State Plays Give-And-Take With Workers Pay Rises, But Pension Contributions Reduced

The Public Employee Retirement System Board on Tuesday voted to cut government and employee pension contributions by over $47 million in the coming year, opening the way for state pay increases denied by budget-cautious lawmakers.

The board action affects not only contributions made by the state and its 16,000 employees but also the hundreds of local governments and school districts and their tens of thousands of workers also covered by the $5 billion system.

In addition, the board endorsed the full 2.2 percent cost-of-living increase in the pension benefits being paid to 22,000 retirees. If ratified by the Legislature next winter, it will be the ninth straight year retirees have received the maximum cost-of-living hike.

Effective with the first paycheck in November, pension contributions will be cut by 1.2 percentage points for employees and 1.8 percentage points for the employing government.

The financial benefit of the reduction, in effect only through next October, will be about evenly split between the state and other governments. The board will decide a year from now whether to continue the lower rates.

They will translate into about an $8 million increase in annual take-home pay for state workers - $360 for one making $30,000 a year that would help offset the impact of rising health care costs. And it frees up another $16 million in state agency budgets that can now be used to provide pay raises for state workers neglected by the Legislature last winter.

In July, after his recommended 2 percent state employee pay raise was not underwritten by lawmakers, Batt suggested freeing up cash to raise pay anyway by cutting the retirement contribution.

Pension board chairman Jody Olson said the rate cut was possible because the dramatic growth of the pension fund, which has averaged over 17 percent for the last three years. That has reduced the so-called unfunded liability of the pension system to nearly nothing.

Dramatic growth in the stock market is largely responsible for that performance and is a major factor in whether the rate decrease will continue beyond next October.

“The long-term stability of the fund is our paramount concern, and the decisions we make are based solely on what is in the best interest of all our members, active and retired,” Olson said.

The decision to cut contributions will have no effect on pension benefits because the reduction is in a nearly 4 percent surcharge that had been imposed on employers and employees to reduce the unfunded liability.

Batt, who played a major role as a lawmaker in pension reforms aimed at reducing that liability, has said he saw no reason it could not be allowed to double or triple the current size, and analysts said a modest liability actually makes the huge fund easier to manage.