Gain-sharing lawsuit threatens Early Retirement Factors (ERFs)

by Council 2 Deputy Director Pat Thompson on August 12, 2013

The final step in the year’s long battle over the repeal of gain-sharing will begin on October 24 when the Supreme Court hears oral arguments. To recap, gain-sharing was a provision (gimmick) in Plan 3 that called for all returns “gains” over 10% in a four-year period to be split between Plan 3 members and the employer. Example: If the State Investment Board average rate of return for a 4 year period was 12%, Plan 3 employees would receive a 1% one-time payment and so would their employer.

            Once the state hired a real actuary, it was determined that not only is this a bad idea, it will also cost the entire system billions of dollars because it would have to be pre-funded. In other words, the state would have to siphon money off the top even in bad times to pay out money in good times.
Your union lobbied hard to create a more stable benefit and retirement system that didn’t include gain-sharing but did include dramatically lowering the penalty for retiring with 30 years of service.
(See archived report for details)
            Although we were very pleased with the change that benefited our members, Council 28 (State Employees) and the Washington Education Association (Teachers) sued the State to reinstate Gain-sharing.  The lower Superior Court has ruled that: 
  1. The State must restore gain-sharing.
  2. The State can repeal the ERF improvements.
Both lower court decisions were appealed. So, now the Supreme Court will (may) have the final say.  The ERFs have been in place since 2008 so anyone who has retired or will retire before the court’s decision will not be affected. It’s anyone’s guess what the court may rule or how long it will take them to make a decision. This puts people who plan on retiring with 30 years in the next several months in a dilemma — wait and risk a bad decision or get out now while the getting’s good. The Department of Retirement Systems can help calculate what’s at risk but only individuals can decide what’s best for them.
We have been monitoring this issue since it began and will keep you posted as details become available.  Don’t hesitate to contact J. Pat Thompson at 1-800-775-6418 or if you have any questions or concerns.