Brian Sonntag releases Seattle pension study
Former State Auditor Brian Sonntag released a study today highlighting the need for pension reform in Seattle. Sonntag worked on the study at the request of the Washington Policy Center.
Considering the recent debate surrounding the Boeing 777X contract vote and pension changes, it is not a surprise to see the cost of Seattle's defined benefit pension program also in need of reform.
The City of Seattle pension system is in trouble. A statement by city leaders recognizes significant risks from the rising financial burden of unfunded liabilities and that a new approach is needed.
The City pension system, started in 1927, today carries an unfunded liability of nearly $1 billion, a staggering financial burden that must be shouldered by a community of less than 635,000 residents. The rising cost of City pension payments, over $72 million in 2011, is crowding out funding for safety-net programs and other public services that are essential to the people of Seattle.
The City’s old-style pension program is becoming increasingly outdated. The system’s unfunded liability poses a major threat to Seattle’s long-term financial stability and to Seattle residents who may be required to bail out the system through higher taxes. Significant reforms are needed that provide a funded benefit for city workers, like the local librarian, and reasonable protection for taxpayers.
Among the report's Key Findings:
- The Center for State and Local Government Excellence reports that pension programs for government employees, like maintenance staff, public health workers and librarians are facing unprecedented breakdown.
- In 2008, the Seattle pension system had unfunded liabilities of $175 million, which grew to $1.1 billion in 2013.
- The volatility and magnitude of this unfunded liability has increased the tension between providing services to current residents while legally fulfilling past pension commitments.
- Benefit increases added by the City in 1998 and 2001 have resulted in much higher monthly payments to retirees. The sharp rise in pension costs is financially impacting the City’s pocketbook as well as those of its employees.
- The Seattle City Council needs to enact comprehensive pension reform that takes a new approach. The goal of reform should be to provide sound retirement income for retirees, but at a lower cost to both Seattle residents and to City employees.
- To enhance fiscal responsibility, several jurisdictions across the country have phased out their traditional defined-benefit plans and established well-designed, employee-owned defined contribution retirement plans.
- Allowing city workers access to personal defined-contribution accounts would help solve the pension system’s financial problems, while providing a fair and sustainable retirement system for public employees.
- SB 5851: Creating a defined contribution retirement plan option for public employees
- SB 6305: Creating a defined contribution retirement plan option for elected officials.
The ideal state pension reform would:
- Not result in any skipped payments
- End early retirement
- Close Plan 2
- Direct all savings to pay down the state’s unfunded pension liabilities
- Place new hires into a defined contribution plan
- Enact constitutional provisions requiring the actuarially recommend pension payment and create a supermajority threshold to enact new benefits.