While state workers are taking home less money, the people who used to hold state jobs are being paid more.
Retirees 66 and older who worked for 35 years, for example, saw an extra $790 in their pension checks this year even though most consumer prices have flat-lined.
That’s under the main kind of annual benefit increases in the oldest retirement plans for state and school district employees. Ending those cost-of-living increases would save the state’s main fund an estimated $415 million – a number that might be too big to pass up for lawmakers trying to close a $5.3 billion shortfall in the fund.
Whether they can legally do it might eventually be decided in the courts.
“That’s breaking our contract,” said Ester Wilfong, a retired teacher and principal from Tacoma who is one of the 90,000 retirees on the two plans.
Minnesota, South Dakota and Colorado in 2010 reduced cost-of-living increases for people who are already retired, according to the National Conference of State Legislatures, and all three states now face legal challenges over the moves.
Washington retirees and their union allies say the workers gave 6 percent of their paychecks to the pension system throughout their careers and now deserve what was promised them.
But the mood was bleak last week as they lobbied in Olympia, and their strategy has shifted from complete resistance to trying to devise an alternative version of the benefit cut.
The debate is not along partisan lines, as it is in the high-profile Wisconsin dustup over public employees. Democratic and Republican lawmakers in Washington disagree on some retirement issues – such as whether to move away from pensions toward 401(k)-style retirement plans that lack a guaranteed benefit. But many – though not all – in both parties grudgingly say public workers should give up the cost-of-living benefit to help solve the budget problem.
Democratic Gov. Chris Gregoire is pushing to end the cost-of-living increases, and the bill she introduced this month is backed by Democrats including House budget Chairman Ross Hunter and Vice Chairwoman Jeannie Darneille.
Lawmakers relied on the savings in their bipartisan transportation spending plan that passed the House on Friday, and a couple of House Democrats said they expect the same assumption to be made in the operating budget – their plan for dealing with the budget shortfall, expected to come out this week. Hunter declined to foreshadow the plan.
“I don’t know how you can do (the budget) without it,” Senate Republican Leader Mike Hewitt said last week.
And Sen. Craig Pridemore, a Vancouver Democrat, said, “If we’re going to actually be cutting the pay of current workers, we should not be increasing the (benefits) of retired workers.”
Of course, the current workers agreed to the unpaid time off in contract negotiations. Retirees say the state has a contractual duty to them, too.
The legality of ending cost-of-living raises could hinge on whether a King County judge’s ruling last year is upheld. The judge decided Washington lawmakers violated contractual rights by taking away a different pension benefit, known as gain-sharing, without providing comparable replacement benefits.
Another difference: The worker cuts are temporary, while the change for retirees would have to be permanent to create the big savings the state actuary predicts – more than $900 million to all state and local government budgets.
A permanent elimination would slash the unfunded liability of the old plans, Public Employees’ Retirement System Plan 1, or PERS 1, and Teachers’ Retirement System Plan 1, or TRS 1. The plans are more than $6.8 billion short of what they owe their members, but the proposal cuts the liability by more than half.
The old plans, closed to new members in 1977, are more generous than newer ones. Employees who retired at any age after working 30 years could receive a pension of 60 percent of their average pay in their three highest-paid years.
After age 66, they also receive the annual increases at a set amount regardless of income and economic conditions. They are different from cost-of-living bumps for newer retirement plans, which are tied to inflation and increase a retiree’s benefits by no more than 3 percent per year.
Still, the average retiree in the teachers’ plan draws a pension of just $23,052. For the average state workers’ plan retiree, it’s $20,700. It’s widely agreed that the reason for the unfunded liability is not so much too-large benefits as it is years of underfunding by lawmakers, who chose to postpone far-off pension bills in favor of more pressing demands.
Workers say they shouldn’t be on the hook for the Legislature’s failure to put away adequate money.
“It’s not our fault,” said Wilfong, co-chairman of the legislative committee for the Washington State School Retirees’ Association. “They’ve underfunded it.”
There are lawmakers in both parties who side with the retirees. Rep. Mike Armstrong of Wenatchee said he would oppose the cost-of-living elimination, and some other Republicans would join him, seeing it as breaking a promise to retirees. And some labor allies among Democrats, such as Sen. Steve Conway, are looking for alternative ideas.Conway, of Tacoma, said he’s looking at whether the proposal could be made temporary or retooled with a “means test” to hit retirees differently based on income.
Gregoire’s proposal does cushion the pain for the lowest-paid retirees by leaving untouched a minimum pension benefit, which has its own cost-of-living increase.
Retiree groups say the old plans’ cost-of-living increase was added in 1995 because members had seen their purchasing power erode over the years with inflation, threatening their ability to make ends meet.
They also receive Social Security benefits. But they’re currently not getting a cost-of-living increase in those benefits because of low inflation. Meanwhile, their medical and gas costs have gone up.
“No inflation? They’ve got to be kidding,” said Margaret Denn of Ashford. “Forty-five dollars last night to gas up my PT Cruiser.”
Lawmakers are sympathetic.
“Nobody’s real excited about that issue,” said Rep. Gary Alexander, R-Thurston County, “but $400 million is a big number to turn our heads away from.”