Here in Washington, there are eight state-administered public retirement systems for state and local government employees, with 15 different plans within those systems. These systems serve nearly 750,000 current and former public employees. The retirement benefits they earn result in more than $3.9 billion in payments each year, most of which is distributed within the state.
Washington has been a national leader in designing and maintaining sustainable public pension plans. More than 30 years ago, the state undertook a comprehensive reform of its pension plans to provide reasonable benefits while maintaining healthy funding status for the plans. More recently, the state was the first to use hybrid defined contribution/defined benefit plans.
These reforms and innovations, combined with progressive investment policies, have resulted in Washington's system of public pensions being consistently ranked among the best-funded of any state in the country.
In the 1930s and 1940s, retirement systems were created for the state's public employees, teachers, judges, law enforcement officers and fire fighters. Each was independently administered until 1976, when the Legislature created the Department of Retirement Systems (DRS) to serve as the administrator of the public retirement systems. In 1996, DRS also took on the role of administering the state's Deferred Compensation Program (DCP).
Significant events in DRS history are listed below:
See Systems, Plans and Programs for a guide to abbreviations.
PERS, TRS, WSPRS, JRF and many local police and fire fighters’ retirement systems are created.
Local police and fire fighters’ retirement systems are consolidated into LEOFF.
The Department of Retirement Systems is created to administer state retirement systems.
The Office of the State Actuary is created to provide pension cost estimates.
LEOFF, PERS and TRS Plans 2 are created.
LEOFF, PERS and TRS Plans 1 are closed to new members.
The Washington State Investment Board is created to manage the investment of all state trust funds.
The Joint Committee on Pension Policy is established.
TRS Plan 3 is created (with an effective date of July 1, 1996).
DCP is transferred to DRS.
DRS assumes accounting and reporting responsibility for JRA.
SERS Plans 2 and 3 are created (with an effective date of Sept. 1, 2000).
The Pension Funding Council is created to adopt pension funding assumptions and recommend employer/employee contribution rates.
PERS Plan 3 is created (with effective dates of March 1, 2002, for state and higher education employees and Sept. 1, 2002, for local government employees).
WSPRS Plan 2 is created (with an effective date of Jan. 1, 2003).
Voters approve Initiative 790, establishing the LEOFF Plan 2 Retirement Board (with an effective date of July 1, 2003).
The Joint Committee on Pension Policy becomes the Select Committee on Pension Policy.
PSERS is created (with an effective date of July 1, 2006).
Most of Washington's public pension plans are designed to be prefunded, which means they accumulate the assets needed to pay a member's retirement benefits during the member's working years. The Judges' Retirement Fund and the Judicial Retirement System (both closed to new membership) are funded on a pay-as-you-go basis, which uses current receipts to pay current benefits.
Both public employers and their employees contribute to the retirement plans. The amounts they contribute are calculated as a percentage of the employee's pay. In a few plans, those percentages are set in statute, but for most, the Legislature can adjust the rates, as needed. The Washington State Investment Board collectively invests the contributions and the earnings on those investments help to fund the plans.
The Office of the State Actuary (OSA) performs a valuation of the retirement plans every other year, studying the experience of each and analyzing the effects of anticipated economic and demographic changes. In the valuation, OSA determines how much money must be contributed annually to pay for the benefits members are expected to earn during their public service.
OSA's recommendations then go to the Pension Funding Council, which is responsible for evaluating and adopting employee and employer contribution rates (subject to review by the Legislature). There is one exception — rates for the Law Enforcement Officers' and Fire Fighters' (LEOFF) Plan 2 are evaluated and adopted by the LEOFF Plan 2 Retirement Board.
A plan with assets that equal its liabilities is termed fully funded, which means the value of the assets on hand equals the plan's accrued liabilities. Any gap between the benefits earned and a retirement plan's assets is referred to as an unfunded liability. A plan with unfunded liability is considered underfunded.
The biggest difference between fully funded and underfunded plans is that underfunded plans must finance benefits that members have earned in the past, in addition to those that continue to accrue each year. A fully funded plan only needs to finance the benefits that accrue with each additional year of a member's service.
Overall, the Washington state retirement plans are in a solid funding position. Only two of the state's large retirement plans — PERS Plan 1 and TRS Plan 1 — have an unfunded liability. In 1989, the Legislature enacted a policy that requires bringing those plans to fully funded status by the year 2024. As a result of that commitment, each will have the resources to pay earned retirement benefits into the future.
Further information on public pension plan funding is available on the OSA website.