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Published on Friday, March 1, 2013

Senate hears bills to create defined-contribution pension plan for public employees

Two bills have been proposed that could replace or add to existing pension programs for non-uniformed public employees with a new defined-contribution plan, similar to a 401(k) model.

Current PERS, TRS, SERS, and PSERS Plans 2 are defined-benefit plans that provide retirement allowance based on 2% of a retiree’s final average salary for each year of service, with a normal retirement age of 65 and early retirement beginning at age 55, varying on years of service.

PERS, TRS, and SERS Plans 3 are hybrid defined-benefit and defined-contribution plans in which employer contributions finance the allowance on 1% of final average salary. Employees select a contribution rate for their plan and the retirement age is similar to Plan 2.

Sen. Rodney Tom (D-Medina) introduced SB 5856, which would create a 401(k)-type defined-contribution plan and close these existing retirement plans. SB 5856 would create the Washington Public Employees Savings Plan, which would begin on July 1, 2014, for new employees and any current members of the above plans who are under the age of 45.

Testimony from the February 25 hearing in the Senate Ways & Means Committee spoke to the possibility of legal action, citing the 1956 Bakenhaus decision which states an employee cannot be deprived of vested rights, protecting contributions and performed services.

SB 5851, a proposal by Sen. Bailey (R-Oak Harbor), is a similar bill. It also creates a new defined-contribution plan. Existing employees as well as new employees would be given the option to join the new plan. Because this version does not include the mandate that existing employees join the new plan, it may not be subject to the same legal challenges as SB 5856. This bill was also heard in the Senate Ways & Means Committee and is now awaiting action in the Senate Rules Committee.

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