Week two of session could arguably be considered “pensions week,” as ten different bills impacting public pensions are scheduled for hearings. The bills include a new cost of living adjustment (COLA) for PERS 1 retirees and a long-awaited use for the LEOFF benefit improvement account, among others.

PERS 1 COLA

HB 1721/SB 5676 are companion bills that come at the request of the Select Committee on Pension Policy. The bills provide a one-time 3% COLA (Cost-of-Living Adjustment) to PERS plan 1 and TRS plan 1 retirees, capped at $110 per month. For a little background, public employees that enrolled in the public employee retirement system prior to 1977 were enrolled in PERS plan 1. Unlike later PERS plans, plan 1 did not include regular COLAs as part of its original funding scheme, and so the Legislature has occasionally provided one-time COLAs to plan 1 retirees over the years. The last such COLA was in 2020.

AWC does not oppose offering PERS 1 retirees a COLA per se. However, we do oppose these bills since they assume funding a COLA through increased employer contribution rates, which cities pay, instead of using the state’s windfall of excess revenue over the past year. Cities currently pay a surcharge on their PERS 2/3 contributions to pay for the unfunded liability created in part by previous unfunded PERS 1 COLAs. That surcharge was finally expected to expire in 2025, but the COLA included in these bill could extend that surcharge. For context, the most recent COLA passed in 2020 was projected to cost local governments an additional $78 million over a 10-year period.

Dates to remember

HB 1721 is scheduled for a public hearing in the House Appropriations Committee on Monday, January 17 at 3:30 pm.

SB 5686 is scheduled for a public hearing in the Senate Ways & Means Committee on Monday, January 17 at 4 pm.

LEOFF 2 benefit improvements

HB 1701/SB 5652 are companion bills that come at the request of the Law Enforcement Officers and Firefighters Retirement Plan 2 Board. The bills provide for new pension benefits enhancements for LEOFF 2 members and use the Benefit Improvement Account (BIA), which was created in 2008 but has a fraught history of funding and has never previously been used to fund a benefit improvement. The bills would create two types of benefit improvements funded by the BIA:

• Current retirees get a one-time lump sum benefit equal to $100/month of service, with a minimum of $20,000 for catastrophic and duty disability retirees, and duty death beneficiaries.
• New and future members get a gradually increased retirement benefit multiplier depending on their years of service, increasing from 2% for 15 years of service up to 2.5% for 25 or more years of service.
• Current members in active service prior to February 1, 2021 will have a choice between the lump sum or the benefit multiplier.

The bills also adjust the LEOFF 2 board’s minimum contribution rates policy to require employer contributions of 90% of the normal cost when the plan’s funded status is at or greater than 105%, and 100% of the normal cost when the plan’s funded status is less than 105%. The benefits improvements are ultimately funded by a one-time transfer from the LEOFF 2 account to the BIA.

AWC is currently neutral on these bills. Because LEOFF 2 is fully funded far above 105%, local government employers are expected to see a slight drop in their contribution rates, even with the benefits improvements. So, there should be no additional fiscal impact on cities. However, cities would have possibly seen a larger drop in contribution rates in the future if no benefit enhancements were funded.

SB 5791, sponsored by Sen. Mark Schoesler (R–Ritzville), is identical to the above bills except that it also makes LEOFF plan 1 members or their beneficiaries eligible for a similar the lump sum benefit offered to plan 2 members. While the bill doesn’t speak to how this benefit enhancement would be funded, the assumption is that it would be funded from existing LEOFF 1 funds. LEOFF 1 has a surplus of funds so it should create no impact on local employers.

Dates to remember

HB 1701 is scheduled for a public hearing in the House Appropriations Committee on Thursday, January 20 at 3:30 pm.

SB 5652 and SB 5791 are scheduled for public hearing in the Senate Ways & Means Committee on Monday, January 17 at 4 pm.

Other pensions bills

ROTH options for deferred compensation plans: HB 1752, sponsored by Rep. Drew Stokesbary (R–Auburn), requires the Department of Retirement Services to offer public employees ROTH investment options in addition to traditional deferred compensation plans. For context, a traditional deferred compensation plan is a retirement savings plan on top of regular pensions that allows an employee to lower their current taxable income and defer taxes on the investments to the date they withdraw their funds. A ROTH plan allows the employee to contribute after-tax dollars to the investment plan and then avoid taxes in the future when they withdraw their funds.

Dates to remember

HB 1752 is scheduled for public hearing in the House Appropriations Committee on Monday, January 17 at 3:30 pm.

Interruptive military service credits: HB 1804/SB 5726 are companion bills requested by the Select Committee on Pension Policy. The bills expand the interruptive military service credit to public employees who were awarded an expeditionary medal during a period of armed conflict. An interruptive military service credit allows public employees to get a subsidized retirement contribution for the period of time that they take a leave of absence to serve in the military, if the employee returns to work within 90 days of being honorably discharged.

Under current law, the service credit is offered to those who get a campaign medal, but not those who get only an expeditionary or other service medal. Campaign medals are generally awarded for large scale or long duration participation in combat operations. Expeditionary medals are awarded for deployed participation in smaller scale or shorter duration operations with an imminent threat of hostilities or combat support roles that are high risk but not necessarily involved in actual combat.

Dates to remember

HB 1804 is scheduled for public hearing in the House Appropriations Committee on Thursday, January 20 at 3:30 pm.

SB 5726 is scheduled for public hearing in the Senate Ways & Means Committee on Monday, January 17 at 4 pm.

Disability benefits: HB 1669/SB 5748 are companion bills that come by request of the Select Committee on Pension Policy. They allow a PSERS plan member that is totally disabled to receive a retirement allowance of 70% of their final average salary. The employee seeking the disability benefit may be subject to comprehensive medical exams to determine continued eligibility for the disability benefit.

Dates to remember

HB 1669 is scheduled for public hearing in the House Appropriations Committee on Thursday, January 20 at 3:30 pm.

SB 5748 is scheduled for public hearing in the Senate Ways & Means Committee on Monday, January 17 at 4 pm.