On November 12, the Select Committee on Pension Policy voted to recommend a bill to the Legislature that would create an ongoing automatic cost of living adjustment (COLA) for PERS plan 1 retirees. The bill comes following a final recommendation from a Plans 1 COLA study that was funded in the 2023 budget.

The bill would create an ongoing annual COLA for PERS 1 and TRS 1 retirees, starting in 2026. The ongoing COLA would be inflation based (like PERS plans 2/3) and be capped at 3%. The bill also modifies the actuarial funding of the plan to fund the COLA over the next 15 years, and amortizes the remaining balance of previous ad hoc PERS 1 COLAs over 15 years rather than the 10 years that previous ad hoc COLAs used.

Several amendments to the bill were also adopted, including amendments to:

• Provide an intent section describing in plain language the proposed policy changes,
• Reserve the right of the Legislature to amend or repeal these benefits in the future,
• Provide a fixed 3% COLA in 2025, and makes the inflation-based ongoing COLA is effective in 2026
• Provide that optional COLA recipients will receive compounded increases

While voting to recommend the proposal, legislators sitting on the Select Committee were careful to remind retirees and the public that the state is facing a large budget shortfall in the next biennium, and that it may be difficult for the legislature to adopt the proposal at this time. Committee member Sen. June Robinson (D – Everett) noted that while she was voting the recommend the policy today, as chair of the Senate Ways & Means Committee she “doesn’t see a path forward” in the current budget climate.

PERS plan 1 closed to new members in 1977, and 506 members are still active employees in the system, with an average age of 71. There are 39,306 retired PERS 1 members, with an average age of 79. PERS plan 1 does not include a built-in annual COLA like PERS plans 2/3, and thus regular COLAs were never pre-funded when its members were still working. Until 2011, PERS 1 COLAs came through the “Universal COLA,” but that funding plan was dropped by the legislature that year. Since then, the legislature has passed various “ad hoc” one-time COLAs for PERS 1 retirees.

Cities, as PERS employers, have helped fund these ad hoc COLAs through the Unfunded Actuarial Accrued Liability (UAAL) surcharge which is tacked on to current employer contributions. Recent legislation was expected to mostly phase out the UAAL as current pension obligations neared full funding. If adopted, the proposed ongoing PERS 1 COLA could extend the UAAL for cities unless the legislature chooses an alternative funding mechanism. AWC has provided comments to the Select Committee about our concerns with the proposal and the impact it will have on city budgets. According to the preliminary fiscal analysis, the bill would cost local governments an additional $1.27 billion over the next 15 years.