A proposal to merge two older pension funds is a smart way for Washington state to save money that’s needed for education.
AS the state of Washington struggles to pay its bills for education, mental-health care and other pressing needs, lawmakers must be thoughtful and creative.
Such an opportunity is a proposal to merge two older pension plans.
One plan, for firefighters and law-enforcement officers, was overfunded by the state, creating a $1.2 billion surplus. The other, for teachers, is underfunded, creating a drain on school districts paying to close the gap.
Merging these plans — as proposed by state Sens. Andy Hill, R-Redmond, John Braun, R-Centralia, and Doug Ericksen, R-Ferndale — would save money all around without lowering any retiree benefits. Their bill, SB 6668, includes promises to fully preserve pension payouts.
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The merger would save the state $244 million in its next budget cycle and an estimated $1.5 billion over the next 25 years. School districts would save another $603 million — money they could spend on education instead.
Such a common-sense proposal should be a slam-dunk.
But because it trims a pension fund for firefighters and police, and because the state has a mixed record of supporting pensions, it’s controversial. During a hearing last week, opponents characterized it as raiding retirement benefits of those who risked their lives for our safety.
That’s simply not the case. Their benefits are guaranteed and the merger proposal explicitly pledges to preserve them. It also sweetens the deal by offering $5,000 bonus checks to around 7,800 police and firefighters in the plan.
Citizens are all grateful for the tremendous service of emergency responders.
At the same time, there is no reason for the state to hoard $1.2 billion in a fund where it is not needed. Otherwise, this surplus just sits there for decades until the last beneficiary passes away.
Meanwhile, the state is under court orders to fix deplorable conditions in its mental-health-care system and remedy its unconstitutional underfunding of public schools.
If lawmakers are unable to perform this relatively simple accounting maneuver, how will they ever approve more complex and controversial financial deals needed to fix school funding?
The teachers’ pension, TRS 1, was created in the 1930s by merging local pension systems and closed in 1977, when it was succeeded by a different program.
TRS 1 has about 36,000 members and is underfunded, but apparently not enough to raise concerns of bond-rating agencies. A January report by Moody’s said Washington’s “aggregate pension funding is relatively strong.”
The other pension, Law Enforcement Officers’ and Fire Fighters’ (LEOFF) Plan 1, was created in 1969 by merging city and county pensions for firefighters and law-enforcement officers. The state in effect bailed out municipalities, rolling their pensions into one and covering its shortfall. LEOFF 1 closed to new members in 1977.
The state contributed 77 percent to the LEOFF 1 fund, employees contributed 11.5 percent and municipalities 11.5 percent. Now it has 27 percent more funding than needed, according to state estimates.
In other words, because the state gave so much to LEOFF 1, there’s enough to fully pay pensioners, cut the teachers’ pension shortfall, save the state $1.5 billion and save school districts another $603 million.
Cities and counties are also angling for a share of the surplus. Their needs may be legitimate but they should look elsewhere.
There is a risk that an economic downturn and a streak of poor investment returns could erase the surplus. Either way, the merger proposal pledges to maintain LEOFF 1 benefits. Such a sharp downturn would negatively affect all state pension plans.
The pension merger was proposed in the Senate budget and approved March 3 by the Senate Ways and Means Committee along partisan lines. It should be part of the final budget.
One way to overcome resistance could be to earmark all the savings for K-12 education, which will need that much and more in coming years.
This proposal protects the retirement of hardworking police and firefighters, shores up teacher pensions and improves children’s education. It truly is a slam-dunk.