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Published on Monday, December 12, 2016

LEOFF 2 Board completes merger study

During the 2016 session, the Senate considered a bill to merge the LEOFF 1 (Law Enforcement Officers’ and Fire Fighters’) and TRS 1 (Teachers’ Retirement System) pensions systems. While the bill did not advance, the final budget directed the Select Committee on Pension Policy (SCPP) to study a possible LEOFF 1 and TRS 1 merger and to update a 2011 study on a potential LEOFF 1 and LEOFF 2 systems merger.

The LEOFF 2 Board has completed an updated report on a potential LEOFF 1 and LEOFF 2 merger. The report makes no recommendations but does conclude that it is possible to merge the two pension systems in a way that should withstand legal challenge and be approved by the Internal Revenue Service. LEOFF 1 retiree groups have said that they will challenge any proposed merger in court. The merger would also be subject to IRS approval which would take a minimum of 6 months for its review.

The SCPP is meeting on December 13, and they will release their study of a possible LEOFF 1 and TRS 1 merger at that meeting. Based on earlier briefings, we anticipate that the conclusions will be similar: a legal merger is possible.

AWC has not taken a position on merging pensions systems. However, AWC has developed a list of policy issues cities would need addressed should a merger be proposed. One of those policy positions is that should a merger occur that would withdraw any of the surplus funds out of LEOFF 1, then cities should get a proportionate share of those surplus funds to help offset our medical benefit cost obligations for LEOFF 1 retirees. The report clarifies that it is possible under IRS rules to withdraw surplus funds only if they are used for medical benefits and only for funds in excess of a 125 percent fully funded system. Currently the LEOFF 1 system is 125.47 percent funded which would mean about $25 million would fall into the category of being available for distribution for medical costs.

At this time no formal merger proposals have been released. AWC will continue to monitor this process closely.

Categories: Personnel