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DRS and Health Care Authority continue to identify efficiencies; end merger discussion
When Steve Hill was appointed to head both DRS and HCA, the two agencies began to explore the possibility of merging. Over the past four months, that idea has been carefully considered and evaluated. At the same time, we identified a number of areas where we could better work together to serve common customers and we started implementing efficiencies.
In June, it was concluded that merging the two agencies would neither result in significant costs savings for taxpayers nor make good business sense. It was decided, however, that we will continue to partner in streamlining our operations and increasing customer satisfaction. We will also work together to maximize shared services between the two agencies.
Steve Hill will continue in his dual role of DRS Director and HCA Administrator. In that role, he will continue to serve as chair of the Public Employees Benefit Board and as a member of the Select Committee on Pension Policy, the Washington State Investment Board and the Governor’s Health Policy Team.
State Actuary Presents Plan Funding Information to Select Committee on Pension Policy
On June 16, State Actuary Matt Smith presented information to the Legislature’s Select Committee on Pension Policy on the funding status of the state’s pension plans. Smith reported that the oldest pension plans (PERS Plan 1 and TRS Plan 1) continue to be underfunded, while the remaining plans continue to be fully funded.
Recent market losses have impacted the plans, as they have the economy in general. Under a pessimistic assumption of a 5.6 percent return on investments over the next 15 years, PERS 2/3 and TRS 2/3 could drop to 80 percent funding. While 80 percent is not fully funded, it is considered a healthy funding ratio, the actuary said.
The actuary’s Web site contains more information on that office’s role in determining the overall health and funding status of the plans and recommending any needed adjustment in contribution rates.
It is important to note that pension benefits, once earned, are guaranteed.
Lower Contribution Rates for Most Members Begin July and September
Contribution rates are going down for most members beginning July and September.
If you’re a Plan 2 member of PERS, PSERS or WSPRS, you’ll see a lower contribution amount deducted from your July paycheck. If you’re a member of TRS or SERS, you’ll see a lower contribution rate in September. Plan 1 members will not see a change.
You can see your new rate on the Contribution Rates Chart.
Contribution rates can fluctuate over time. The state actuary performs a valuation of the retirement plans every other year, studying the actual experience of each and analyzing the effects of anticipated economic and demographic changes. He also factors in the cost of any changes the Legislature makes to pensions, determining how much money must be contributed annually to pay for the benefits members are expected to earn during their public service. The new contribution rates include supplemental rates for the cost of 2008 pension legislation, but not the cost of 2009 pension legislation.
The actuary’s recommendations go to the Pension Funding Council (PFC), which is responsible for evaluating and recommending any contribution rate changes to the Legislature (except for LEOFF Plan 2). Contribution amounts are then calculated as a percentage of your pay. In a few plans, those percentages are set in statute, but for most, the Legislature can adjust the rates as needed.
For more information on public pension plan funding, visit the state actuary’s Web site.
Update on Gain Sharing
In 2007, the Legislature repealed the statutory gain sharing provisions that had allowed PERS, TRS and SERS Plan 1 and Plan 3 members to share in “extraordinary investment returns” under certain conditions. Language in the repealed statutes had stipulated that gain sharing was not a contractual right and that the Legislature reserved the right to amend or repeal it.
The 2007 Legislature also enacted new provisions for early retirement. These early retirement reduction factors (known as ERFs) allowed members of PERS, TRS and SERS Plan 2 and Plan 3 to retire at age 62 (instead of 65) with no actuarial reduction in their benefit. The factors also allowed these members to retire before age 62 with less of a benefit reduction than had previously been offered.
The repeal of gain sharing was effective January 2, 2008. Members and retirees of Plans 1 and 3 filed four separate lawsuits to challenge the repeal. The four were then consolidated into one. This month, one of the four plaintiffs withdrew from the case and that plaintiff’s lawsuit was dismissed from the consolidated action. The new ERFs are contingent on what happens in the lawsuit and will no longer be available if a court of law finds that the repeal of gain sharing was invalid and gain sharing is restored (or an alternate benefit put into place).
To date, the court has heard motions that ask it to join Plan 2 members into the case to protect those members’ interest in the new ERFs. Additional motions will also be heard and a trial date of October 27, 2009 has been set.
Administrative Factors Will be Updated
Administrative factors are the percentages we use to calculate adjustments to your retirement benefit if you choose options such as providing a survivor benefit or taking an early retirement. They are also used to calculate the cost to purchase service credit. If you requested a benefit estimate or costs for purchasing service credit in the past year, you likely received a letter from us notifying you of the update.
To find out how administrative factors might affect you and when they will change, see the FAQs.
Update: Tax Withholding Changes for Retirees Receiving a Monthly Benefit
The federal stimulus package (American Recovery and Reinvestment Act of 2009) contained a provision that changed the federal tax withholding tables. The Internal Revenue Service directed that we use the new tables to calculate the tax withheld from your retirement benefit and we did so, beginning in April. This means that you may have less tax withheld from your benefit, however, the amount of tax you owe at the end of the year might not change. more
