Several bills addressing PERS 1, including changes to the UAAL and cost-of-living adjustments (COLAs), survived cutoff and either had hearings late last week or are scheduled for hearings this week.

Reducing the UAAL

SB 5294 sunsets the existing PERS 1 unfunded actuarial accrued liability surcharge (UAAL) rates in fiscal year 2023, and sets a schedule of new lower UAAL rates until 2027 for PERS 1 and PSERS 1. The bill passed out of the Senate unanimously. The UAAL rate schedule would look like this:

After July 1, 2027, a new minimum UAAL rate of 0.5% (down from 3.5%) is set for PERS and PSERS that will go into effect only if the PERS 1 account is less than 100% funded. Current projections expect PERS 1 to be fully funded by 2027. Previous versions of the bill sunset the UAAL entirely in 2025. The House companion, HB 1201, did not get a vote in the House last week, though that bill is likely not subject to cutoff as it impacts the budget.

The UAAL surcharge is a public employer-paid surcharge added to Plan 2/3 contribution rates to pay for unfunded costs to PERS 1 that have accumulated over the years, in part due to unfunded ad hoc PERS 1 COLAs approved by the Legislature in recent years.

AWC supports any action to reduce or eliminate the UAAL and the impact it has on current city budgets. AWC testified in support of SB 5294 at its public hearing on March 9 in the House Appropriations Committee.

Ad hoc PERS 1 COLA

HB 1057 and SB 5350 each authorize a one-time, ad hoc 3% cost-of-living adjustment for PERS 1 retirees, capped at $110 per month and the bills both direct the Select Committee on Pension Policy to study and recommend a permanent plan 1 COLA. HB 1057 was amended to delay the impact of the COLA on contribution rates until 2027 and specifies that supplemental contribution rates won’t be charged to pay for the COLA.

Both bills passed out of their respective chambers with unanimous votes. SB 5350 had a hearing on March 9 in the House Appropriations Committee.

While we do not oppose COLAs for PERS 1 retirees to lessen the impact of inflation on their benefits, AWC has traditionally been opposed to PERS 1 COLA plans funded by the UAAL surcharge since they impact current local government budgets to pay for unplanned benefits increases, to the tune of hundreds of millions of dollars over time.

Dates to remember

HB 1057 is scheduled for a public hearing on Monday, March 13 in the Senate Ways & Means Committee at 4 pm.