If the state actuary’s recommendations are adopted next month, Washington’s future pension costs will rise at a time the state already is considering new and deeper spending cuts.
In a new report, actuary Matt Smith recommends that lawmakers lower rate-of-return expectations on pension investments to about 7.5 percent over the next 50 years. The current expectation is 8 percent for the roughly $62.3 billion in pension funds that the Washington State Investment Board is managing.
The report, published late last month, also says assumptions about inflation, the rate of employee wage growth and the number of public employees should be tempered. The state Pension Funding Council will decide in mid-October whether to adopt his recommendations.
Democratic Rep. Ross Hunter, the top House budget writer and a member of the Pension Funding Council, said Thursday that he had not yet studied the report.
“He has a valid position, and I’m not sure where we are going to go now,” he said.
Hunter said that as a budget writer, he is more immediately concerned about next week’s revenue forecast, as well as the cuts to general government programs it will require if operating revenues fall from $3 billion to $2 billion.
Republican Rep. Gary Alexander of Thurston County also serves on the pension council and supported Smith’s recommendation two years ago for a 7.5 percent target. Alexander couldn’t get enough votes to win the argument.
The earnings assumption was raised from 7.5 percent to its current level in 2000, under former Gov. Gary Locke.
The earnings expectation is important because more than half of every pension dollar paid out comes from earnings, according to the State Investment Board, which manages the pension trust funds and has earned more than 8 percent on average over the past two decades, despite two recessions.
Following Smith’s advice this year would boost the amount of taxpayer money that the Legislature must invest in employee pensions by $368 million in 2013-15 alone. Local governments would see increases of $298 million, and employees would pay $248 million more, according to Smith’s report.
However, Smith also is recommending a 10-year phase-in that would cost the state just $38.5 million in the 2013-15 budget cycle, with local governments paying an additional $32 million and employees $4.3 million.
“That will probably get more support than his previous (recommendation) because the impact was big,” Alexander said.
Overall state pensions are not in trouble, according to the state treasurer, who says two plans have shortfalls that are well-balanced by surpluses in several others.
And in a bid to lower the shortfalls in the two underfunded plans, lawmakers this year did away with automatic cost-of-living adjustments for participants in the Public Employees Retirement System Plan 1 and Teachers Retirement System plan 1.
Brad Shannon: 360-753-1688
bshannon@theolympian.com
www.theolympian.com/politicsblog
JOIN THE DISCUSSION | Register here
We welcome comments. Please keep them civil, short and to the point. ALL CAPS, spam, obscene, profane, abusive and off topic comments will be deleted. Repeat offenders will be blocked. Thanks for taking part — and abiding by these simple rules. A thorough explanation of rules of conduct can be found in our Terms of Service. If you have any questions, including why your comment may not be showing immediately after you submit it, be sure to visit the commenting FAQ.