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Count on 8% return? State pensions draw partisan fight

• Published October 29, 2009

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Democrats and Republicans took up partisan positions today at the Pension Funding Council. The dispute was over how much money the state can reasonably expect to earn on pension investments over the next 15 years.

State Actuary Matt Smith has said he thinks 7.5 percent is a better target, which requires more state contributions into the state-employee pension funds in the short term, and a less steep increase in 2013 and 2015.

But Democrats, and Gov. Chris Gregoire's budget director Victor Moore and Steve Hill of the Department of Retirement Systems all voted to stick with the 8 percent figure. Also voting in favor were Rep. Kelli Linville, D-Bellingham, and Sen. Margarita Prentice, D-Renton.

"I see nothing that says they won't earn 8 percent over the long haul," Moore said after the meeting.

Republicans on the committee including Rep. Gary Alexander of Thurston County and Sen. Joe Zarelli of Ridgefield agreed with Smith's recommendation. Both lawmakers urged the council to assume lower returns and higher state payments into the pension funds, even though it would require lawmakers to put $244 million extra into the pension funds in 2011-13.

"It seems to me that now is the time to step forward and put in the contributions," Alexander said.

Zarelli has blamed lawmakers' "malfeasance" over the past decade for putting the state in this position of hiking payments for both government and public employees. He blames the problem on skipped payments to Public Employees' Retirement System Plan 1 and Teachers Retirement System Plan 1 and raising the pension-return assumption to 8 percent in 2001.

Smith warned earlier this fall that the state needs to double its contributions in 2011-13 to pensions to about $1.3 billion, or lawmakers could see the need to pay claims for PERS Plan 1 and TRS Plan 1 participants out of pocket by 2015. To avoid trouble, state contributions to pensions would soar to almost $1.8 billion in 2013-15 and rise eventually to $3 billion a year.