The Select Committee on Pension Policy (SCPP) is considering several proposals that could impact future city budgets as they plan for employee pension contributions. One proposal
would build in a permanent cost-of-living-adjustment (COLA) into the PERS 1 system, and the other proposal would allow 911 operators to move from the PERS retirement system to the PSERS system.
The Select Committee will continue to consider the proposals and decide what recommendations to make to the 2023 Legislature by December. Committee staff expects to have bill drafts for the proposals at the November SCPP meeting. The next SCPP meeting is scheduled for November 15 and includes a public comment opportunity for those who wish to sign up.
PERS 1 COLAs
A recurring issue that is likely familiar to readers is Plan 1 retirement COLAs.
For background, although PERS Plan 1 is a defined benefit pension, it was not designed to include regular COLAs like PERS Plans 2 and 3 do. Neither employers nor Plan 1 employees (hired before Oct. 1977) contributed to funding a regular COLA while the
workers were still on the job. Any additional costs to Plan 1 (such as COLAs) are unfunded and require additional contributions to make up the difference, which are almost entirely paid by employers through the unfunded actuarially accrued
liability (UAAL) surcharge added to public employers’ regular contributions to the PERS 2/3 systems. Because of inflation and rising costs of goods and services for retirees, in recent years the Legislature has authorized one-off ad hoc COLAs for Plan 1 retirees in 2018, 2020, and 2022. None of the recent COLAs for local government PERS 1 retirees were funded using state general fund surpluses – all were funded through additional employer contributions. Those ad hoc COLAs
contributed to extending the time public employers must pay the UAAL surcharge, currently expected to be paid off by 2026.
Because inflation has an ongoing impact on Plan 1 benefits’ purchasing power, the SCPP is considering a proposal that would (if adopted by the Legislature):
- In 2023, authorize another ad hoc COLA of 3% on the first $44,000 in pension income for retirees,
- Require SCPP to consider a permanent Plan 2/3-style annual automatic COLA after the UAAL surcharge is paid off in 2026. The plan currently does not have details on what that permanent COLA would look like.
A similar ad hoc COLA that was passed in 2022 is expected to cost local governments an additional $160 million over the next 10 years, and the
proposed ad hoc COLA would likely cost local governments a similar amount. Since there are no specifics in the proposal as to what the permanent Plan 1 COLA is, it’s difficult to say how much it would cost local governments over the
remaining lifetime of PERS Plan 1.
While AWC is not opposed to Plan 1 retirees getting COLAs to keep up with inflation, we have typically opposed unfunded Plan 1 COLAs since they can have a large long-term impact on city budgets and can require new money to be spent that could otherwise
go towards current services.
911 operators to PSERS
This proposal would offer existing public safety telecommunicators (like 911 operators) the opportunity to move from the PERS system (where they are currently) to the Public Safety Employee Retirement System and
put all newly hired 911 operators in PSERS.
PSERS was created in 2004 for public safety workers who otherwise didn’t qualify for LEOFF, but whose jobs still had a high degree of physical risk to personal safety and wear and tear on the body. Importantly, PSERS members are eligible for retirement
at age 60 (early retirement at 53), whereas PERS members are eligible for retirement at age 65 (early retirement at 55).
Traditionally, PSERS was viewed as a system for people whose jobs had a high degree of physical stress, necessitating the earlier retirement ages and shorter career requirements. Unsurprisingly though, burnout and turnover is also fairly high for 911
operators. This proposal would recognize that 911 operators undergo high levels of stress, albeit mental and emotional stress rather than physical, and allow them to have similar retirement benefits and eligibility to other public safety workers.
DRS Staff thinks the proposal could also help with recruitment and retention of 911 operators if they have lower retirement ages.
The Department of Retirement Services (DRS) is still working out how many current employees could be impacted and what it might cost the PSERS system, and they are still working out the details of what a bill would look like. Also important to consider
is that PSERS contribution rates tend to be higher than PERS for both employers and employees.
Dates to remember
The Select Committee on Pension Policy will hear bill drafts on PERS 1 COLAs and moving 911 operators to PSERS on November 15.