngsman, Assistant Ranking Republican Member; Appelwick, Brekke, Dorn, Doty, Ebersole, Ferguson, Hine, Inslee, McLean, Nealey, Padden, Peery, Spanel, Sprenkle, Wang and Wineberry.

House Staff:Randy Acker (786-7153)

AS REPORTED BY COMMITTEE ON APPROPRIATIONS FEBRUARY 1, 1990

BACKGROUND:

Four separate problem areas exist within the state retirement systems regarding accumulation of service credit and the availability of post retirement employment.

First, currently, members of the Teacher's Retirement System Plan II (TRS II) and members of the Public Employee's Retirement System (PERS) who work for educational institutions are eligible to receive 12 months of service credit upon completing nine months of creditable service, the approximate length of a school year.  A member receives one month of service credit if he or she works 90 hours or more during that month.  A problem arises because of the nature of school district work periods.  There are certain months, notably December, where the amount of school vacation makes it impossible for a member to work 90 hours.  Another cause of short months is inclement weather, exemplified by last winter's snow storms. Piecemeal legislation has been enacted to ensure that members will still receive service credit during months where days are missed due to vacation or inclement weather.  The resulting system is a patchwork of statutes and rules that are difficult and costly to administer.

Second, calculating service credit for substitute teachers is also a difficult and costly administrative task.  When a substitute teacher works a day, or several days, for a particular school district, the employer does not know whether the substitute will work 90 hours in, and therefore get service credit for, that month.  This means that the employer does not know whether to deduct contributions from the substitute's pay.  In response to this uncertainty, the school district withholds the member contribution from the substitute's pay and at the end of the month determines whether the member worked enough hours to earn service credit.  This inquiry does not stop with the district's own records.  The district must also ascertain whether the substitute worked enough hours at other school districts to obtain a total of 90 hours.  If, at the end of this process, the district determines that the substitute did not work 90 hours, the district must back out the member contributions it withheld from the substitute's pay and return those contributions to the substitute.  This process is repeated monthly for each substitute.

Third, temporary employees in eligible positions in PERS are currently exempted from membership for up to six months.  If the position lasts longer than six months the employee is made a member retroactively.  This means that upon entering his or her seventh month of employment an employee is responsible for making six months of back contributions.  At this time that amount of money is equal to approximately 4.7 percent of the employees gross pay from his or her first six months of work.  Another problem with the current temporary employee classification is in the post retirement area.  Situations have arisen where an employee has retired and then returned to his or her job as a "temporary."  The employee works up to the time when he or she would regain membership status and have his or her benefit suspended.  Just before that line is crossed the employee takes a few weeks off and then returns to work and starts the six month clock running over again.  This can go on indefinitely under the present system.

Finally, retirement benefits for retirees from the Judicial Retirement System (JRS), the Law Enforcement Officer's and Fire Fighter's Retirement System Plan II (LEOFF II), the Teacher's Retirement System Plan II (TRS II), and the Public Employee's Retirement System Plan II (PERS II), are suspended if the retiree works for a nonfederal public employer. This restriction prevents the state from utilizing a growing pool of older experienced workers.  Some parties are concerned, however, that allowing state retirees to work for the state and still receive their benefit will result in double dipping.

SUMMARY:

SUBSTITUTE BILL:  The calculation of service credit is changed from a monthly standard to a yearly standard.  A TRS II member or a PERS I or II member who works for an educational institution will receive a full years service credit if he or she works 810 hours in a 12 month period and is employed during nine of those months.  However, a member may not get service credit for any period prior to the time he or she became employed in an eligible position.  A savings clause in the bill ensures that no service credit accrued under the present system will be revoked.

Accumulation of service credit for substitute teachers becomes an option of the substitute. The substitute's employer(s) are required to notify the substitute quarterly of hours worked and compensation earned.  Then, at the end of the school year, the substitute determines whether he or she qualifies for service credit and, if so, decides whether to apply for it.  If the substitute opts for the service credit, he or she must make the requisite contribution.  The employer is not required to contribute until the Department of Retirement Systems receives the substitute's contribution.

The PERS temporary employee membership exclusion is limited to PERS I retirees.  Any person hired in an eligible position, either on a temporary or permanent basis, will be a member of the system and will have contributions withheld from his or her salary.  A PERS I retiree will be allowed to work in an eligible position on a temporary basis for up to five months in a calendar year.  If the retiree crosses that line his or her benefits will be suspended prospectively.

The plan II ban on post retirement employment with a nonfederal public employer is repealed.  JRS retirees and retirees from the plan II systems of LEOFF, TRS, and PERS, will be allowed to work for a nonfederal public employer so long as they do not enter an eligible position.  If the retiree does enter such a position, his or her benefits will be suspended.  When eligibility for service credit commences, eligibility to receive retirement benefits ceases.

The new service credit systems and post retirement employment provisions are not a right of the member and may be revoked or modified by the legislature.

SUBSTITUTE BILL COMPARED TO ORIGINAL:  Provisions are added to clarify that the new service credit systems and post retirement employment provisions are not a right of the member and may be revoked or modified by the legislature.  The appropriation is specified.  Technical corrections are made.

Appropriation:    $337,000 from the Retirement Systems Expense Fund.

Fiscal Note:      Requested January 5, 1990.

Effective Date:Sections 1 through 8 of the bill take effect on September 1, 1990.

House Committee ‑ Testified For:    Dick Randall, Public School Employees; and Donn Fountain, Washington Association of School Administrators.

House Committee - Testified Against:      No one.

House Committee - Testimony For:    Past efforts to deal with calculation of service credit have resulted in a patch work of solutions.  The service credit calculation approach specified in this bill represents a permanent fix to what has been a very difficult problem.

House Committee - Testimony Against:      None.