State pension reform is new reality


The Washington Legislature has a chance to build on last year’s state employee pension reform by approving a common-sense measure that provides for state employees’ retirement while recognizing current economic realities.

Senate Bill 5856 would accomplish true pension reform for state workers by moving new public workers and those under age 45 from a defined-benefit plan, or the traditional pension plan, to a defined-contribution plan like a 401(k) that is funded mostly by employees. If the defined-contribution plan sounds familiar, it’s because most retirement plans function that way for private-sector workers, aka the ones whose tax payments make the state government possible.

In a new era of economic limits, the state’s government is facing a huge liability in legacy obligations like pensions. Washington state is among the nation’s leaders in keeping up with pension funding, but it’s a cost that diverts money from other priorities like education and transportation.

And while pension benefits may be defined, they are not guaranteed. Many private-sector workers have endured lost or reduced payouts, and government workers are not immune in an era of municipal bankruptcies.

Sponsoring Sen. Rodney Tom also notes that the funding status of the state pension system is based on the state’s investment board earning annual returns of nearly 8 percent, which any financial planner would consider an optimistic forecast.

In a larger economic sense, government employees belatedly are feeling the impact of the years-long national recession, but they have been relatively buffered compared with private-sector workers. Their pensions become an issue of fairness, as noted by Tom, a Democrat from the Bellevue area. “It creates a little tension with our citizens who are actually footing the bill,” Tom was quoted as saying by The Associated Press.

As proposed by Tom, those in the new retirement savings plan would contribute between 5 percent and 7.5 percent of their salary to the accounts, with employers contributing 80 cents to every $1 that the worker puts in — the 80 percent match compares well with private-sector plans.

Public-sector unions are resisting, a natural reaction to the prospect of giving up a benefit. But shifting from a pension to a 401(k) allows for a softer landing for the employee and frees up resources that help assure the worker has a job in the first place. It’s a new fiscal reality for governments, and this bill recognizes that reality.


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