It appears as if some Washington state legislators are coming to grips with the fact that some of the state’s pension packages can’t be paid for and must be changed. It doesn’t hurt that the alterations would help close the considerable budget gap they’re facing for the next biennium.
The News Tribune of Tacoma is reporting that legislators are seriously considering cutting off the annual benefit increases given to retirees in the oldest public employee and school district pension plans known as Plan 1. Though billed as cost-of-living increases, these automatic hikes are not tied to any inflationary measures. In this way, they are different and more generous than Social Security COLAs, which haven’t been increased in the past two years because the program’s inflation index hasn’t risen.
So at a time when current workers took pay cuts or had their pay frozen and agreed to pick up more health benefit costs to help balance the state’s budget, Plan 1 retirees who worked for the state for 35 years got a $790 annual benefit boost last year, the News Tribune reported.
In 1977, Plan 1 pensions were closed to new employees as part of an overhaul of the state’s too-generous pension system. But about 90,000 people still receive Plan 1 benefits. Because the plan doesn’t have new enrollees, a significant unfunded liability has mounted. In addition, the Legislature in 1995 started the annual automatic increases to Plan 1 enrollees.
As part of her plan for the 2011-’13 budget, Gov. Chris Gregoire called for three pension reforms: End the Plan 1 COLAs, end early retirement incentives for new hires, and stop the retire and rehire exemptions for higher education workers. They all merit passage.
The COLA item has garnered the most attention, because a permanent cutoff would mean slashing in half the $6.8 billion the state owes Plan 1 retirees. Plus, the state could close its current budget gap by an estimated $410 million.
However, state employee unions and some legislative allies are suggesting this would amount to a breach of contract with those retirees. Minnesota, South Dakota and Colorado reduced COLAs for retirees last year, and all three states have landed in court. The governor and many lawmakers maintain that when the Legislature started the COLAs in 1995 it had the power to rescind them. They shouldn’t buckle in the face of lawsuits. Whatever the legal outcome, the state needs to tie future COLAs to a reasonable inflation index.
Lawmakers aren’t thrilled with ending the automatic raises, but they face budget-cutting choices that are even less desirable if they don’t. Reality suggests that they should press forward.