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A gain-sharing plan that is
fair to retirees,
state employees and taxpayers
By Rep.
Barbara Bailey
Special to the Stanwood-Camano News
Bridget Budbill’s recent
article headlined
“Legislation would make situation even worse for educators” made
some good points about the serious problem the state is facing with the
gain-sharing retirement benefit. It’s very understandable that school
and state employees are concerned this benefit may be eliminated.
There’s one point,
however, that I think needs to be reiterated. Through some
modifications, my proposal,
House Bill 2116, would retain gain
sharing for those currently eligible while making it more
sustainable.
The other two plans
would eliminate gain sharing entirely.
Those include the governor’s proposal (House
Bill 1771/Senate
Bill 5779) and the House Democrat proposal (House
Bill 2391). A
Senate measure which would have retained a portion of gain sharing
for some, but not all workers, was introduced, but died without a
hearing.
Gain sharing is a complicated issue, but it works like this: If
invested pension fund market returns average 10 percent or more over the
prior four years, half of the excess returns are shared with pension
plan enrollees in a gain-sharing benefit. The other half would go to pay
down the state’s unfunded pension liability.
When lawmakers approved
gain sharing in 1998, they thought it wouldn't cost the state any money.
The stock market was booming, and double-digit returns from pension-fund
investments seemed commonplace. Moreover, it was not understood at the
time that gain-sharing benefits had to be funded on an ongoing basis and
not just when benefits were paid out.
It is now estimated that
gain sharing could cost taxpayers as much as $6.7 billion. Consider the
state’s four-year suspension of payments toward the unfunded liability
of Plan 1, currently estimated at $5.7 billion, and we’re talking some
real money.
If we do nothing, gain
sharing will substantially increase the state’s overall pension
liability at a time when escalated pension costs are already squeezing
the rest of the budget. That’s not fair to retirees, state workers or
taxpayers.
The question then is,
which plan is most fair to all?
The majority party is
advancing
HB 2391 (also known as the Fromhold bill) which eliminates
gain sharing. It replaces the benefit with a higher
cost-of-living adjustment for some and a reduced penalty for those who
retire after age 55 with at least 30 years of service.
By contrast, my
legislation,
HB 2116, would allow members enrolled in the state’s retirement
Plans 1 and 3 before July 1, 2007 to retain their gain sharing
benefits. However, it would change the “trigger” for gain
sharing from 10 percent to 14 percent. This makes it a more prudent and
reasonable benefit, reserving it for times when there really are
“extraordinary gains” in state investment returns as the 1998
Legislature had originally intended. The state actuary projects that the
gain-sharing trigger would still be hit, just not as often.
By retaining gain sharing
for those currently receiving it, my plan keeps faith with members who
switched in 2002 from Plan 2, which had no gain sharing, to Plan 3,
which did.
The Fromhold bill would
provide costly, new benefit enhancements even to those who never had
gain sharing. Under that measure, however, classified school employees
would give up hundreds of millions in gain-sharing benefits, but get
back very little in replacement benefits because relatively few would be
able to take advantage of the new early retirement option. Where’s the
fairness in that?
Here’s one more very
important issue where the Fromhold bill falls short. It does nothing to
pay down the $5.7 billion unfunded liability in the state’s pension
system. Instead, it uses savings from the elimination of gain sharing to
pay for other new state programs and services.
My plan would get us
caught up on payments to the unfunded liability that were skipped in
2002 through 2004. That would save $454 million over 25 years. In total,
my proposal would save taxpayers $4.3 billion over the next 25 years,
far more than is saved by the competing proposals. If you can’t get
caught up on these payments when we have a $2.2 billion budget surplus,
when can you?
Gain sharing was never a
promise. In fact, the 1998 legislation stated there is no contractual
right to the benefit, and that the Legislature could modify it or repeal
it in the future. Nevertheless, it is an expectation that should in some
way be honored.
I understand why state
employees and retirees are concerned. They have counted on this benefit
for their futures. I also hope they understand that if the majority
party’s bill is adopted, they will lose this benefit forever. Not so
with my proposal.
My legislation is the ONLY
plan on the table that would preserve gain sharing and pay down the
unfunded liability in our pension system, and the plan which would
produce the most savings for taxpayers. It keeps faith with this
expectation, restores fairness among our state employees and retirees,
and ensures responsible management of tax dollars for the citizens of
Washington.
# # #
Editor’s note: Rep.
Barbara Bailey, R-Oak Harbor, is in her third term serving the 10th
Legislative District, and is a member of the
Select
Committee on Pension Policy and the
House Appropriations Committee.
For more information, contact:
John
Sattgast, Public Information Officer: (360) 786-7257
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