Retirement & Health Benefits for May 21, 2021

Fred Yancey | The Nexus Group
May 20, 2021

Retirement Blog

“Want to see how people really are? Wait until money is involved.” ~ Anonymous

Review of the 2021 Legislative Session

The legislative session has concluded, the Governor has acted, and now as the show goes on, districts have to adjust. Clearly, the COVID virus, and Federal and state efforts to lessen the financial impacts on states, businesses, and individuals, came into play during this session.

There were 1,448 bills introduced in this session. In total, 335 bills passed the Legislature. Democrats passed 266 (79.4%) and Republicans passed 69 (20.6%). Of the 335 total bills that passed, 24 bills (7.1%) squeaked through on party line votes. So, what happened regarding pensions, health care, financials, and other issues? Listed, unless stated otherwise, are bills that have passed both Houses and been signed by the Governor.

Pension/Retirement Related Proposals 

SB 5021 | Re: retirement benefits/ furlough: This bill provides that specified public pensions will not be reduced as a result of compensation reductions that are part of a public employer’s expenditure reduction efforts during the 2019–2021 and 2021–23 fiscal biennia. It also provides that the pension benefit of an employee covered by a pension system that is administered by the Department of Retirement Systems is not reduced as a result of participation in an unemployment insurance shared work program, retroactive to July 28, 2013. Effective 7/25/21.

SB 5367 | Retirement Contributions Refunds: This bill directs the Department of Retirement Systems to establish rules for closing and refunding inactive member accounts with a balance of less than $1,000. Effective 7/25/21.

SB 5453 | was a bill proposing a merger of LEOFF 1 fund balance (Law Enforcement/Fire Fighters) with TRS 1 as a means to reduce the unfunded liability (UAAL) of TRS Plan 1. The bill never got beyond an introduction. However, legislators, primarily Republican leadership, and Senator Rolfes have been concerned over the UAAL. So much so, that Section 747 of the adopted budget ( ESSB 5092) reads: “The appropriation in this section ($800 Million) is subject to the following conditions and limitations: The entire general fund—state appropriation is provided solely for expenditure on June 30, 2023, into the teachers’ retirement system plan 1 fund, to be applied to the unfunded actuarial accrued liability.

Comment: When the $800 M gets added to the TRS 1 plan in 2023, the UAAL surcharge (See selected financials below) should go down quite a bit saving employers/school districts money. But¸ there are two sessions left where the legislature could tinker with the amount or decide not to do it at all.

The unfunded liability balances to date are $3.4 B in TRS 1 and $5.099 B in PERS 1. It is estimated that the UAAL would become fully funded in 2026 and 2027. This is all assuming a 7.5% return on investments since the funds paying over 70% of retirement payments are from investment earnings.

The Governor has signed the budget and did not veto this section. It stands as an approved intent.

HB 1040 | Concerning health care coverage for retired or disabled school employees. This bill was introduced but had no further action. It would have allowed PEBB to open a window for earlier retirees who only had one option for PEBB insurance when they retired to re-enter PEBB since there are now a minimum three options available. Although not heard, Section 212 of the adopted budget reads, “The health care authority shall analyze and report on the potential impacts of providing a one-time enrollment window for retirees to reestablish eligibility for enrollment in retiree benefits under the public employees’ benefit board program. The authority shall submit the report to the appropriate committees of the legislature by January 1, 2022. At a minimum, the report must include an estimate of the employer cost and a description of the assumptions used.

School Employee Benefit Board (SEEB) and Other Health-Related Proposals

SB 5322 | Re: SEBB and PEBB dual enrollment. This bill has been signed by the Governor. It requires an employee who is eligible for both Public Employees’ Benefits Board and School Employees’ Benefits Board insurance coverage to choose health, dental, and vision coverage from the same program beginning with the 2022 plan year.

This is not new, but as a reminder: Section 1212 (3) of the budget reads “The health care authority must study the potential cost savings and improved efficiency in providing insurance benefits to the employers and employees participating in the public employees’ (PEBB) and school employees’ benefits board (SEBB) systems that could be gained by consolidating the systems. The consolidation options studied must maintain separate risk pools for Medicare-eligible and non-Medicare eligible employees and retirees, assume a consolidation date of 8 January 1, 2022, and incorporate the experiences gained by health care authority during the initial implementation and operation of the school employees’ benefits board program. The study must be submitted to the committees of the house of representatives and the senate overseeing health care and the omnibus operating budget by November 15, 2020.” The HCA submitted a study that recommended a consolidation. However, this would require legislation which will be pursued in future sessions. Effective 7/25/21.

