A major source of state savings throughout the budget outlook window is a policy change related to unfunded pension liabilities.

The state has been making extra contributions towards unfunded actuarial accrued liabilities (UAAL) in the Public Employees’ Retirement System (PERS) plan 1 and the Teachers’ Retirement System (TRS) plan 1. There is a minimum contribution rate in statute to amortize the UAALs.

The Office of the State Actuary estimates that PERS 1 will be fully funded in 2026 and TRS 1 will be fully funded in 2023. However, the minimum additional contribution rates will have to stay in place until 2029 and 2025, respectively, due to the timing of the rate-setting process. Consequently, the current rates will result in substantial over-funding of the plans. (See this post for more.)

Gov. Inslee has signed ESSB 5294, which reduces the minimum contribution rates for the UAAL. (See this post for the phase-down schedule.) The plans will still be fully funded, and state funds will be freed up for other uses.

This is jumpstarted with an extra payment toward the TRS 1 UAAL of $250.0 million from the general fund–state (GFS) in the current fiscal year. The 2021–23 operating budget had appropriated $800.0 million from the GFS to put toward the TRS 1 UAAL on June 30, 2023. ESSB 5294 reduces that appropriation to $250.0 million, saving $550.0 million in the GFS for 2021–23.

The 2023–25 operating budget, as passed by the Legislature, assumes savings from funds subject to the outlook (NGFO) of $803.8 million from the new policy. The outlook for 2025–27 assumes NGFO savings of $1.119 billion from the policy. Altogether, over the budget window (2023, 2023–25, 2025–27), the changes save the state $2.473 billion while still fully funding the pension plans.