Washington Pension Funds have a Multi-Billion $ Problem

Our Legislators gave a plum called "gain sharing" to the state pension Funds in 1998 that wasn't supposed to cost anything to the taxpayers. Now the latest estimate is that it will cost an additional $9 billion over 25 years. And the proposals to "fix" the problem are very, very generous to the workers, but hard on taxpayers. Seattle Times on the plan:

The Legislature approved a plan that increased retirement benefits for government workers when investment returns exceeded expectations. Basically, the law says that when the average rate of returns exceeds 10 percent over four years, half of that excess profit goes to workers through enhanced retirement benefits.

For example, some workers get cash payments into individual retirement savings accounts. The other half of the excess profit gets plowed back into the pension fund to help protect against future downturns in the market.

Gain-sharing created several problems for the state pension system, but the biggest one is that it effectively reduces the rate of return from state investments over time.

When the stock market is hot, gain-sharing skims off cash that could otherwise offset future losses.

The current estimate is that it will cost an additional $9 billion over 25 years.

The estimates, which deal with the cost of a pension perk that shares stock-market profits with retirees, predict a tab of more than $9 billion over 25 years if the benefit is kept. That's about four times what state officials were contemplating in December.

"It's a much bigger price tag than people realized," said Senate Majority Leader Lisa Brown, D-Spokane, referring to recent research done by the state Actuary's Office.

Late last year, state officials estimated the cost of the benefit, called gain-sharing, at about $2.3 billion. However, at the time, lawmakers were focused on one plan in the pension system, a plan that covers mostly workers who have already retired. The projected cost of gain-sharing ballooned after a new state study took a thorough look at how the benefit affects the entire pension system.

They know they have a problem and are addressing it. I saw pre-session statements by several senator and representatives that tackling pension problems was a priority. I assumed they were talking about this.

So what is proposed? First, to do nothing.

House Majority Leader Lynn Kessler, D-Hoquiam, said House Democrats are mixed about whether to tackle the problem this session or wait until next year. "There's a concern with some folks that we haven't had enough time to cook it and figure out what to do," she said.

The two proposals on the table would also costs billions. First,

Senate Bill 6795 would authorize a pension cost-of-living increase for some workers and a guaranteed rate of return on certain investments for others.... The estimated total cost to state and local governments combined could be close to $2 billion over the same time period. (25 years)

My retirement program has no cost-of-living increase ever. Should we give state employees something we don't get?

Now, keep a straight face. The second proposal to get the state out of this fix is early retirement at full benefits. A teacher who starts work at age 22 could retire at age 56 with the pension intended for someone who worked until 65.

Another measure, Senate Bill 6445, commonly referred to as the "rule of 90" bill, would let workers combine their age with the number of years they've worked in government service. If the total reached 90, they could retire with full benefits. That would let some longtime government workers retire in their mid- to late 50s.

That's replacing a big problem with a smaller one. How about returning to what we taxpayers thought we had - a system that gave a comfortable retirement to civil servants who worked until 65?

Cross posted at Sound Politics.