THE Great Recession blew a hole the size of the Space Needle in the stock holdings of the City of Seattle’s pension fund. As a result, Seattle taxpayers face a nearly $1 billion gap between the pension fund’s assets and the city’s promises to 10,400 current and past employees.
The Seattle City Council, led by Councilmember Tim Burgess, recognized the magnitude of the unfunded liability and began working to dig out, with a review in 2010 and small tweaks to the fund. This year, the council and Mayor Ed Murray must go further during upcoming labor negotiations.
The least risky approach would be to transition new employees to a defined-contribution plan, such as a 401(k), which is increasingly the standard in the private sector. That is politically unlikely in Seattle. But a new analysis of the Seattle City Employees Retirement System by retired state Auditor Brian Sonntag also includes reasonably modest changes that could eliminate taxpayers’ unfunded liability while ensuring generous benefits to future employees.
Currently, city employees can retire after 30 years once they reach the so-called Rule of 80: If the employee’s age plus years of service equal 80, he or she is eligible for retirement. This means a worker hired at age 25 who puts in 30 years could retire at age 55 with only a small decrease in full benefits.
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Upping that formula to the Rule of 90 for new hires, with only slightly higher penalties for early retirement, would effectively erase the unfunded liability while still ensuring benefits that are the envy of private-sector workers. The pension pays up to 60 percent of a worker’s average last two annual salaries.
Annual returns for the city pension fund rebounded since the pit of the Great Recession in 2008, when it lost nearly 27 percent. But there is no reason to expect another crash can be avoided.
Left unattended, unfunded pension liabilities chart a course for civic bankruptcy, as seen in several cities in California as well as Detroit. Charting a different course, through longterm planning and partnership with municipal labor unions, can be both smart and fair.
Editorial board members are editorial page editor Kate Riley, Frank A. Blethen, Ryan Blethen, Sharon Pian Chan, Lance Dickie, Jonathan Martin, Thanh Tan, William K. Blethen (emeritus) and Robert C. Blethen (emeritus).