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 Legislature Addresses Pension Funding
Before adjourning one day early, on March 8, 2006, the Legislature decided on an approach to address the unfunded liability in the Plan 1 pension systems.
Plan 1 of the Public Employees’ Retirement System (PERS) and Plan 1 of the Teachers’ Retirement System (TRS) are not fully funded—the shortfall is estimated at $4 billion. Prior to the 2003-2005 biennium, part of the PERS employer contribution rate was directed towards paying down that unfunded liability, which by law must be fully amortized by June 30, 2024. In 2003, the Legislature suspended those payments, causing a reduction in the employer contribution rate. And they chose to continue to suspend those payments for the 2005-2007 biennium.
The Legislature has now taken action to ensure that appropriate unfunded liability payments will be made. ESSB 6896 establishes new supplemental employer contribution rates, and transfers $350 million into a new state Pension Funding Stabilization Account, from which state contributions for that purpose will be made.
The Legislature also passed HB 2681, which establishes a minimum PERS employer contribution rate of 2.68%, beginning July 1, 2009. This minimum rate is solely for the purpose of amortizing the unfunded liability in PERS Plan 1.
New Employer Contribution Rates
Effective January 1, 2007, the PERS employer contribution rate will increase an additional 1.77%. The following is a chart that shows the expected PERS employer contribution rates through June 30, 2010.
The normal rate reflects the four-year phase-in adopted by the Legislature in 2005. The resumption of the PERS 1 unfunded liability rate is also phased in, and was delayed until January 1, 2007, so as not to impact current local government budgets.
These rates do not include a rate to pre-fund the PERS 1 and PERS 3 gain-sharing benefit. Depending upon what the Legislature decides to do about gain-sharing, rates could further increase beginning July 1, 2007.
The rates could also change due to any benefit enhancements approved by the Legislature. The only other PERS bill passed this session, SB 6453, provides for a $1,000 minimum monthly benefit for certain PERS 1 retirees, and will likely increase the contribution rate by an additional .01%.
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PERS Employer Contribution Rates |
|
|
Current Rate |
Effective
7-1-06 |
Effective
1-1-07 |
Effective
7-1-07
|
Effective
7-1-08 |
Effective
7-1-09 |
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Normal Rate |
2.25% |
3.50% |
3.50% |
4.06% |
4.74% |
4.20% |
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PERS 1 Unfunded Liability |
0.00% |
0.00% |
1.77% |
2.57% |
2.57% |
3.07% |
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DRS Administrative
Expense Rate |
0.19% |
0.19% |
0.19% |
0.19% |
0.19% |
.19% |
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Total PERS Employer Rate |
2.44% |
3.69% |
5.46% |
6.82% |
7.5% |
7.46% |
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