Retirement & Health Benefits – April 4, 2025

“For those who like to stir the pot, you should know what you’re cooking before you get burned.”

Anonymous

In my view, Governor Ferguson’s recent press conference coupled with President Trump’s tariff mania has put the development of the biennial budget in flux. It seems that assumptions were made in developing either chamber’s budget without
looking at what the final dish could be… and the hits keep coming… the Federal cut in school food service support has just happened. How much more?

The Governor has said he will veto the wealth tax. Proposed budgets counted on $2.4 billion in the two-year House budget approved Tuesday and $4.2 billion in the one passed by the Senate on Saturday. (The sums are different because they are not identical
approaches.)

So, clearly budget proposals will need to be reconfigured with less revenue projected. Ferguson did say $100 million may be acceptable but that is a far cry from what budgeteers were assuming. Hanging over the process is the status of funding, or not,
the collective bargaining agreements, and/or the use of furloughs. It would be highly unusual for the D’s to not side with unions in supporting the CB and opposing furloughs.

Neither house has the ability to override the veto by party voting alone, although close. As a consequence, the pressure to use LEOFF surplus for general fund areas has heightened. (See below)

Then, add the impact of a trade war which was partially cited as a factor in the state’s updated revenue forecast, which showed a $845 million decline in projected revenue over the next four years. That projection was pre-tariff announcement.

So ‘secret’ budget negotiations are occurring. In other actions, floor and committee activities continue.

A brief summary of selected bills:

Re: Pensions:

To review: LEOFF 1 has a surplus of close to $3 Billion. How best to use those excess dollars?

There is a real difference between the House and the Senate leadership in how to deal with this surplus in LEOFF 1. The struggle is between SSB 5085,
HB 2034, ESSB 5357, and HB 1467. (See below) This issue will be part of budget negotiations. The good news is that all of them save state and local/school district dollars by reducing rates and decreasing or eliminating the surcharge related to
the unfunded liability. The bad news is that although there are short-term savings, there are projected long term costs for employers and the state in increased rates in the future.

1. SSB 5085: Merges the assets, liabilities, and membership of LEOFF 1, PERS Plan 1, and TRS Plan 1. It creates an annual cost-of-living adjustment to the retirement benefits of retirees in the PERS/TRS Plans 1 and TRS Plan 1 and eliminates the remaining unfunded actuarial accrued liability and benefit improvement rates. The bill saves the state over $600 million in GF dollars and city/local governments over $400 million. The bill must seek approval from the IRS which implies uncertainty as to legality. Cities and counties would like to see the excess used to help them cover the insurance costs for these retirees. The Senate proposed budget (SSB 5167) includes funding for this bill. The House budget does not.
2. ESSB 5357 reduces employer normal cost contribution rates for the PERS, TRS, SERS, and the Washington State Patrol Retirement System for fiscal year/school year 2026. Reduces the Plan 2-member contribution rates for PERS, TRS, and SERS for fiscal year/school year 2026. IMPORTANT This will indeed save district dollars in the short-term. However, it will add costs in the long term as proposed rates fall below what is needed to sustain steady funding. House Appropriations is expected to pass this bill out of committee 3/3.
3. HB 5478: Concerning benefits authorized to be offered by the public employees’ benefits board. This bill would allow HCA to the following employee-paid, voluntary benefit plans: 39 (a) Emergency transportation; (b) Identity protection © Legal aid; (d) Long-term care insurance; (e) Noncommercial personal automobile insurance; (f) Personal homeowner’s or renter’s insurance; (g) Pet insurance; (h) Specified disease or illness-triggered fixed payment insurance, hospital confinement fixed payment insurance, (i) Travel insurance. It has been referred to Rules having passed out of House Appropriations.
4. SSB 5738: Permits individuals retired from PERS, TRS, SERS and the public safety employees’ retirement system additional opportunities to work for up to 1,040 hours per year while in receipt of pension benefits in non-administrative positions. In addition, someone who enters service in a second-class school district as either a district superintendent or an in-school administrator shall continue to receive pension payments while engaged in such service until the retiree has rendered service for more than 1,040 hours in a school year. This bill will sunset 1/1/2030. This bill is scheduled for Executive Session before House Appropriation 4/5.
5. SB 5793: Concerning employer contributions and incentives for public and school employee health benefit plans. This bill suspends bargaining for 2027-2029 and eliminates Smart Health as a program offering. The legislature intends to set the employer contribution rates for employee health care benefits for the 21 2027-2029 fiscal biennium… Bargaining agreements reached for the 2027-2029 fiscal biennium shall not include employer health care contributions, wellness, flexible spending account contributions, or any other provisions related to employee health care expenses. Currently, according to the collective bargaining agreement the state pays 85% of the insurance premium; the employee 15%. It is rumored that the state would change the percentage to 80/20. WEA is opposed to this cancellation of a portion of the CB agreement. And of course, any state cut in current employee benefits often results in requests during collective bargaining for districts to make up the difference. Funding for this bill is included in the Senate budget and is awaiting a hearing before Ways and Means.
6. HB 1467: Pension Rate Adjustment—($228.3 Million) Funding is adjusted to reflect the changes in pension contribution rates in HB 1467), which re-amortizes Public Employees’ and Teachers’ Retirement System Plans 1 benefit improvements over a 15-year period, suspends half of these benefit improvement rates during the 2025–27 and 2027–29 fiscal biennia, and changes the long-term investment rate of return used to project costs in the retirement systems from 7.0 to 7.25 percent. This is a trailer bill that has yet to be acted upon by the House but is in the House budget (Secs. 759,760, 913).
7. HB 1936: Extending the expiration of certain school employee postretirement employment restrictions to 2027. Senate Ways and Means has scheduled this bill for Executive Session 4/8.
8. HB 2034: Concerning termination and restatement of plan 1 of the law enforcement officers’ and firefighters’ retirement system. Deposits remaining assets in the Pension Funding Stabilization Account, from which they may be transferred to the State General Fund. In 2027-2029. (Sec. 141 (1) It is believed that terminating and reinstating LEOFF Plan 1 would be legal. Also, unlike SSB 5085 above, the excess dollars would be put into the GF and legislators could then spend it as they see fit rather than dedicating it to COLA’s. This bill is scheduled for the Executive Session before House Appropriations 4/3.

Bills that could have fiscal impact /costs to districts:

Re: Budget: From TWIO:

SEBB Rate—($376.7 million) The monthly employer funding rate for the School Employees’ Benefits Board (SEBB) program is adjusted to $1,306 for Fiscal