Other Bills:

SSB 5326 (ESHB 1813) | mandates that the costs of contracted employee health and retirement benefits must be built into school district contracts for pupil transportation. This bill died by Senate action placing it on the “X” file, but it is expected to return in some form during the 2022 session. (See future projections below.) Other Bills that may have fiscal/HR impacts for Districts.

Caveat: These bills may or may not impact districts. For unemployment (UI), as an example, many districts belong to insurance pools administered by ESD’s; some districts do not. Changes in UI may affect districts or not. The issue of whether a bill such as ESSHB 1073 below applies is not clear to this author. When in doubt, it is reported. Human Resource departments or WASBO are the final arbiters of applicability.

ESSHB 1073 | Re: Paid Leave Coverage: This bill provides grants to certain employees ineligible for paid family and medical leave benefits due to insufficient hours worked. Provides grants to smaller employers with employees taking leave in receipt of a grant. Effective 7/25/21.

HB 1087 | Family/Medical Leave Continuity: This bill specifies that the Family Leave Act, as it existed prior to January 1, 2020, applies to valid claims based on conduct before that date and the Paid Family and Medical Leave Act applies to claims after that date. This was viewed as a ‘technical fix’ to ensure employee rights should there be cause for action. Effective 4/16/21.

ESHB 1214 | K–12 safety & Security Services: This bill creates a new safety and security category of classified staff for public schools. It requires safety and security staff to meet certain training requirements. Directs school districts and charter schools to adopt a policy and procedure with certain elements, adopt an agreement with the law enforcement agency or security guard company supplying the staff, and collect and submit certain information on safety and security staff to the Office of the Superintendent of Public Instruction. Effective 7/25/21.

SHB 1323 | Long-term Service Trust: HB 1087 passed in 2019 set up this employee-paid long-term trust program. This bill requires that self-employed persons who wish to elect coverage under the Long-Term Services and Supports Trust Program (newly named Washington Cares Fund) exercise that option by January 1, 2025, or within three years of becoming self-employed for the first time. It also authorizes federally recognized tribes to elect to collect the premium assessment for their employees under the Trust Program. The bill was amended to allow employees to opt-out by 11/1/2021. The program is to begin on 1/1/2022. Effective 7/25/21.

Some answers to common questions as listed by Washington State Retail Association:

  • How is the self-employed exemption defined? The definition is the same as it is for those who are exempt from Paid Family Medical Leave based on the reference in RCW 50B.04.010 (7–9). Opt-in is available with time limitations.
  • Unlike the Paid Family Medical Leave with a deduction limit tied to the Social Security tax ($142,800 in 2021), the $0.58 per $100 of earnings premium rate applies to the whole paycheck without a ceiling.
  • Though the contribution rate is based on earnings, the lifetime maximum benefit of $36,500 with cost-of-living built-in is the same for all.
  • The benefit is not portable from state to state. In other words, Washington state workers who move out of state or retire to a different state will not be able to access benefits regardless of the amount of their contribution.

Comment: This mandated program was enacted through intense lobbying by AARP. It was intended to provide long-term services and supports benefits to persons who have paid into this Trust Program for a specific amount of time and who had been assessed as needing a certain amount of assistance with activities of daily living. Washington Policy Center, a critic of this program, wrote an article detailing the program's faults.

SHB 1363 | Secondary Trauma/ K–12: This bill requires the Office of the Superintendent of Public Instruction to publish on its website links to resources, self-assessments, and best practices for educators and local policymakers to prevent and address secondary traumatic stress in the workforce. It directs the Washington State School Directors’ Association to develop or revise, and periodically update, a model policy and procedure to prevent and address secondary traumatic stress in the workforce that includes specified elements, for example, establishing a district-wide workforce mental health committee and it requires school districts to adopt, by the beginning of the 2021–22 school year, policies and procedures related to secondary traumatic stress that incorporate specified elements. Effective 7/25/21.

ESSB 5061 | Unemployment Insurance: This bill limits unemployment insurance rate increases by: (1) capping the social tax; (2) suspending the solvency surcharge tax; and (3) relieving certain benefit charges. It also increases access to benefits by: (1) expanding eligibility for those in high-risk households; and (2) waiving the waiting period when federally reimbursed, modifies the weekly benefit amount thresholds by: (1) increasing the minimum from 15 to 20 percent of the average weekly wage; and (2) limiting benefits to a person’s weekly wage. It also ends deductions of lump-sum pensions from weekly benefit amounts and modifies the voluntary contribution and shared work programs, and certain training eligibility. Effective 2/8/21 (Retroactive)

ESSB 5097 | Paid Leave Coverage: (Pending Gov. Action) This bill expands the definition of a family member in the Paid Family and Medical Leave (PFML) program which was established in 2017. It is funded by a payroll tax on employees and employers in Washington (0.4% of gross wages split between employer/employee). This bill requires the Employment Security Department to collect and analyze data and submit reports to the Legislature with certain information relating to the PFML program. It also requires the general fund to cover additional leave expenses under certain circumstances. For an analysis of this issue, see the Washington Policy Center. Effective 7/25/21.

