Washington public pensions

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Washington public pensions include the state-run system Washington Public Employees’ Retirement System (PERS).^[1] The PERS has assets of $63.3 billion.

Washington has 155,147 total public employees as of 2010.^[2] In Fiscal Year 2010, the state has a total of 293,089 active and inactive pension fund members, with 131,554 receiving periodic benefit payments. ^[3]

Washington currently has 10 open pension programs that are funded at a rate of 118 percent of future liabilities. However, two programs that were closed in 1977 - PERS1, which covers state and local public employees, and TRS1, which covers teachers - have been underfunded several times in the past 30 years, and are now only funded at 72 percent of future liabilities.^[4] Those two plans are deemed "at risk." Other state plans, including those that cover people working now, are funded at above 100 percent but the Office of the State Actuary warns the bad economy will put pressure on those plans, too. ^[5]

In 1995, lawmakers approved automatic annual benefit increases for members of those closed pension funds. While they were billed as a hedge against inflation, the increases weren’t linked to inflation, which has been low for the past decade. ^[6]

According to the United States Census Bureau, the state has 20 locally-administered pension systems.^[7]

Public pension plans

Only two of the state's pension plans have any unfunded liabilities.^[8]

Gregoire's pension cuts

Governor Chris Gregoire wanted to cut certain pension benefits and save the state $11 billion in 2010 over the following 25 years.^[9] The changes include cutting pay increases for Plan 1 members and increasing the retirement age for new members.^[9] Part of the governor's plan includes repealing the 1995 law.

Highlights of Gregoire's proposals were: ^[10]

• Ending automatic benefit increases provided to members of closed pension plans by 1995 legislation;
• Discontinuing incentives to retire earlier than age 65 for new hires;
• Placing restrictions on higher-education retirees to prevent people from drawing full-time retirement benefits as well as a salary; and
• Proposing a state constitutional amendment to require that annual contributions to state-sponsored defined benefit plans are at least 80 percent of the actuarially required amount, and setting floors for employer contributions to state employees’ and teachers’ plans.

The governor's proposals went to the House Rules Committee, controlled by members of her own party, and never came out. ^[11]

When Gregoire leaves office her annual pension, after 40 years of public service, will be larger than her salary as governor. Gregoire’s pension was calculated last July by the Washington State Department of Retirement System at $169,248 annually. Her salary as governor is $166,899. Under the Public Employees’ Retirement System (PERS) Plan 1, Gregoire will receive a monthly check totaling $14,104, which includes $8,377 for her elected service and $5,724 for her non-elected positions. ^[12]

Other proposed pension reforms

According to an Associated Press report, Washington retirees 66 and older who worked for 35 years, saw an extra $790 in their pension checks in 2010 even though the cost of living did not go up. The News-Tribune reports ending those cost-of-living increases would save the state an estimated $415 million.^[4] Democratic Gov. Chris Gregoire is pushing to end the cost-of-living increases, and the bill she introduced this month is backed by Democrats, including House budget Chairman Ross Hunter and Vice Chairwoman Jeannie Darneille. ^[4]

To prevent the state from failing to meet its required annual pension payments in 2011, Washington lawmakers want to amend the state Constitution to guarantee yearly contributions. While Washington a financially secure pension systems in the country, two retirement plans for state employees and teachers have an unfunded liability of about $6.9 billion. ^[4] The proposed amendment would ensure funding for those open pension plans by requiring the state pay at least 80 percent of the state actuary's recommended contribution rate every year

Senate Republicans proposed a plan to skip a $133 million pension payment toward funding older, closed pension plans for teachers and state workers as a way to help balance the state budget. ^[13]

Contribution rates

The state contributes 5.31% of the employee's salary.^[14]

Funding levels

The state's pension liabilities can be calculated in a variety of ways, which yield different numbers. Below are the numbers as calculated by to the Pew Center on the States,^[15] the American Enterprise Institute^[16] and Professors Robert Novy-Marx of the University of Chicago and Joshua Rauh of Northwestern University, Kellogg Graduate School of Management.^[17]

Other information from the Pew Center on the States Feb. 2010 publication "The Trillion Dollar Gap":

This data is based on projected data from 2008 census data.^[18] In 2008, $1.94 trillion was set aside for pensions, but it is estimated that states have $5.17 trillion in unfunded liabilities.

