The Senate 2012 supplemental proposal would make changes to public employee retirement plans. ESB 6378 passed the Senate March 3, by a vote of 25-24.

It would close Teachers’ Retirement System (TRS), School Employees’ Retirement System (SERS), and Public Employees’ Retirement System (PERS) Plans 2 to new entrants as of July 1, 2012.  It would also make such employees ineligible for subsidized early retirement.

Additionally, the bill would suspend the required employer Plans 1 unfunded actuarial accrued liability (UAAL) payments for PERS, the Public Safety Employees’ Retirement System (PSERS), SERS, and TRS for fiscal year (FY) 2013.

Currently, new employees may choose to enroll in either Plan 2 or Plan 3 of PERS, TRS, or SERS.  The Plans 2 are defined benefit plans, while the Plans 3 are hybrid defined benefit and defined contribution plans.  Since 2007, enrollees in the Plans 2 and 3 have been able to take advantage of a subsidized early retirement option.

The supplemental budget documents estimate that these provisions would save the state $143.1 million (NGFS+) this biennium.  The documents also state that future savings “as a result of the elimination of early retirement options will be used to fund additional employer contributions, allowing the Plan 1 unfunded liabilities to be paid off more quickly than under current law.”

As part of the fiscal note for ESB 6378, the state actuary estimates that the provision suspending the Plans 1 contribution would result in total employer savings of $394 million in FY 2013, but cost $473 million over 25 years.  Closing Plans 2, the actuary estimates, would result in total employer savings of $1 billion over 25 years.  According to the actuary,

Generally, we found affordability measures improved while pay-go risks increased.  More specifically, the suspension of the UAAL payment increases Plan 1 pay-go risk since fewer assets are available to pay benefits on average.  We found the removal of the subsidized [early retirement factors] improves affordability by lowering required contributions throughout the projection period.

For more information on public pensions in Washington, see our policy brief from last year.