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UPDATED: Some Washington state pensions could run out of money

• Published October 01, 2009

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Fallout from the Wall Street meltdown last year is blowing a new, bigger hole in the state pension system, and the state now will have to double its yearly payments to keep its oldest plans solvent.

That's the latest from state Actuary Matt Smith, who delivered his cold-as-a-corpse message yesterday to the Pension Funding Council.

If the state falters on investing about $650 million this biennium and doubling it for 2011-13, the state could see its PERS1 and TRS1 plans run out of money in 2015 — forcing lawmakers to pay costs out-of-pocket to make up for the 30 to 40 percent investment losses of the past two years.

"State workers will see their contributions go up … The employers will see their rates go up significantly," state budget director Victor Moore, who chaired the council's meeting, said after the briefing. Employers include local governments, which have their own budget problems that rival the state's.

How much rates go up, of course, is not yet clear, and Smith is working with lawmakers' Select Committee on Pension Policy on a risk assessment to see if the state can afford the steeper contributions that the situation would seem to require.

Sen. Margarita Prentice, the Renton Democrat who chairs the Senate Ways and Means Committee and also serves on the council, said she had expected a $1 billion shortfall in the system. She said she believes lawmakers will just have to find a way in 2011 to claw the money loose to cover the payments.

"It’s going to be gruesome but we'll just have to look at where we can cut" to free up the money, Prentice said. "But I'm not going to panic."

Sen. Joe Zarelli, R-Ridgefield and another member of the council, said Smith "put it kind" in his presentation. He said the State Investment Board has done a good job delivering an 8 percent gain over the past decade, but the Legislature's failure to make contributions during the good market times has meant the state lost out on earnings potential.

He called it "a huge problem" if the state has to adopt a pay-as-it goes approach to funding the Plan 1 system, which closed in 1977 to new members but has about 100,000 people eligible for benefits.