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Bailey bill would accelerate pension payments,
save gain sharing
Plan would preserve fairness for state workers,
save taxpayers billions
Rep. Barbara Bailey
has introduced legislation that would allow the state to catch up on its missed pension payments, saving taxpayers
$4.3 billion, while also
preserving "gain sharing" for thousands of state workers and retirees.
"For too long, the
Legislature has neglected its responsibility of fully funding the state
pension system. The state is supposed to pay into the system every year,
but in tough years, it has skipped payments and failed to meet its
pension obligations," said Bailey, R-Oak Harbor. "Pensions are like mortgages. If you
skip those payments, it isn't long until the balance becomes so high and
unmanageable that it is nearly impossible to catch up."
Bailey noted that $431
million in unfunded liability payments have been skipped. Historic
underfunding has created a $5.7 billion gap in Plan 1 of the public
employees' and teachers' retirement systems (PERS 1 and TRS 1).
"Those skipped payments
have been refinanced into the unfunded liability payments going into the
future. That has added a large amount of interest to the unfunded
liability payments, putting taxpayers on the hook for millions and
millions of dollars," noted Bailey, a member of the Select Committee on
Pension Policy. "This is a serious problem in our state's pension
system. If we do nothing to address these escalating costs and then the
state finds itself with future budget deficits, it will be very
difficult to meet those obligations and will put a strain on future
budgets."
Today Bailey introduced
House Bill 2116, a measure that would catch up previously skipped
payments in PERS 1 and TRS 1 through a three-to-four year temporary
payment schedule for all employers. This would be in addition to
regularly-scheduled amortization payments.
"Now that we have a $1.8
billion surplus, we need to take action to meet this responsibility and
pay the pension bill," said Bailey. "We also need to make some decisions
about gain sharing, which will increase the unfunded liability by
millions of dollars into the future."
Gain sharing increases
retiree benefits when the pension fund has repeated gains. The program
was approved by the Legislature in 1998 when dot-com stocks were
hot. At the time, lawmakers were told gain sharing would be
budget-neutral, meaning the state wouldn't have to pay for it. Instead,
Bailey said gain sharing is rapidly becoming very expensive for the
state, accounting for $900 million of the state's unfunded liability in
the pension system. Bailey's bill would provide needed reforms while
preserving gain sharing.
"By making some
modifications, this proposal preserves gain sharing as a benefit in both
Plans 1 and 3 and allows the Legislature to be fair for existing state
employees," noted Bailey.
HB 2116 would increase the
threshold from 10 percent to 14 percent for gain-sharing distributions
beyond 2008. The measure would preserve gain sharing in Plan 3 for state
employees hired before July 1, 2007, but eliminate the benefit for new
employees hired after that date. It would also allow TRS and SERS
(School Employees Retirement System) members to choose between Plans 2
and 3 at the time of hire.
"The governor's proposal
eliminates gain sharing altogether. Yet, her plan doesn't make any
effort in catching up our skipped payments. Plus it adds an entirely new
and expensive benefit in Plan 3 which my proposal avoids," added Bailey.
"I believe my proposal is the better plan, because stabilizes rates
for both local and state contributions, it still
provides for gain sharing, it helps us catch up on our skipped unfunded
liability payments, and it will ultimately save taxpayers $4.3 billion
over 25 years."
The measure has been
referred to the House Appropriations Committee.
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HOUSE BILL 2116 AT A GLANCE
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Eliminates gain
sharing for all new members hired after July 1, 2007. Preserves gain
sharing for existing state workers and retirees.
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Increases the
threshold from 10 percent to 14 percent for gain-sharing
distributions beyond 2008.
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Provides choice
between Plan 2 and Plan 3 at hire for TRS and SERS members (Choice
currently available in PERS).
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Catches up
previously-skipped Plan 1 unfunded liability payments in PERS 1 and
TRS 1 via a three-to-four year temporary payment schedule for all
employers (in addition to regularly scheduled amortization
payments).
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Estimated 25-year cost
savings: $4.3 billion total ($1.9 billion - General-State)
For more information, contact: John
Sattgast, Information Officer: (360) 786-7257
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