Pension reforms on Senate floor

February 13, 2014

As we approach the February 18 House of Origin cutoff, bills are starting to fly off the floor of the House and the Senate. Two pension reform bills in the Senate could soon be among those moving. SB 5851 and SB 6305 are both currently on the floor.

SB 5851 would create a new optional defined contribution pension plan for current state workers and for new hires. According to the fiscal note, the proposal could save state and local government (taxpayers) an estimated $436 million over the next 25-years. 

To accomplish this goal the bill would provide state employees who are currently in the state’s open defined benefit pension plan (Plan 2) and the hybrid defined benefit/defined contribution plan (Plan 3), as well as new hires, the option of enrolling in the new defined contribution plan. The state’s most costly defined benefit plan (the one with the billions in unfunded liabilities) was closed to new enrollees in 1977.

SB 6305 would create a new defined contribution plan for public officials elected to office after July 1, 2016. The fiscal note for SB 6305 is “indeterminate” but could result in state and local government (taxpayers) savings of $92 million over the next 25-years.

To accomplish this goal the bill would create a new defined contribution “Washington Elected Officials Retirement Savings Plan (EORSP).” This would be the only retirement plan offered to public officials elected to office after July 1, 2016. The exception to this would be for elected officials that are currently a member of the PERS pension system and are over age 50 and all elected judges.

According to the National Conference of State Legislatures:

  • New lawmakers receive no pension for legislative service in: AL, CA, LA, NE, NH, ND, RI, SD, VT and WY.

  • New lawmakers receive defined contribution pensions in: AK, IN, MI, MN and UT

In addition, Oregon lawmakers in a special session last year closed the state’s pension system to newly elected lawmakers. As reported by NPR

For years, the question hung over the Oregon legislature: Should lawmakers vote on policies for the state’s public pension plan when their own retirement funds hung on the outcome? Last fall, the Oregon House and Senate overwhelmingly voted to end that conflict of interest … but only for incoming lawmakers.

That means when Democrat Barbara Smith Warner takes the oath of office Wednesday, she’ll be the first Oregon lawmaker banned from PERS. Smith Warner is a mid-term appointment to fill a vacant seat, but she says she wasn’t even aware of the distinction she’ll hold until just a few days ago.

'Retirement security was the last thing on my mind,' she says. 'You don’t take the job for the retirement. You take it in order, I think, to make a difference.'

The private sector has been moving steadily away from defined benefit plans for decades, instead offering employees defined contribution pensions that provide retirement payments to an employee’s pension while helping companies accurately project future pension costs. Below is a table based on national data from the U.S. Department of Labor, Bureau of Labor Statistics, showing the pension comparison of private and public employees:

Employee Type

Access to Retirement Benefit

Access to Defined Benefit Pension

Access to Defined Contribution Pension

State and local government

89%

83%

32%

Private

64%

19%

59%

Effective state pension reform should be based on the following principles:

  • Do not skip any pension payments

  • Close the current defined benefit plan to new hires

  • Direct all savings toward paying down unfunded pension liabilities

  • Enroll new hires into a defined contribution plan

  • Constitutionally require the actuarially recommend pension payment and require a supermajority vote to enact new benefits

While Washington has already implemented many of the pension reforms just now being considered across the country (which is why the state’s unfunded pension liability compares well), more still can be done to help cap future taxpayer liability for pension payments and the share they take of the general fund while still providing a retirement benefit for public service.

Moving to a defined contribution pension option as proposed by SB 5851 and SB 6305 would be a step in right direction. The new defined contribution plan should be the only pension option offered to new hires and newly elected public officials, so the state’s remaining defined benefit plans are closed, and the burden of their financial liability on taxpayers gradually reduced. Any long-term savings realized by adopting SB 5851 and SB 6305 should be used to pay down the state’s multi-billion dollar unfunded pension liability, so there isn’t the temptation for lawmakers to increase state spending elsewhere in the budget.