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Welcome to AWC’s online library of Legislative Bulletin and CityVoice news articles and other updates.

Published on Monday, July 7, 2014

New pension rates to be set by July 31

New pension rates could mean millions of dollars for local government budgets. Rate increases are likely, given some of the changing economic and demographic assumptions presented by the State Actuary. The Pension Funding Council is tasked with setting new pension rates for 2015-2017 by the end of June for all statewide pension systems, with the exception of LEOFF 2.

The rates adopted by the Pension Funding Council will be effective July 1, 2015 (the start of the fiscal year), and remain in effect for two years. However, the Legislature has the power to make changes including phasing in rate increases over multiple biennia.

The fact that retirees are living longer is the major catalyst requiring new assumptions. Other lesser impacts include wage increases (higher contribution rates needed), delayed retirements, and fewer early-career terminations (decreased rates). Here is the Actuary’s preliminary report on the experience study and actuarial valuation.

If the experience study change recommendations are adopted, and if the expected rate of return on investments is decreased slightly, there is the possibility of a $604 million impact to local government budgets. The Actuary previously recommended a reduction in the expected rate of return on investments, and the Legislature opted to phase those changes in over time.

The current PERS employer contribution rate is 9.03%. It would be 12.29% effective July 1, 2015 if all recommendations were adopted, but again, it is likely there will be some sort of phase in. The PERS member rate would increase from 4.92% to 7%.

Pending Supreme Court Decision Could Further Impact Contribution Rates

This article provides an overview of two pending lawsuits before the Washington State Supreme Court. If the Court decision is not favorable, pension contribution rates would need to be increased even more.

In the 2013 financial conditions report, the State Actuary estimates that reinstatement of gain-sharing would increase the employer contribution rate for the 2015-17 biennium by 0.68%. Reinstatement of the Uniform Cost of Living Adjustment (UCOLA) would result in a 1.77% increase. Both would increase the rate by 2.56% (a total local government employer hit of $570 million). The actual impacts would be lower if the Supreme Court repeals the replacement benefits provided when gain-sharing was taken away, or if they only reinstate the UCOLA for some PERS 1 members, not all.

Overall, Washington’s pension systems are some of the healthiest in the nation. All but two of the pension plans – PERS 1 and TRS 1 – are fully funded. Both PERS and TRS employer contribution rates already include a component to address the unfunded liability, but it is possible additional contribution rate increases will be needed in the future if the gap widens between liabilities (pension payouts) and the available funds.

AWC continues to advocate for stable and sustainable pension rates. We are sensitive to the hazards of underfunding the pension system; however, we also recognize the fiscal impact to local budgets from rising rates. We will continue to share information as it is available.

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