Adjustments to the contribution rates recommended by the Pension Funding Council (PFC) are being considered in the legislature this session.

Pension contribution rates are recommended by the PFC before the start of a new biennium, and the Legislature typically adopts those recommendations, though it is not obligated to. Pension rates have been lowering in the last few years as plans reach or near full funding status.

However, the Legislature has recently adopted one-off cost-of-living adjustments (COLAs) for closed plans like PERS 1, to help Plan 1 benefits keep pace with inflation. This adds new unfunded liabilities to the PERS 1 system that gets funded through a supplemental unfunded liability surcharge (UAAL) that is tacked on to current PERS 2/3 employer contributions. Under current law, PERS 1 is expected to reach fully funded status by the end of fiscal year 2027, with employers expected to pay a supplemental UAAL of 1.5% in 2026 (in 2024 the PFC recommended a 1.05% UAAL in 2026), dropping to 0.5% in 2027.

HB 1467 is sponsored by Rep. Joe Fitzgibbon (D–Burien), had a hearing in the House Appropriations Committee on February 19. It makes several changes to pensions contributions for retirement systems impacting cities. Among other changes discussed below, the bill changes contribution rates for the PERS and PSERS systems from the ones recommended by the PFC in July 2024:

The bill makes similar contribution rate adjustments to the TRS, SERS, and State Patrol Retirement Systems. Besides the changes to contribution rates, the bill also makes other changes to pensions costs. The remaining costs and associated supplemental contributions used to pay for recent PERS 1 COLAs are re-amortized over 15 years (instead of 10 years). Any new PERS 1 COLAs will have their costs amortized over 15 years as well. This results in lower short term budgetary savings, but ultimately higher long-term costs for local governments.

SB 5357 is a companion bill and had a public hearing in the Senate Ways & Means Committee on January 23. At that hearing, the Senate Ways & Means Committee heard a proposed substitute bill sponsored by Sen. Steve Conway (D–Tacoma) that would further lower PERS and PSERS employer contribution rates in than the original bill, in addition to amortizing remaining costs, supplemental rates, and new benefit improvements over 15 years. It also specifies a different UAAL pension rates in the second year of the biennium (fiscal year 2027):

According to the fiscal note for the proposed substitute, in the short term the proposal would save local governments $139.1 million in the 2025-27 biennium and save $65.8 million in the 2027-29 biennium. However, over the long term it is expected to ultimately cost local governments an additional $214.3 million over the next 25 years.

Both bills are likely to be considered “necessary to implement the budget” (NTIB) and are thus exempt from most cutoff deadlines during session.

Cities are in favor of changes to the state’s pension system that save city taxpayers money, but those savings need to be sustainable in the long run, otherwise they are simply pushing greater costs to future years. Most of AWC’s concerns over the last several years regarding ad hoc PERS 1 COLAs have been over those policies' imposition of new long-term costs on cities and the impact on current and future city budgets and services. AWC will continue working with lawmakers to find sustainable solutions to city pension costs that ensure pensions are fully funded and reduce costs in the short and long term for cities.