Here we go again!

On Friday the 12th a new bill was dropped in the Senate.
That bill, SB 5453, is the latest version of a merger.
(Download the bill here.)

This new plan would do the following:

  • Merge TRS Plan 1 and LEOFF Plan 1 into a new retirement system, called “the merged LEOFF1/TRS1 retirement plan.
  • Provides a $20,000 payment to all LEOFF Plan 1 members or survivors.
  • Transfers the funds from the LEOFF Plan 2 Benefit Improvement Account into the LEOFF Plan 2 Retirement Fund to provide a benefit improvement to LEOFF Plan 2 members.
  • Provides a $20,000 payment to all LEOFF Plan 2 retirees or survivors with at least 15 years of service.
  • Beginning January 1, 2022, provides active members of LEOFF Plan 2 with more than 15 years of service credit a retirement benefit as follows:
    • 2% of such member’s final average salary for the first 15 years of service;
    • 2.5% of such member’s final average salary for the 10 years of service between 15 and up to 26; and
    • 2% of such member’s final average salary for years of service above 26.

We do not really see anything that would encourage LEOFF 1 members to want to buy into this. It is interesting that they will transfer the $300m they took out of the retirement account couple years ago back into the retirement account. The LEOFF 2 Board and LEOFF 2 organizations have, since the last transfer, been very open that their plan is to keep the LEOFF 2 funded status at the minimum (125%) and transfer any excess to the benefit improvement account. This tends to protect LEOFF 2 from intentional under funding.  TRS funding at 69% shows what happens when the legislature fails to meet their obligations.

Also, the tender of $20,000 was pretty much seen as an insult by LEOFF 1 the last time they tried to advance a merger.  Nothing has changed on that front and I would expect such an offer would be rejected out of hand.

If the legislature really wants to shut down LEOFF 1 they should first come to us in hopes of finding some common ground.  Instead, they push bill with no notification and ridiculous terms.

A Bit of Pension Funding

I one examines the funding of those pensions that are in deficit they discover that in almost all case it is the result of not funding the pension properly.  Governments have discovered that if they just do not put the funding into the system nobody seems to care until the deficit get too extreme.  LEOFF 1 was not funded for its first five years. When it became obvious that the fund was in trouble the legislature created special funding program to restore its status.  That combined with successful investment returns made LEOFF 1 one of the best in the nation.  Now that LEOFF 1 is healthy they want to get money out of the system. That runs afoul of the Exclusive Benefit rules from the IRS.  That rule says very clearly that the money in the system can only be used to enhance the benefits of the beneficiaries.  By not putting the money in at the front end the deficit grows.  So, states choose not to pay the pension premiums and cover the deficit out of pocket.  They then cry poor and threatened when the time comes to pay. They get around the Exclusive Benefit Rule by never putting the money in in the first place.

LEOFF 1 has been fully funded since 2000.  Neither the state, cities nor employees have paid a dime since then.  So, the state cannot skip their premium payments because there are none. 

The state hires high end tax attorneys to review all their plans and those groups are careful to say that the state can produce a plan that meets the rules except that they cannot produce a plan by breaking those rules.  ICE MILLER is the premier tax law firm used by the city and most other large cities and corporations to ensure their programs are legal.  Even they agree that the city can’t steal from one system to create a new system using the money inf the first system.

More to Come

It is early days—the bill has just been introduced and LEOFF 1 organizations are mobilizing to resist yet another attack. 

Please follow us as we will be publishing additional information as the details become clearer.  Also, note that current revenue projections for the state exceed 7% in growth—the state is not broke they just have so many things they want.

In the meantime, you might be interested in some articles for previous attacks.

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