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Bills aim to improve pension plans
TWO MAJOR BILLS that are being followed closely by Council 2 this legislative session are aimed at restructuring the pension plans under which many Council 2 members fall.
The bills, HB 1324 and SB 5246, would reorganize PERS Plans II and III and would increase cost-of-living-allowance benefits for Plan I.
Here are some of the changes that the measures now propose:
- Inclusion of guaranteed benefits
The measure would remove a provision for “gain sharing” that was included in Plan iii several years ago. That provision enabled employees and employers to share in any extraordinary gains in the stock market. It stipulated that, should the market gain more than 10 percent a year for four consecutive years, the State would split any gains above 10 percent with employees.
In the wake of the impact on the fund of the market crash in 2000, the lowest interest rates in 40 years, and a weak economy, the new State Actuary decided that skimming off the top in good years failed to leave extra money that would be available during lean years. Instead, the Actuary proposed that gain sharing should be pre-funded, a move that would cost employers $340 million.
Before he left office, former Gov. Gary Locke proposed eliminating the benefit by not funding it, giving employees nothing in return.
The measure was recently debated by the Select Committee on Pension Policy, a 20-member board made up of legislators, department heads, and representatives of employers and employees. Council 2 Deputy Director Pat Thompson is a member of the committee.
The committee came up with a compromise package that trades off an uncertain benefit for a list of guaranteed benefits that Council 2 has sought for several years.
- A modified rule of 90 for PERS II and III
Effective July 1, 2007 employees aged 60 with 30 years service would be able to retire with no cuts in benefits. This measure would effectively eliminate the current 65 years minimum retirement age under pers II for anyone hired after July 1, 2007 and would allow current employees to gain credit under the new system as long as they are under it.
- An increase in the COLA for Plan I
The COLA would rise from $1.25 to $1.45 for each year of service and would establish a $1,000 minimum benefit for employees who have been retired 25 years and who have at least 20 years service. The minimum benefit rises 3 percent a year.
The costs of funding PERS II and III would be split equally between the employees and the employers. Over the years, against Council 2’s advice, the State has artificially lowered the rates to balance its budget. Now the rates will increase, but probably will not go beyond the historical levels. These bills will increase rates more gradually but will set a floor of 4 percent so the system will not be under-funded in the future.
Employee rates for 2005-06 would be 1.93 percent for PERS II and employer rates would be 2.9 percent because the employers pay for the unfunded liability of Plan I and administration costs.
“The best thing about HB 1324 and SB 5246 is that they actually save the state and local governments lots of money — $458.6 million over the first two years alone,” says Thompson. “These bills also eliminate provisions that would have forced new school employees into SERS III and give them the same choice new pers employees have.”
Thompson asked Council 2 members to call or email their legislators and tell them to approve the measures.
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