According to the State Actuary’s 2011 valuation report of Washington’s pension system, the average annual state pension for all plans is $21,493 (weighted by headcount).
Here is a summary of the average annual pensions for the state’s major plans (As of June 30, 2011; Service retirees only; Excludes the value of the Plan 3 defined contribution (DC) account)
As shown by the tables above, the state’s unfunded pension liabilities are primarily in PERS 1 and TRS 1.
Despite achieving an estimated $9 billion in savings over the next 25 years from the past 2 years of pension reforms, the state is still facing more than $5 billion in unfunded pension liabilities. Also, a recent ruling in Thurston County Superior Court has called into question whether one of these reforms will be allowed to move forward. This is why it is important to maintain diligence on the state’s pension obligations while pursuing additional reform opportunities. Part of what has contributed to the state’s unfunded pension liability is legislators and the Governor not making the required contributions over the past decade so that lawmakers could free up spending for elsewhere in the budget.
For future pension benefits, Washington should transition to a defined-contribution plan, similar to a 401(k), for new hires. These plans are now common in the private sector because they provide a retirement benefit for employees while helping companies accurately project future pension costs. Adopting a defined-contribution plan would prevent the unfunded-pension problem from getting worse while lawmakers seek to resolve the $5 billion liability of the state’s two closed plans.
Effective pension reform should be based on the following principles:
- Do not skip any pension payments;
- Close the current defined benefit plan to new hires;
- Direct all savings toward paying down unfunded pension liabilities;
- Enroll new hires into a defined-contribution plan; and
- Constitutionally require the actuarially-recommend pension payment and require a supermajority vote to enact new benefits.
Washington’s multibillion-dollar pension problem was not created overnight, so it will take time to eliminate these unfunded liabilities. Starting these reforms will require the conviction to do what is in the best interest of all citizens and workers, not just special interests. If lawmakers fail to adopt effective pension reform in time, Washingtonians may soon face the same pension-debt crisis that threatens state budgets around the country.
Washington State Pension Calculator
[Reprinted with permission from the Washington Policy Center blog.]