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On Monday, the Washington State Senate passed Substitute Senate Bill 5085, which merges three closed retirement systems and permanently increases cost-of-living increases for retired state workers.
According to a bill summary, it “merges the assets, liabilities, and membership of Law Enforcement Officers' and Firefighters' Retirement System Plan 1, Public Employees' Retirement System Plan 1 (PERS Plan 1), and the Teachers' Retirement System Plan 1 (TRS Plan 1) retirement systems into the new Legacy Retirement System.”
It also “Creates an annual cost of living adjustment to the retirement benefits of retirees in the PERS Plan 1 and TRS Plan 1, of up to 3 percent” and “Eliminates the remaining unfunded actuarial accrued liability and benefit improvement rates.”
In June 2000, LEOFF-1 reached a fully funded status, and contributions by the state, employers and employees were suspended.
“LEOFF Plan 1 is 149% funded with surplus assets of just over $2 billion,” according to the bill summary.
SSB 5085 merges LEOFF-1 with the TERS-1 and FERS-1 pension systems, using the surplus assets to ensure that all members receive benefits at least equal to their original plans and an ongoing COLA adjustment.
“Our pensions are healthy, and this bill uses the health of our pensions to accomplish a few major goals,” Sen. June Robinson, D-Everett, the bill’s sponsor, said from the floor of the Senate. “This bill will provide a permanent COLA, a cost of living adjustment for members of PERS-1 and TERS-1, public servants who were teachers and public employees, most of whom are now retired and do not have a permanent COLA. This bill will make that happen.”
She went on to say, “This bill will also immediately buy down unfunded liability for the state, local governments and school districts.”
The bill summary states the unfunded liability as of 2023 for “PERS Plan 1 is 80 percent funded with a $2.1 billion unfunded liability with approximately 39,306 annuitants and 506 active members. TRS Plan 1 is 86 percent funded with a $1.1 billion unfunded liability with approximately 28,556 annuitants and 81 active members.”
Sen. John Braun, R-Centralia, spoke in opposition to the bill.
“There have been dozens of proposals over the last 15, maybe 20 years,” he said. “We’ve looked at the surplus in the LEOFF-1 pension and thought all the things we could do with that surplus.”
Braun suggested there are many proposals Republicans could get behind, but said he sees problems with SB 5085.
“We have a significant surplus in the LEOFF-1 system in large part because the state overinvested in the 90s. The net is we have this big surplus,” he explained. “With this bill, we would decide to take that surplus through a merger and pay for a permanent long-term COLA for PERS-1 and TERS-1. We should understand what this is. That’s a multi-billion-dollar decision to spend money in a year when we have a significant budget deficit.”
Democrats have largely settled on a projected operating budget shortfall of $12 billion over the next four years. Republicans point to information from non-partisan legislative staff members that the shortfall is expected to be $6.7 billion.
Braun said a commitment to new spending is a bad idea with the state facing a shortfall.
“I just think that’s fundamentally wrong,” he said. “This is not the time to add new spending.”
Majority Leader Sen. Jamie Pedersen, D-Seattle, spoke in support of the bill just ahead of the final vote, noting that the measure seeks to put the state in new territory regarding public pension funding.
“Putting us for what I think is the first time in our state’s history in a position where every one of our public pension systems is fully funded,” he said. “This is an absolutely remarkable step forward for our state.”
The bill passed on a 28-21 vote, with two Democrats – Sen. Marko Liias, D-Edmonds, and Sen. John Lovick, D-Mill Creek – joining Republicans in voting against the bill.
SSB 5085 now moves to the House of Representatives for consideration.