Pension Contribution Rates Expected to Jump Dramatically

As local governments scramble to put the finishing touches on 2005 budgets, the news of significant pension rate increases is certainly not welcome. The LEOFF 2 Board approved an employer rate of 4.32%, effective July 1, 2005. The State Actuary has recommended a PERS employer rate of 5.73%, which includes the cost of recognizing the liability associated with future gain-sharing benefits. Without that component, the Actuary’s recommendation is 5.08%.

Rates Not Set in Stone

Keep in mind that a number of things could happen between now and July 1 that could impact the rates.

• In an attempt to soften the budgetary hit on employers and employees, both the LEOFF 2 Board and the Select Committee on Pension Policy (SCPP) are considering a variety of proposals (see below) to phase increases in more gradually - perhaps on an annual basis.
• On the other hand, the LEOFF 2 Board and the SCPP are also considering proposals for benefit enhancements. If new benefits are adopted by the Legislature, the rates would need to increase.

More About Proposals to Phase In Rates

The SCPP and the LEOFF 2 Board are cognizant of the financial hardship significant rate increases impose on both employers and employees alike, and are looking for ways to ensure long term stable rates. The LEOFF 2 Board has proposed a weighted annual phase-in of rates over four years.

The SCPP is considering proposals for four-year or six-year phase-ins of projected PERS rates, with the potential for a permanent rate floor. Any proposal to phase-in projected PERS contribution rate increases would represent a departure from existing funding policy and would require legislative action.

The governor’s office and key legislative budget writers are seriously looking at some of these proposals. There are definite signs that point to legislation being advanced that would change the process, resulting in rates lower than those previously announced.

Putting Things in Perspective

Although the thought of a PERS employer contribution rate of more than 5% is difficult to swallow, it is important to remember that as late as June of 1999, the PERS employer rate was 7.32%. And as the rates dropped dramatically after that (in part due to high investment gains), we’ve consistently warned employers to expect that trend to reverse itself and to plan for future rate increases. And while a few years of lower rates helped employers get through some budgetary hard times, contribution rates are now beginning to return to their long-term expected levels.

As developments occur, we’ll post them on our website at www.awcnet.org.

 
[ previous article ]  [ return to top ]  [ next article ]