Groups representing public-sector retirees, teachers and other government employees turned full fire on a proposal Monday that would close the state’s fixed-benefit pensions for employees younger than 45 and put workers into 401(k)-style investment plans.
Sen. Rodney Tom, a Medina Democrat and leader of the Republican-dominated Senate Majority Coalition, is proposing the change. Tom said Senate Bill 5856 gives a mobile work force more flexibility and the state a chance to pay for its obligations now without adding them to future generations’ debts.
“What I’m try to do is equalize what is happening between the public and the private sector,’’ Tom said in testimony before the Senate Ways & Means Committee. The difference between public-sector workers getting better pensions than taxpayers get “creates a little tension with our citizens who are actually footing the bill.”
But Randy Parr, lobbyist for the Washington Education Association, and other representatives of public-sector unions questioned Tom’s financial claims and warned his plan may not be legal. They cited court rulings going back to the early 1950s that say government cannot take away a vested retirement benefit, which Tom’s plan arguably could do for workers younger than 45.
“You can be sure this will bring more litigation” over switching younger workers into a new plan, Parr warned.
“We see it as just another attack on the middle class,” added Jeff Johnson, executive leader of the Washington State Labor Council. Johnson said the bill is not needed because Washington’s pension system is strong — “unlike other states” — and he warned that the proposal “shifts costs to state employees as the state pulls back on its contributions.’’
Tom, who is one of two Democrats in the Senate coalition, said the court rulings applied to an era when workers kept the same job all career — a concept he considers foreign today.
The proposal faces hurdles in the House, where Democrats hold a firm majority. Speaker Frank Chopp has showed no interest in cutting compensation and benefits for public-sector workers this session.
Tom’s push on pensions mirrors a push he also is making to create strong financial incentives for state employees to take responsibility for their health, while pushing more cost onto those who insist on smoking or are obese and drive up health costs for everyone.
In an interview, the senator said that both of his approaches — on pensions and health care — are needed to win the public’s trust. Tom said that trust is essential if the Senate ends up considering tax increases to pay for K-12 public schools, a scenario that House leaders favor.
“I think it’s an end game (situation) where there’s going to be things that they want and these are important things that we want. We’ll have to see, you know, whether the trade makes sense for both parties,” Tom said.
As outlined to the committee, Senate Bill 5856 would shift new state workers and current employees younger than 45 into the defined contribution pension plans starting in mid-2014. The employees would pay 5 percent of pay into the new Washington Public Employees Savings Plan until hitting age 35 and 7.5 percent after that. The state would be locked into paying 80 percent of what employees put in.
For workers hired before July 1, 2014, the new plan would replace the second-generation plans in the Public Employees’ Retirement System, Teachers’ Retirement System, School Employees’ Retirement System, and Public Safety Employees’ Retirement Systems, as well as Plans 3 in PERS, TRS and SERS.
Exactly how that all might pencil out for the state’s operating budget is unclear. Committee staff said they had requested a fiscal analysis to learn what impact Tom’s proposal could have.
In testimony against the bill, representatives of workers and retirees all said it would drive up state costs, reduce retirement benefits for workers as the state moves out of recession, and reduce returns on state investments for those who stay in the old retirement plans.
Adrienne Thompson of the Professional & Technical Employees Local 17, which represents state and local workers, said a recent Bloomberg analysis found the State Investment Board, which invests state funds and gets good returns, was rated best in the country for public pensions. She noted that Washington’s Plan 2 and Plan 3 systems are all fully funded, making Washington the fifth-best pension system in the country.
Amber Carter, a lobbyist for the Association of Washington Business, spoke in support of the defined contribution pension concept. She said AWB recently moved its retirement plans into a 401(k) system, and she called that private-sector trend a fact of life that the Legislature “needs to grapple with” — if not in Tom’s bill, then in some other way.
Brad Shannon: 360-753-1688
bshannon@theolympian.com
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