Public employee pensions are under scrutiny across the nation. Liabilities are larger than contributions, owing to the temptation of legislators to postpone regular infusions to help balance budgets. A Pew Charitable Trusts report estimates the overall deficit to be $1 trillion.
Washington state’s pension system ranks fourth in the nation for soundness. All but two of its plans are carrying surpluses, but state and local governments are facing a $7 billion shortfall for the two oldest plans, PERS 1 (Public Employees Retirement System) and TRS 1 (Teachers Retirement System). Retirees and workers covered by those Plan 1 pensions began employment before 1977, which is the year the Legislature closed enrollment and reformed its too-generous system.
Thirty-three years later, the state is pondering more changes to reflect current finances. On Monday, Gov. Chris Gregoire proposed ending the automatic annual benefit increases for approximately 90,000 retirees and 15,000 workers still under those old plans. She also wants to discontinue incentives for state workers to retire early and still receive full pensions and stop the practice of workers retiring and then being rehired, which gives them a pension check and paycheck at the same time.
The total package of fixes could save the state $11.2 billion over the next 25 years.
In 1995, the Legislature agreed to give Plan 1 retirees automatic increases. The raises are based on years of service, not inflation. So even during the recession, retirees were getting annual 3 percent increases. The governor is proposing that the state return to the pre-1995 system, where the Legislature could grant increases by including them in the general budget.
If lawmakers agree to the changes, they would address 60 percent of the current pension shortfall.
We, of course, don’t expect affected retirees and workers to be pleased with the changes, but the state’s money crisis has spread pain throughout the budget. It might be a small consolation, but state and local pensioners in Washington have a relatively secure and stable system, because lawmakers have already made smart changes. Illinois delayed action too long and is now raising its retirement age from 62 to 67. Wyoming just started tapping workers for pension contributions. Utah is ending its defined benefit plan for new hires. Michigan and Alaska have gone strictly to 401(k)-style plans, a direction other public employers need to follow.
The governor is right to tackle this problem now to avoid paying more – or taking away more – later.