ESSB 5115 | Establishing health emergency labor standards: (Pending Gov. Action). This bill creates an occupational disease presumption for frontline employees during a public health emergency for the purposes of workers’ compensation. It requires employers to notify L&I when a certain percentage of their workforce becomes infected during a public health emergency. Furthermore, it requires employers to provide written notice to employees on the premises and their union of potential exposure to the infectious or contagious disease during a public health emergency. It prohibits discrimination against an employee who is at high risk for seeking accommodation that protects them from the disease or using all available leave options if no accommodation is reasonable. Effective 5/11/21.

SSB 5254 | Protective Devices/ Health: This bill provides that an employer who does not require employees to wear specific personal protective equipment (PPE), must accommodate an employee’s or contractor’s voluntary use of specific PPE, during a public health emergency and when other conditions are met. Effective 4/26/21.

SB 5425 | Unemployment Extended Benefits: This bill allows claimants of unemployment insurance to be eligible for extended benefits regardless of whether their 52-week benefit year has expired. It allows the state’s extended benefit program to “trigger on” without having to wait the 13 weeks between extended benefit periods. It also amends a job search provision, for the purposes of federal conformity, regarding denying extended benefits for failing to accept an offer of, or apply for, suitable work. Effective 4/16/21.

ESSB 5478 | Unemployment Insurance: This bill creates the Unemployment Insurance Relief Account (UI Relief account). It requires the Employment Security Department (ESD) to determine forgiven benefits, based on a calculation, for certain employers which will be reimbursed by the UI Relief account instead of charged to the employers’ experience rating accounts. It mandates ESD transfer from the UI Relief account to the unemployment compensation fund an amount equal to the forgiven benefits. Effective 5/12/21.

Comment: The adopted budget had $500 million put into the UI fund to help replenish its fund balance and to keep employer rates lower than they would be based on their history of claims.

Selected Financials

ESSB 5092 State Budget

Below are selected financial figures from the adopted supplemental 2021–2023 Budget:

Fringe benefit allocation22.07%22.07%/Allocated Certificated
 19.25%19.25%/Allocated Classified
Incremental fringe benefit22.07% 22.07%/Allocated Certificated
 19.25%19.25%/Allocated Classified
Insurance Health Benefit (SEEB)$968/Month $1,032/Month
The Benefit Allocation Factor/Multiplier remains: Certified staff units x 1.02; Classified staff units x 1.43
Medicare Insurance Subsidy for Retirees$183/Max/Month$183/Max/Month
Substitute Rate (4 subs/classroom teacher unit)$151.86$151.86
Health Care Carveout (Retirement Remittance)$72.08 Begins 9/2021$80.04 Begins 9/2022
(Includes pro-rated payment by district for eligible part-time employees)  
Pension Rates2021–20232023–25 (Estimated)
TRS 2 Employee8.05%7.61%
(normal cost 8.05%/UAAL Surcharge 6.19%)  
PERS 2 Employee6.36%5.49%
(normal cost 6.36%/UAAL Surcharge 3.71%)  
SERS 2 Employee7.76%6.96%
(normal cost 7.76%/UAAL Surcharge 3.71%)  

The employer rates do include the UAAL surcharge but do not include the 0.18% administrative rate.

Unemployment Insurance

The budget allocated $600 M + for Employment Security, including staffing to handle backlogs and addressing how to prevent future fraud. (A reminder that ESD paid over $600 M in fraudulent claims, before discovering the fraud.)

What Will The Future Hold?

At the start of the session, the Democrat majorities in both houses were committed to proposed legislation focusing on: Budget, Covid-related Issues, Race/Equity, Policing, and Climate issues. Substantive pieces of legislation dealing in all these areas were passed.

For the future, the effects of Covid–19 on the state, local governments, and school district budgets will continue to be felt. This patina will continue to color all actions in the foreseeable future. Although many policy bills proposed during the session failed to advance, some components will likely be re-introduced through either new legislation or reviving a previous bill proposed during the recently concluded 2021 Session.

