Pension News

NOVEMBER 2007

Pension Lawsuit Update

On May 24, 2007, WPEA filed a lawsuit in King County Superior Court contesting the state’s decision to eliminate gain sharing* for our Public Employees’ Retirement System (PERS) Plan 1 and Plan 3 members. Our lawsuit argues that the effect of the State’s action is to impair the vested, contractual right to gain sharing payment granted to current PERS Plans 1 and 3 members. Gain sharing was promised as an enticement for employees to switch from Plan 2 to Plan 3, and the affected employees are relying on these financial benefits in their retirement years.

All three state budgets — Governor, Senate and House — were determined to eliminate potential gain-sharing investments from the PERS Plan 3 employees to fund current pension deficits that should have been addressed years ago. The idea of gain-sharing, originally proposed and passed by a bipartisan legislature, became the scapegoat for years of under funding our state pension systems! Gain-sharing payments and properly funded retirement systems should not have even been an option to be offered and withdrawn in a vain attempt to redress budget deficits too long ignored. And, this is not a case of state employees or retirees asking for more just because there is a “budget surplus.” How can there be a true budget surplus when the under funded pension accounts have been left to languish all these years?

The Governor’s original proposal acknowledged the need to give Plan 3 members something (an Assured Benefit alternative) in lieu of losing gain-sharing benefits. WPEA led the fight against the repeal of gain sharing during the 2007 legislative session. But, with the signing of EHB 2391– which eliminates the gain sharing benefit – the Governor left us no option but to file a lawsuit. During this past session, WPEA, other State employee unions, and legislators themselves reported a heavy and steady flow of protests from state employees and retirees objecting to the elimination of gain-sharing.

With the help of Rep. Maralyn Chase (32nd Legislative District), WPEA proposed amendments that offered several possible alternatives that would have led to a more equitable solution for PERS Plan 3 members and the State. Unfortunately, the legislature chose to ignore them, choosing instead to pass HB 2391 with improvements that go mostly to Plan 2 members who aren’t the ones losing retirement income by the repeal of gain-sharing!

Along with WPEA’s lawsuit, two other unions – the Washington Education Association (WEA) and the American Federation of State County and Municipal Employees (AFSCME) – have filed similar lawsuits, as well as two individuals whose lawsuits are being consolidated into one. All four parties agreed that a collaborative effort of our legal staff is the best approach to pursuing this issue to ensure all the bases are covered by sharing the work load, while keeping legal costs down. The Legal Team is to securing an actuary to verify and crunch the numbers, as well as a CPA to assist with records management.

The Gain Sharing Lawsuit has been assigned a judge, King County Superior Court Judge Joan Dubuque.

Please check back here and attend your local union meetings for updates.

*Gain sharing occurs when the State’s retirement investment fund earns more than 10% on average over four consecutive years. Half of the income over 10% is used to improve the pension benefit of members in Plans 1 and 3.

SEPTEMBER 2007

WPEA Prepares for More Pension Battles

During the interim between legislative sessions, WPEA’s Government Relations Director, Luis Moscoso, is attending the Select Committee on Pension Policy (SCPP) meetings. The SCPP is the Legislature’s policy committee on pension issues for members of Washington State’s retirement systems. This Committee is charged with studying issues and policies affecting your pensions and making improvement recommendations to the Legislature.

The SCPP is comprised of legislators; employee, retiree, and employer representatives; and the Directors of the Office of Financial Management and the Department of Retirement Systems (see box below). Most SCPP business is conducted between sessions during the legislative interim. WPEA and other organizations bring issues to the SCPP for consideration and action. Economic complexities of pension planning must be constantly reviewed and assessed. Because state employees can’t bargain their pensions, the Union must insist that research and deliberation to improve the pension system be productive, as well as pragmatic.

How has House Bill 2391 changed pensions?

For PERS 1 Retirees:
The PERS 1 post-retirement adjustment known as the Uniform COLA is not a true Cost-of-Living Adjustment. Instead of being based on a retiree’s base salary or an economic indicator such as the Consumer Price Index (CPI), the Uniform COLA is based on a dollars per month per year of service formula. Due to the age 66 eligibility criteria for the Uniform COLA, the value of PERS 1 pensions begin to decline from the date of retirement and continues to decline during those years prior to the member becoming eligible for the post-retirement adjustment.
Even with the Uniform COLA, PERS 1 members who retired in the mid-1970s have lost approximately 50% of their purchasing power. The July 1, 2009 annual increase amount (up to $.40 per year of service minus the 2008 gain sharing increase to the COLA) will help but not eliminate this problem.

Recommendation to the SCPP:
Major improvements to the PERS 1 Uniform COLA would help retain the value of PERS 1 pension benefits. Over the long-term, establishment of a CPI based COLA which begins a year after retirement is needed to ensure that the full value of PERS 1 pensions are retained.

Retirement Age	Reduction in Benefit
55 56 57 58 59 60 61 62 63 64	20% 17% 14% 11% 8% 5% 2% 0% 0% 0%

For PERS 2 & 3 Members:
Although PERS 2 members and retirees did not lose anything with the passage of HB 2391 in the 2007 Legislative Session, they benefited at the expense of PERS 3 members & retirees. The improved Early Retirement Reduction Factor (ERRF) criteria established in HB 2391 was a major step forward in addressing PERS 2/3 retirement eligibility issues by allowing members to retire with 30 years of service (see chart at right). But, not everyone can take advantage of this depending on when they started state service.

Recommendation to the SCPP:
At the direction of the membership during WPEA’s Annual Meeting last month, we will seek passage of the “Rule of 85” that provides eligibility for a full, unreduced, defined benefit below age 62.

For PERS 3 Members Only:
With HB 2391’s new “Rule of 92,” PERS 3 members will receive the same benefits as those afforded to PERS 2, but they had to give up gain-sharing to get it. The gain-sharing replacement benefits enacted in HB 2391 provided no benefit beyond the 2008 gain-sharing distribution to PERS 3 retirees. PERS 3 retirees, more than anyone else, got nothing in return for losing gain-sharing after 2008.

What about the lawsuit? How will it help?

WPEA is suing to stop the State from eliminating gain-sharing for PERS 1 and PERS 3 members arguing that the effect of the State’s action is to impair the vested, contractual right to gain-sharing payments granted to current members and retirees. During this interim we were hopeful the negative effects of HB 2391 would be addressed by the SCPP. However, some committee members are now saying they should not act on our concerns until the lawsuit is settled.
On August 5, Moscoso met with leadership from the Democratic Caucus to discuss Representative Kessler’s promise to address the negative impacts of HB 2391. The Caucus is also concerned that the lawsuit may preclude them from helping us at this time. We don’t believe this should be the case.

The SCPP and Democratic leadership are duty bound to consider suggested improvements that would mitigate the inequities caused by the repeal of gain-sharing. Agendas, minutes and meeting schedules of the SCPP can be found at www.leg.wa.gov/SCPP/meetings/. Please contact your local Legislators and the SCPP to tell them you expect them to review our concerns and redress these problems. For contact information, see www.leg.wa.gov/SCPP/members/.