Pension Funding Council endorses phase-in of contribution rate increases

Posted 29-Jul-2014

The Washington State Pension Funding Council has approved a graduated approach to increasing member and employer contribution rates for several of the state’s retirement systems, deciding to spread them out over the next several budget cycles.

Under a motion adopted by the PFC at its July 28 meeting, the first contribution rate increases are scheduled to take effect in the state’s next two-year budget cycle, which begins July 1 of next year.

MEMBER CONTRIBUTION RATES
  Current Effective July 1, 2015* Effective Sept. 1, 2015*
Public Employees' Retirement System Plan 2 4.92 6.12 --
Law Enforcement Officers' and Firefighters' Retirement System Plan 1 0.00 0.00 --
Washington State Patrol Retirement System Plans 1/2 6.59 6.69 --
Public Safety Employees' Retirement System Plan 2 6.36 6.59 --
Teachers' Retirement System Plan 2 4.96 -- 5.95
School Employees' Retirement System Plan 2 4.64 -- 5.63

Rates do not include DRS administrative fee.

 

*Subject to review by the 2015 Legislature.
EMPLOYER CONTRIBUTION RATES
  Current Effective July 1, 2015* Effective Sept. 1, 2015*
Public Employees' Retirement System 9.03 11.00 --
Law Enforcement Officers' and Firefighters' Retirement System Plan 1 0.00 0.00 --
Washington State Patrol Retirement System 7.91 8.01 --
Public Safety Employees' Retirement System 10.36 11.36 --
Teachers' Retirement System 10.21 -- 12.95
School Employees' Retirement System 9.64 -- 11.40

Rates do not include DRS administrative fee.

*Subject to review by the 2015 Legislature.

Additional, unspecified increases would follow in the 2017-19 and 2019-21 budget cycles.

The Legislature has the authority to revise the rates and assumptions adopted by the PFC, but is not required to do so.

In Washington, both state and local governments and their employees contribute to the funding of the employee retirement benefits. Contribution rates for the defined benefit systems are set by the PFC every two years based on analysis and recommendations from the State Actuary and input from the Select Committee on Pension Policy. The Actuary regularly recommends updates to assumptions so policymakers can adjust contribution rates as needed to fund the retirement benefits earned by members.

Contribution rates are going up as a result of updated economic and demographic assumptions. While a number of factors are affecting the cost to fund the benefits, the biggest impact comes from updated assumptions about longevity. People are living longer now and are expected to live even longer in the future. This leads to more retirement benefit payments over time, which in turn requires higher contribution rates now to maintain the health of the pension trust funds in the future.

Overall, Washington’s pension systems are considered among the best-funded in the nation. The most recent report on state pension funding from the Pew Charitable Trusts shows Washington is tied for second (with North Carolina) among all states with an overall 95 percent funding ratio of pension assets to liabilities.

For more information, see the Pension Funding Council website. Video of the July 28 PFC meeting is available on the public affairs channel TVW.