Zarelli plan to cut retirement benefits draws foes
Senator says reductions for state employees will save $2.3B over 25 years
Thursday, February 2, 2012
A Southwest Washington lawmaker’s plan to cut retirement benefits to future state employees received plenty of flak during a public hearing on Thursday.
State Sen. Joseph Zarelli, R-Ridgefield, said his bill would save the state $2.3 billion over 25 years.
Part of the proposal “frees up money we can use now in our current budget crisis to the tune of $130 million,” Zarelli said during the hearing. The state faces a $1.5 billion budget shortfall.
But several union groups showed up on Thursday to oppose the legislation, saying Senate Bill 6378 would discourage people from a career in public service. Public service jobs such as teaching don’t pay as well as jobs in the private sector, but their draw has been stable benefits, opponents of the bill said.
“Our system works well, and I don’t see a reason to reform,” said Matt Zuvich of the Washington Federation of State Employees. He added that Washington state’s pension plan is rated one of the top three in the nation.
The proposed bill would exclude future teachers, classified school staff, some law enforcement staff, and local and state government employees from the state’s “Plan 2” retirement plan, which guarantees a certain amount of money upon retirement. Instead, these types of state employees hired after July 1 would automatically be enrolled in the state’s “Plan 3,” a hybrid retirement option that in part resembles a 401(k) plan.
Part of Plan 3 is a defined-contribution plan, allowing employees to contribute between 5 and 15 percent of their pay into a retirement fund. Under the other part of Plan 3, the employer contributes a defined benefit that, for each year of service, puts 1 percent of the employee’s final average salary into their pension fund.
Currently, new state employees get to pick between Plan 3 and Plan 2. Under Plan 2, employees get a 2 percent defined benefit from their employer instead of 1 percent. Additionally, the employer matches whatever the employee is required to put into the retirement plan. This required contribution fluctuates and is decided by the Office of the State Actuary.
Under current rules, if a new employee does not choose a plan after their 90th day on the job, they are automatically enrolled in Plan 3.
Retirement plans for certified teachers, classified school staff, and local and state government workers are the largest public pension plans in the state. The state has eight retirement groups. Washington State Patrol workers have a retirement system, as do judges, judicial staff, police officers and firefighters. The law enforcement staff included in Zarelli’s bill are those employees who do not qualify for the state’s Law Enforcement Officers’ and Fire Fighters’ Retirement System.
In 1977, state employees could no longer enter the state’s “Plan 1” option, but the state continues to struggle with payments to some state employee groups who retired under Plan 1. The state makes payments to cover their liability to Plan 1 benefits, but Zarelli’s legislation would suspend that $130 million payment in the year 2013 only. Zarelli said public pension plans are one of the larger costs for the state, and his bill would help the state financially in the long run.
“A reform doesn’t have to be some big shift in policy that saves hundreds of millions of dollars in one swoop, as helpful as that would be for closing the budget gap,” Zarelli said last week in a new release. “The point of a reform is to move government in a more efficient, cost-effective and sustainable direction.”
The bill also would eliminate early retirement benefits for the state employee groups mentioned in the bill. Employees could still retire early, but they would receive a larger payment reduction for doing so.
Don Carlson of the state’s Select Committee on Pension Policy said that he didn’t support all parts of the bill, but he could support eliminating the current early retirement benefits.
“We’re living longer and doing well at age 65 and 70,” he said.
The legislation has four additional sponsors, including Democrat Rodney Tom of Bellevue. If it passes, the bill is expected to cost the state about $175,000 to implement the changes, according to a fiscal analysis by the state’s Office of Financial Management.
Opponents of the legislation argued that the defined-contribution part of Plan 3 would be less stable for the state and riskier for state employees.
“In the 2008 economic crash, we saw exactly the volatility of 401(k) plans,” said Seamus Walsh Petrie of the Washington Public Employees Association.
Other opponents testifying said they thought putting off payments toward Plan 1 would only hurt the state further down the road. Some also worried about the financial impact the bill would have on school crossing guards and other classified school staff, who sometimes make near-minimum wages.
Zarelli defended his proposal to several of those testifying. Regarding Plan 3, he said: “Half is a defined benefit. Half is a defined contribution. It’s kind of a happy medium.”