Gregoire urges changes in pensions, insurance

OLYMPIA – The state should cut off automatic pension increases to some state retirees and keep others from retiring and being rehired for their old jobs, Gov. Chris Gregoire said Monday. It should also revamp health insurance programs to find savings from large purchases and reductions in unneeded services, she added.

The pension changes would be unpopular, and some health care changes will not be easy, she said: “We’re in the worst financial crisis in 80 years. Now is the time to make the tough decisions.”

State workers vowed to fight some of her toughest pension proposals when Gregoire seeks legislative approval next year. Greg Devereaux, executive director of the Washington Federation of State Employees, said he would understand a call to tie increases to inflation, but “to eliminate them completely seems unfair.”

Gregoire unveiled several proposals Monday afternoon that she said could spell big savings over the next two-year budget cycle and beyond. It was part of a three-day rollout of her fiscal 2011-’13 budget.

Among the proposals floated Monday were an end to automatic increases to most of the retirees on the state’s oldest pension systems – PERS 1, which covers most public employees hired before 1977, and TRS 1, which covers teachers hired before 1977. The increases were passed by the Legislature in 1995 as protection against inflation, but with inflation low, Gregoire is calling for the state to go back to the old system of letting the Legislature vote on any adjustments it sees fit.

While the state’s other pension plans are actuarially sound, PERS 1 and TRS 1 have unfunded liabilities estimated at $7 billion. A study for the governor’s office contends eliminating automatic increases for all but the pensioners who receive the minimum benefits would save the state $368 million in the next two years. All the changes she proposed Monday would save an estimated $11.3 billion over 25 years.

The state should also get rid of early retirement incentives for new employees who choose to retire before age 65, she said. And it should make two changes in the retirement systems for employees of state universities and colleges: cap the state’s contribution to those plans at 6 percent, which it does for other state employees, and ban the practice of allowing college employees to retire and then be rehired for their old job, allowing them to collect a pension and a paycheck.

Devereaux said early retirement incentives were a trade-off the state accepted to get other changes in pension programs some 10 years ago. The concept of rehiring a retiree with special skills for a short time is fair, he said, but there have been “a few abuses that makes the entire pot black.”

The state’s concern about unfunded liabilities comes a little late, he contended: “In the Roaring ’90s, instead of giving tax exemptions to businesses they should have put money in PERS 1,” he said.

On health care changes, Gregoire wants state medical insurance plans – which cover some 335,000 public employees, family members and retirees, and some 1.3 million low-income children and families on Medicaid and other programs – to adopt a “generics first” policy for prescription drugs, divert more patients from emergency rooms to clinics for nonemergency cases, and monitor patients with histories of high-cost services.

Washington should take advantage of federal health care reform to make payments based on successful outcomes rather than the number of medical procedures and to develop a health insurance exchange that would offer more options for coverage for more people, the governor said.