Some closed state pension plans may get merged under a new bill to help address persistent unfunded liabilities. The bill is up for a hearing this week, and AWC plans to testify to concerns about the ongoing costs it may impose on cities.

SB 5085 is sponsored by Senate Ways & Means Chair Sen. June Robinson (D–Everett). It dissolves LEOFF plan 1, PERS plan 1, and the Teachers Retirement System (TRS) plan 1 and merges them into a single “Legacy Retirement System” (LRS). All three plans are currently closed to new members, and most members of those plans are currently retirees. All benefits for former members of each closed plan would remain the same under the LRS, except that members of PERS 1 and TRS 1 would get ongoing 3% cost of living adjustments (COLAs) as a benefit improvement.

The bill establishes a supplemental employer contribution rate to fund the remaining unfunded liability of the LRS over a rolling 10-year period, and amortizes the costs of benefit improvements over a 10 year period. The initial supplemental employer rate for fiscal years 2026 and 2027 is set to 0% and is charged to all system employers in the PERS, TRS, Public Safety Employees Retirement System, and School Employees Retirement System.

The intent of the Plans 1 merger is to take advantage of LEOFF 1’s large surplus funded status and use it to shore up the significant underfunding of PERS 1 and TRS 1. Both PERS 1 and TRS 1 are underfunded in part because of previous ad hoc COLAs that the legislature has approved in recent years – extra benefits that were not originally part of the PERS 1 or TRS 1 plans.

While using the excess funding of LEOFF 1 to reduce the current liability of PERS 1 and TRS 1 could benefit cities by reducing some pension costs, AWC does have concerns with the bill. One concern is that the bill creates a significant new liability with ongoing COLAs for PERS 1 and TRS 1 that may need to be funded by new employer contributions going forward. It is not clear that the LEOFF 1 surplus is large enough to cover both the current outstanding liability for PERS 1 and TRS 1 as well as the new COLAs being added for members of those plans. Another concern is that if supplemental employer contributions are needed, cities would be liable to help cover the costs of pensions for LRS retirees that were never city employees – namely teachers. It is also unclear if this merger plan will cost cities more in the long run than maintaining separate Plans 1 systems.

AWC is looking forward to additional information that can help address these questions and concerns.

Dates to remember

SB 5085 is scheduled for a hearing in the Senate Ways & Means Committee on January 23 at 4 pm.