Moving into speculation on the future, some key activities may occur:

  1. It will be a priority for the Democrats to not only maintain majorities in both houses but to build a more substantive majority in the Senate which is currently 28–21. The Cap-and-Trade bill passed the Senate 25/24 which is just one example of how some Democrat Senators are not fully in support of leadership. The long-term goal of tax reform will need 60% majorities at a minimum. So, a larger majority would assist. (Note, similarities to Federal Senate situation.)

  2. Currently, the D’s hold a strong majority in the House, but as stated, a weaker one in the Senate. There is always a chance that the D’s may lose both majorities given the challenges of campaigning and raising dollars in a Covid–19 world, public reaction to tax and fee issues from this recent session, the Governor’s continual role in determining COVID/business restrictions, etc. The long-term consequences are losses in rural Washington. Progressive goals and objectives could lose rural districts that have Democrat members. Legislative districts to watch are 10 (Island, Skagit, Snohomish), 19 (Cowlitz, Grays’ Harbor, Lewis), 24 (Clallam, Grays’ Harbor), and the 42nd (Whatcom). The Republicans will continue to organize opposition by beating up the Democrats over their passage of the Capital Gains tax, their failure to live within the state’s existing means, and the Governor’s continuation of emergency powers. 2) Unions groups like WEA and SEIU and social advocacy associations/organizations like the Economic Opportunity Institute continue to have a great deal of influence on the successful passage of legislation and funding. Many organizations got one-time Federal dollars. When these funds are spent, they will be urging the Legislature to continue funding of these programs. Their impact will continue.

  3. There continues to be a need to get full funding of the SEBB benefits for districts. The law says that districts are to fund benefits for every employee who qualifies. The state funds benefits on a formula-generated FTE allocation, not based on the actual number of eligible employees that receive the benefit. This results in an unfunded liability to districts that has been estimated to exceed $700 million dollars statewide.

  4. If there is a missing piece to the financial planning puzzle, it is the failure to appreciate the limits on the state property tax. There is a false hope that property values will continue to soar showing a lack of understanding of business tax shifts and the continuing desire to attach more exemptions to household property taxes. This poses a structural risk to the tax system and makes planning and even supporting levies problematic.

  5. Past legislation allowed employees to bargain for insurance benefits for employees working less than 630 hours. There will continue to be pressure on districts to offer these benefits to all employees. A proposal before the 2021 legislature dictated that identical SEBB health benefits and retirement benefits be paid to employees who work with private providers of transportation services to school districts. This proposal failed but is likely to return. Should this pass, those contracted employees such as in food service, janitorial, special education, etc. working within school districts may well ask for similar benefit coverage. This is a classic unfunded mandate unless the state funds these changes and even then, the state funds on staff formula basis, not an actual district FTE basis.

  6. Continued efforts will be made to increase the Medicare insurance subsidy for retirees. Insurance and medical costs have gone up substantially. The current $183/ month is not nearly enough to offset the increased costs.

  7. Work will continue to put school retirees in the largest risk pool available to reduce their current insurance costs. Currently, K–12 retirees remain in the PEBB program/pool. The HCA has studied the issue and recommends consolidating school retirees into the SEBB program. This, however, will take legislation to accomplish.

  8. Talk of merging the LEOFF 1 surplus budget funds into the TRS 1 pension fund may come up again. This merger would decrease the unfunded liability in Plan 1. It decreases the added surcharge employers (both state, school districts, counties, and cities) are currently paying to decrease this liability. This is an issue dear to the Republican leaders.

  9. As passed by the Legislature, 2021–23 NGFO appropriations are $59.193 billion. Of that, the maintenance level (the cost of continuing current services, adjusted for inflation and caseloads) is $55.980 billion. New policies add $3.214 billion. The policy changes include savings from the enhanced federal Medicaid match (FMAP) that was enacted as part of the federal COVID relief bills. This federal funding is used in lieu of the NGFO, saving the state $621.2 million in 2021–23. Given the high level of proposed spending, the use of one-time federal relief to start new, ongoing state programs and the projected GF and Rainy-Day fund balances, sustainability will be a concern. Programs, in addition to those funded in K–12, that were started with a one-time infusion of funds (federal) will be clamoring in the future for dollars to continue these programs and expansions.

  10. When told that districts need more dollars in any given area, legislators often state that in the words of Wimpy, “I’ll gladly pay you Tuesday, for a hamburger today.” In short, they often put off concerns about low funding by ‘promising’ to make it up in the Supplemental Budget. That will turn out to be a false promise, as the federal dollars dry up and the state getting no new substantial funds.

If you have any questions, please feel free to make contact.

Fred Yancey/ Michael Moran
The Nexus Group LLC

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