Research conducted by State Budget Solutions shows the extent to which the state has funded or underfunded its Annual Required Contribution:^[19]

Private equity investments

Washington was among the first public pension to invest in private equity, doing so in 1982. In 2010, 26 percent of Washington’s assets were in private-equity. A placement of $25 million in Menlo Ventures VII, a 1997 Silicon Valley venture capital fund that invested in early Internet companies, was valued at $117.5 million as of Dec. 31, 2010, for a 135.6 percent return, according to fund records.^[20]

Rate of Return

Washington presumes a 8.00% return rate on its pension investments.^[15] In Oct. 2011, however, the Pension Funding Council unanimously agreed to lower its assumption of future earnings on pension investments from 8 percent to 7.9 percent in 2013-15. State actuary Matt Smith recommended a 7.5 percent rate to guide earnings over the next 50 years.^[21]

From 2001 through 2010, the state's rate of return on pension investments was 3.92%.^[20]

Litigation

An October 2011 lawsuit, Washington Federation of State Employees v. State of Washington & Governor Christine Gregoire, challenged whether the legislature violated constitutional rights of equal protection and freedom from contract impairment when it ended automatic COLA raises for retirees in two of the Washington’s older pension plans in HB 2021. The bill also raised the minimum benefit for older retirees, if they meet certain service and years requirements. The lawsuit is pending in Superior Court of Washington for Thurston County.

In 1972, the Washington State Supreme Court found that the Governor violated the Contracts Clause of the Constitution when he tried to withhold government contributions to the retirement system.

Retiree health care

A health benefit provided to retired government workers and K-12 employees in Washington state could cost an estimated $6.9 billion over the lives of those who are eligible to receive it, according to a new report by the Pew Center for the States.The benefit provides retirees with subsidies for their health care. Retirees can receive two types of benefits. Retired workers eligible for Medicare, generally those 65 or older, currently receive up to $150 a month to help defray the cost of their health-care premiums. The state Health Care Authority estimates more than half of the cost goes toward coverage of prescription drugs. In the current two-year budget, the state is paying around $120 million a year for the benefit. However, the funding comes from a mix of accounts and is partially offset by federal dollars. ^[22]

Local public pensions

Main article: Local government public pensions

According to the United States Census Bureau, the state has 20 locally-administered pension systems.^[7]

Pension Investigations

An Associated Press investigation into Washington public pensions found: ^[23]

• The average first responder retiring into the so-called LEOFF-1 pension system had a pay rate in their final three months of work that was 5.5 percent higher than the same year-before period.
• Local officials seeking to cut their budgets approved late pay increases to incentivize retirements.
• Firefighters and law enforcement officers were able to reshape the value of their retirement plans, under provisions that are unavailable to teachers, judges, newly hired first responders or any other government worker in Washington.

Transparency

Main articles: Public pension disclosure and Governmental Accounting Standards Board

Data availability

Information on the Washington State Department of Retirement Systems website includes COLA rates, information on pending and passed legislation, investments and annual financial reports. ^[24]

Names of recipients and payments to the pensioners are not posted.

Fund performance data

The Washington State Investment Board posts information on fund performance, including investment performance and market allocation. ^[25] The state also publishes an annual fund snapshot that includes investment information and performance.^[26]

Rate of return

The assumed rate of return is not posted on the state website, but is included in annual financial reports. ^[27]

Unfunded liabilities

Unfunded liabilities are not posted on the DRS website, but are included in the annual financial report as well as the annual financial snapshot.^[26]

Oversight

An Internet search comes up empty regarding pay-to-play scandals in Washington public pensions.

The Washington State Investment Board oversees pension investments and the DRS oversees the pension administration.

See also

• Washington state budget
• Washington state government salary

External links

• Washington Public Employees’ Retirement System
• Public Pensions in Washington State: Ensuring economic security for retirees, May 2011
• Washington State Pension Fund Management - State Integrity Investigation

References

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