The Select Committee on Pension Policy (SCPP) met today, May 15, at the State Capitol to discuss session highlights and other issues. The Select Committee on Pension Policy is a committee comprised of House and Senate members, the directors of the Office of Financial Management (OFM) and the Department of Retirement Systems, active and retired member representatives and employer representatives. A complete list of members can be found here.
The past 2012 legislative session saw 21 pension reform measures, six of which were signed into law by Governor Gregoire. Among the reforms passed, the committee received comprehensive briefings from staff on the following:
Senate Bill 6378 – “Reforming the State Retirement System” – replaces Early Retirement Factors (ERFs) for new hires, specifically, PERS, TRS and SERS employees. The legislation reduces subsidized early retirement benefits for new hires – 5% reduction for each year the member retires before age 65.
SB 6378 also requires the SCPP to study high-risk job classifications in existing retirement systems, PSERS membership and Early Retirement Factors (ERFs) for school employees. This study is due to the Legislature no later than December 15, 2012.
Finally, SB 6378 codifies lower Rate-of-Return (ROR) assumptions. They are as follows:
- 7.9% s of July 1, 2013
- 7.8% as of July 1, 2015
- 7.7% as of July 1. 2017
The committee was also briefed on HB 1552 - Regarding Pension Garnishment. The legislation included, among other provisions, changes to garnishment provisions in pension statutes. Specifically, it exempts pensions from garnishment even when in possession of the retiree, or deposited in a bank account. This decision was the direct result of a recent Supreme Court decision in which the court held that pensions are not exempt from garnishment once the funds have been paid to the retiree. Their decision noted that the legislature could change their decision by adding language to current statute. Following the Supreme Court’s decision and the passage of HB 1552, Governor Gregoire equested that the SCPP study whether additional exceptions should be made to the general rule exempting pensions from garnishment, and if so, to what extent? Next steps include a decision by the Executive Committee of the SCPP to study this issue during the interim.
Along with the two studies above, the SCPP and Office of the State Actuary (OSA) will consult with the Washington State Institute for Public Policy on its pension study and the OSA will provide continued actuarial assistance and consulting to the Guaranteed Education Tuition program, among other ongoing assignments and studies.
As well as briefings on specific policy bills, staff also held a work session on “pension spiking.” Pension Spiking is an often controversial, yet completely legal, practice where final compensation of an employee has been inflated for the purpose of increasing the pension amount. This typically happens within a few years of the employee’s retirement and can result in tens of thousands of additional dollars in retirement benefits. It is a problem because it inflates the pension system resulting in increased plan liabilities, extra costs not fully funded at the time of retirement and a loss of public confidence in the retirement system. At this time the SPCC has no plan to study or take action on the issue.
With a ballooning population set to retire, and continued uncertainty in the economy, expect pensions to continue to be an issue of interest and continued reform.