Politics & Government

Pension Council sets contribution rates that will jump up in 2015 for state workers, taxpayers

Contribution rates for state pensions are going up next year for Washington state employees, state government and local governments. The Pension Funding Council, which includes budget writers and the state director of retirement systems, agreed Monday to take six years to buy down new obligations in the system that runs more than a half-dozen plans for public-sector workers.

The new costs are caused by retirees living longer. Assumptions devised by state Actuary Matt Smith show that a worker retiring in 20 or 30 years will live up to two years longer than those retiring today, which drives up pension costs. State investment returns also are assumed to be falling in the long term, which requires more money to be put into the system.

Based on Smith’s assumptions, the state would need to boost investments by roughly $140 million more than previously planned if it had taken a cold-turkey approach of paying all the costs immediately – a tough path to take at a time the state needs to find potentially $1.5 billion to $2 billion new money for K-12 schools in response to court orders.

"We chose to find a balance between the budget needs of the state - the $2 billion to $3 billion deficit that we are facing versus the need to maintain a fully funded pension system,'' state budget director David Schumacher said after the unanimous council vote. “The committee chose to phase in the new assumptions and rates over six years. So as we are phasing in our McCleary obligations we are phasing this in and maintaining our pension system.''

The impact on budget writers in the 2015-17 biennium is still expected to be significant – up to $100 million, according to House Appropriations Committee chairman Ross Hunter, D-Medina. But Hunter said the phase-in reflects the philosophical approach taken on other pension changes in order to make the step-up in payments easier for local government, state budgets and employees.

Senate Ways and Means Committee chairman Any Hill, a Redmond Republican, questioned whether a four-year phase-in made more sense. The state now writes two-year budgets that need to be balanced over four years, based upon anticipated costs and revenues.

The committee favored the longer ramp up of investments, which also gives local government longer time to absorb the larger obligation.

Even under the ramped up schedule of investments, employees enrolled in Public Employees’ Retirement System 2 will see their contribution rates rise to 6.12 percent next July, up from 4.92 percent today. Similarly, those in the Teachers’ Retirement System will see rates rise from 4.96 percent to 5.95 percent, under the new approach.

The council’s action can ultimately be changed by state lawmakers, if they muster enough votes.