New math shows shortfalls in Washington’s open pension plans

On paper, Washington’s public pension system suddenly looks shakier than it used to. But there’s been no change in costs — just a new way of counting them.

Until recently, state figures showed all pension plans open to new members were fully funded, with assets covering more than 100 percent of what each plan owes.

A report the state actuary’s office presented to lawmakers Tuesday shows shortfalls in the biggest open plans.

Washington’s pension system is regularly ranked among the nation’s best-funded. Even under the new calculations, no open plan is less than 90 percent funded. The actuary says all of the open plans remain on target to cover their full costs.

“It’s really an accounting change. It’s a one-time hit,” Actuary Matt Smith said. “The funding of the plans hasn’t changed.”

Nor does the change affect how much employers and employees need to contribute to the plan, Smith said.

Yet the change was enough to double the total unfunded liability reported by the state across all pension plans from $5 billion to $10 billion.

That drops the share of the system considered funded from 93 percent under the old accounting method to 87 percent under the new.

The pension system’s biggest problem is unchanged: two shortfalls totaling nearly $8 billion in old plans for public employees and teachers. Those plans, closed in 1977, and are known by the abbreviations TRS 1 and PERS 1. The state is adding money under a strategy that projects full funding for the Teachers’ Retirement System Plan 1 by 2025 and the Public Employees’ Retirement System Plan 1 by 2027.

Those two closed plans are unaffected by the new math. But their big gaps used to be obscured by surpluses in the newer plans.

That’s no longer the case.

The new calculation shows shortfalls of $2.9 billion in the plans known as PERS 2 and 3, $600 million in TRS 2 and 3, $300 million in the School Employees Retirement System (SERS) plans 2 and 3, and $13 million in the Public Safety Employees Retirement System (PSERS) Plan 2.

A federal mandate is responsible for the change, Smith said. It calls on the state to use an actuarial method known as “entry age normal” to report the share of benefits already earned by members of a plan. That method is used by most U.S. public pension plans and is equally accurate, Smith said, but Washington had previously held back from switching so it could keep making historical comparisons.

Sen. Steve Conway, D-Tacoma, said he plans to ask more questions about the switch.

“What everyone wants to see is a 100-percent funded system,” Conway said.

This story was originally published September 16, 2015 at 2:27 PM with the headline "New math shows shortfalls in Washington’s open pension plans."