I want to remind you of our Christmas Luncheon on December 14, 2011 at the Ballard Elks Club in Seattle. There will be a social hour at 11:00 am, with a no-host bar and a sit down traditional holiday lunch to be served at 12:15. For those of you who live in the general area please mark your calendars for December 14th and forward your check for your reservation. For those of you who have never attended, this would be a good time to come, enjoy yourself and perhaps plan to make the luncheon an annual event in the future. There is plenty of parking with elevator service to the second floor banquet room. Our caterer has promised a splendid meal with salad, dessert, rolls, coffee and tea. It would be a pleasure to see you and your guest. It has been a busy month with lots of issues to discuss and activities to attend. One always wonders where the time goes and amazed as how fast another month has gone by.

We enjoyed a meeting with Representative Barbara Bailey the new Chair of the Select Committee on Pension Policy. She was kind enough to sit down over coffee to discuss various issues including pension funding, HB 2097 the pension merger bill, the need for a merger, and the questions to be answered in the event of another attempt to merge the LEOFF 1 and LEOFF 2 retirement systems.

We attended a LEOFF 2 Retirement Board Meeting in Olympia. No merger issues were discussed and no decision was made to release the still sought after Robert Klausner legal opinion.

We had a meeting with the Assistant Attorney General in the Attorney General's Office in Olympia to obtain some information and have some questions answered. We attended the Select Committee on Pension Policy Meeting where the State Actuary Matt Smith made a presentation on pension funding. Mr. Smith suggested reducing the projected earned income from eight percent to seven and one half percent. This in itself will require additional funding to maintain the funding ration for state pensions, any less would create a shortfall increasing pension unfunded liabilities. The Actuary also recommended a reduction in the projected salary increases and the inflation rate which of course determines any cost of living adjustments for pensions.

I attended a forum at the University of Washington where a distinguished panel discussed the funding of private sector pensions. There was some discussion on defined benefit pensions and defined contribution plans. The panelists all agreed that defined contribution plans are now very common in the private sector and are being discussed and implemented in the public sector. The main discussion was on how pension fund values are calculated in the private sector vs. the public sector. The insinuation was that if public pension plans assets and liabilities were calculated in the same manner as the private sector plans, there would be a greater concern and increased reports of unfunded liabilities in the public sector plans.

Our State Actuary explained and defended how the value of the Washington State Retirement Systems retirement plans is calculated. Mr. Smith also illustrated the various reports that are prepared by his office and made public. The panel members agreed that whichever method is used to calculate the value of the assets or liabilities, the Washington State Retirement Plans are in good financial condition and far better than most states.

Matt Smith received many personal compliments from the panel for the professional management of his office and the excellent reporting systems he has developed. We also attended the second Merger Study Meeting chaired by the State Actuary's Office, Matt Smith and his assistant Aaron Gutierrez. The Chairman allowed everyone in attendance to speak without a three or four second rule. The Actuary again explained what he felt his responsibilities were, the kind of information he was seeking and the type of report he would deliver to the legislature on December 15, 2011. Many issues were rehashed, many questions raised and comments made. We again tried to persuade those who will draft the report that one of the first issues to be addressed in the report is "Why merge?" It was also pointed out that there will be significant legal cost for defending a merger, regardless of the type of merger.

We did receive the Ice Miller legal opinion, one of the two legal opinions we have requested and a brief legal opinion from the Attorney General's Office. Please see the Attorney General's opinion in its entirety on LEOFF1.Net.

The Ice Miller opinion included what was considered to be favorable remarks to the opponents of a merger:

• The IRS has held that funds accumulated under a qualified plan in trust are intended primarily for distribution to employee participants." Rev. Rul. 72-240,1972-1 C.B. 108. This exclusive benefit requirement applies to all qualified pension plans, including governmental plans, and, therefore, must be considered in any plan merger.
• From a federal tax law perspective, a plan participant who has reached normal retirement age or reached other vested status under the plan must be vested in his accrued benefit as of that date. It is our understanding that every participant in LEOFF Plan 1 has reached normal retirement age under the terms of the plan and has met all requirements for vesting. If our understanding is correct, then benefits accrued to date for participants in LEOFF Plan 1 cannot be changed in any merger. To the extent that participants in LEOFF Plan 2 have reached normal retirement age and met requirements for vesting, those benefits accrued to date also cannot be changed. Therefore, any benefit change that is adopted as part of a merger could only affect new members, non-vested members, and vested members prospectively.
• To the extent that a merger results in there being benefit changes post-merger, there would have to be a state law analysis with respect to pension protections under state law. However, from a federal law perspective, the accrued benefit of a plan member who has reached normal retirement age under the plan must be protected.
• In the case of consolidation, the exclusive benefit rule must be applied in that plan assets of one plan could only be used for the benefit and expenses attributable to that plan.
• Participants must be entitled to receive the same benefit after a merger or transfer of assets as they would have received before the merger.

The Social Security Administration has reported that Social Security recipients will receive a raise in January. It is expected that the increase will be about 3.5%.