Washington’s most well-funded public pension plan has a projected surplus of more than $1.1 billion.
Washington’s Legislature is averse to leaving money sitting around, especially with a budget shortfall looming.
Those two dynamics help explain some of the ideas over the years for the future of the Law Enforcement Officers’ and Fire Fighters’ Plan 1 that has been closed to new members since 1977.
The latest proposal comes from Senate Republicans and would merge the firefighters and police officers’ plan with another closed plan, that for public school teachers. The Teachers’ Retirement System Plan 1 is in very different financial shape, with a $2.9 billion deficit.
The state would maintain benefits to retirees in both plans, said Sen. John Braun, R-Centralia, an advocate of a merger. “We made a promise,” he said.
But many retired first responders are suspicious and worried about being placed into an underfunded pension plan. The merger proposal emerged just last week in a 60-day legislative session that ends March 10, with what lobbyists for the retirees said was no notice to them.
“Something of this importance should be discussed, and every i dotted and every t crossed,” said Richard Warbrouck, president of Retired Firefighters of Washington, who said his group would go along with a merger if surefire protections were in place for its members.
The merger allows the Senate majority’s budget proposal to balance over four years. The budget passed the Senate and must be reconciled with a competing proposal from the Democratic-controlled House that lacks the merger and uses different accounting on its four-year balance sheet.
Washington’s pension system is among the nation’s healthiest at 87 percent funded despite two large shortfalls in closed plans. The state expects to pay off those unfunded liabilities over the next 11 years.
With a merger, the state and school districts could reduce their future contributions to the teachers’ plan by more than 40 percent and save more than $2 billion over that 11-year period, while paying off the plan’s deficit about three years earlier.
$1.177 billion Surplus in LEOFF 1, which is 127 percent funded.
$2.897 billion Unfunded liability in TRS 1, which is 69 percent funded.
The few remaining working members of TRS 1 wouldn’t immediately share in the savings, but paying off the liability sooner might hasten cost-of-living increases for TRS 1 members after Great Recession-era cuts canceled them.
A group that represents retired teachers is officially neutral on the proposal for now.
“We’re all for shoring up that unfunded liability and getting us to a point where our folks can be taken care of in the way that they deserve. If this is the right way to go about it, I don’t know,” said Peter Diedrick, who lobbies for the Washington State School Retirees’ Association.
“I don’t want to go to war with firefighters and police officers,” Diedrick said, noting that past legislatures have skipped payments into the pension system. “It was the Legislature that created the problem.”
The Legislature has made actuarially recommended pension contributions in recent years, although it is phasing in adjustments that take into account longer life expectancies.
Braun said he would strongly oppose skipping any payments or looting the pension system, and disputed a portrayal of the merger by Sen. Steve Conway, D-Tacoma, as “a policy whose principal purpose is to balance the budget on the backs of retired firefighters and police officers.”
“The bill doesn’t take any money out of the pension system,” said Sen. Andy Hill, R-Redmond, who sponsored Senate Bill 6668 to put the merger in place.
The bill doesn’t take any money out of the pension system.
Sen. Andy Hill, R-Redmond
The bill is up for a public hearing at 8 a.m. Wednesday in the Senate Ways and Means Committee. Its fate on the Senate floor is in doubt after a majority of senators voted to strip the merger out of the budget. That move didn’t work because of a rule that a budget can’t be amended on the Senate floor without support of a 60-percent supermajority.
To make the merger a reality, the bill would need to pass the Senate and House and be signed by Democratic Gov. Jay Inslee. Then the Internal Revenue Service would have to sign off on the state’s plan.
The bill states that the plans must merge with no reduction in benefits for retirees in either system. In fact, first responders in the LEOFF 1 plan are to each receive a one-time $5,000 lump sum next January or when they retire. Warbrouck called that a “token.”
In a historical irony, LEOFF 1 owes its existence to a merger.
The state took over and consolidated underfunded municipal pension systems for police and firefighters in 1969. The state pumped money into LEOFF 1, accounting for more than three-quarters of all the money contributed to the pension plan.
Employees have contributed $266 million since the creation of LEOFF 1 while receiving $6.7 billion in payments.
With help from investment returns, LEOFF 1 built up so much of a surplus that all contributions were suspended in 2000.
The surplus is a projection. It’s based on actuaries’ assumptions that include strong growth in investment returns.
If those don’t pan out, governments would be on the hook to shore up the two plans whether they merge or not – because the vast majority of members are retired, leaving few paychecks to tap. Just 1,000 of the more than 35,000 TRS 1 members are still working and contributing to the plan, as are just 120 of the more than 7,800 LEOFF 1 members.
With no action, the state would eventually get its hands on the LEOFF 1 surplus – but only after the death of the last remaining first responder or surviving family member.
In 2011 and 2012, Democrats and groups representing police and firefighter members of an open plan known as LEOFF 2 pushed to merge that plan with LEOFF 1.
Some of the same groups that backed that one oppose the Republican-proposed merger. The state firefighters’ council raised legal issues and questioned merging two closed plans with no new members to bring in more money as a counterweight to the risk of an economic downturn.
Here we have a policy whose principal purpose is to balance the budget on the backs of retired firefighters and police officers.
Sen. Steve Conway, D-Tacoma
While LEOFF 1 benefits are among the state’s most generous, retired police and firefighters recall the sacrifices they had to make to earn those benefits.
Safety precautions in a normal workplace went out the window when responding to a fire, said Bob Fuhrman, who spent more than 29 years with the Tacoma Fire Department and now lives in Lacey.
A swinging hose knocked Fuhrman through the wall of a burning plywood plant, damaging his knees.
Deputies at the Thurston County Sheriff’s Office in the early 1970s had to buy guns and ammunition out of their own pockets, said Mark Curtis, a deputy there for 35 years.
“We didn’t cry about it,” Curtis said. “We were just glad to have the job.”