Legislation Eliminating Gain-Sharing Faces Legal Challenges

One day after Governor Gregoire signed ESB 2391, which eliminates gain-sharing in exchange for other pension enhancements (including reduced penalties for early retirement), the first lawsuit was filed.

The Washington Education Association (WEA) and the Washington Public Employees Association (WPEA) have both filed suit challenging the Legislature’s right to repeal the gain-sharing benefit, which was enacted in 1998. Anticipating legal action, the Legislature included a clause in the bill voiding the new benefits if the courts reinstate gain-sharing. The WEA lawsuit, however, seeks to retain gain-sharing and keep the new benefits as well.

Summary of EHB 2391

EHB 2391 eliminates the gain-sharing benefit for Plans 1 and 3 of the Public Employees’ Retirement System (PERS), Teachers’ Retirement System (TRS), and the School Employees’ Retirement System (SRS) after one additional disbursement in 2008.

It also provides additional benefits in exchange for the elimination of gain-sharing. The most significant benefit enhancement affects members of Plan 2 and 3. Effective July 1, 2008 (for PERS) or September 1, 2008 (for TRS and SERS), the bill provides a different early retirement option for members with 30 years of service, allowing them to retire with unreduced benefits at age 62.

In addition, members with 30 years of service who are between 55 and 61 will be able to retire with reduced early retirement reduction factors: 2% for a 61-year old member, 5% for a 60-year-old member, and, for members between ages 55 and 59, an additional 3% per year for each year they are younger than 60.

The bill also provides for an increase in the PERS Plan 1 Uniform COLA effective July 1, 2009, and includes other changes applicable to TRS and SERS only.

Members who retire under the improved early retirement reduction factors are prohibited from drawing their retirement benefits during periods when they work in any compensated capacity for a retirement system employer. (Other retirees can be rehired into eligible positions and work for limited hours while still receiving their pensions.) This restriction ends when the employee reaches age 65.

As mentioned before, the Legislature included language in the bill making these benefit enhancements contingent upon the repeal of gain-sharing. If the courts order reinstatement of gain-sharing benefits, the new benefits would be repealed (assuming the WEA doesn’t prevail in its attempt to keep the new benefits as well). Repeal of the new benefits would not impact those who had already retired under the improved early retirement options.

Impact on Contribution Rates

Because of the tremendous cost of the gain-sharing benefit, local governments were expecting some contribution rate relief after its repeal. However, “sweetening the pot” by offering additional benefits in exchange for the elimination of gain-sharing virtually wiped out the expected savings. And if the WEA is successful in their attempt to retain both gain-sharing and the new benefits, the rates will go even higher.

Please see the chart in the article entitled "Pension System Contribution Rates" in this edition of Personnel News for current contribution rates, adopted rates for the next biennium, and projected rates through 2013.

 
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