Battle over merger of state pension funds unresolved

Officers and firefighters: Proposal might allow state to skip payment

BRAD SHANNON AND ANDREW GARBER; Staff writer The Seattle TimesMarch 7, 2012 

OLYMPIA – A political tug-of-war over a potential $1.2 billion surplus in one of the state’s oldest, richest pensions is unsettled as the Washington Legislature enters the final 48 hours of an unpredictable session in search of any loose money.

In one sense, the fight is over control of a potentially fat surplus in the closed Law Enforcement Officers’ and Firefighters’ Plan 1 pension. It has only 228 remaining active members and less than 8,000 pensioners.

The proposal is to merge that older LEOFF 1 plan into the newer, less costly LEOFF 2 plan that opened to state hires in 1977. Besides shoring up the plans, backers say the merger offers lawmakers a chance to skip a $75 million pension payment this year.

That is a sizable bit of extra cash that could smooth budget talks that, as of Tuesday, were still high-centered over how to plug the $1 billion budget hole before Thursday night.

“I wouldn’t say it was dead. I think it got more complicated,” House Majority Leader Pat Sullivan, D-Covington, said of the merger. “It’s like a basketball game. You can watch it at the start, but at the end it’s the last two minutes that count. … There are a lot of things much more likely today than two days ago.”

“I think it’s still on life support,” said Democratic Sen. Ed Murray of Seattle, chairman of the Senate’s budget-writing committee.

Sullivan and LEOFF 2 proponents see the merger as a way to make both plans more financially sound long term. The LEOFF 1 camp isn’t so sure.

“I think it’s 50-50,” said Mark Curtis, a former Thurston County sheriff’s captain and lobbyist for the LEOFF 1 Coalition, which represents more than 4,000 families covered by the pension system and opposes the merger.

Among the disputes is who gets to say how much money the state, local governments and participants must pay into the pension trust funds each year.

The bill gives that job to the LEOFF 2 board created by a firefighter-backed initiative a decade ago. Curtis’ group claims its retirees could be left off the new governing board – or outnumbered, causing fears the surplus could be used to justify raises for LEOFF 2 members’ pensions.

The state actuary says there’s no immediate threat to the pensions. And Sullivan said the Legislature could skip the pension payment without merging the two plans.

“In my 10 years here in Olympia, I think it is the most pathetically stupid, fiscally irresponsible bill that I’ve seen,” said Sen. Rodney Tom, D-Bellevue, who sits on the Senate Ways and Means Committee.

The state Department of Retirement Systems expects that if Plan 1 is left alone, the $1.2 billion surplus will revert to the state once all its members are deceased. That may be decades away, yet it’s still a pile of money, Tom said.

“If the Legislature passes this bill, it shows that we’re completely incompetent fiscally and the citizens of Washington state should grab their checkbooks and hide them,” he said.

Other than the cash windfall, the main justification for the merger appears to be fiscal responsibility.

“Both plans are stronger together than they are apart,’’ said Kelly Fox, board president of the Plan 2 pension and leader of the Washington State Council of Fire Fighters.

State Actuary Matt Smith said there’s approximately a 30 percent chance of the older LEOFF 1 pension running out of money.

If current assumptions about the economy hold true, Smith said, “then there is no concern. The plan is currently healthy and would remain healthy. It would have more than enough assets to cover its projected obligations.”

The pension proposal emerged early in the legislative session but did not pick up steam until Senate Democrats included it in their budget last week.

Minority Republicans seized the budget process Friday night – forming a coalition with Tom and two other cross-over Democrats – and the GOP passed a separate pension proposal.

Gov. Chris Gregoire said Tuesday she does not think the LEOFF merger bill has votes to pass the Senate, and she flat-out opposes Republican Sen. Joe Zarelli’s alternative proposal to skip a $130 million payment into two other state pension plans that are underfunded.

Brad Shannon: 360-753-1688 bshannon@theolympian.com

Andrew Garber: 360-236-8266 agarber@seattletimes.com

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