State Savings - State contributions to LEOFF 2 are suspended immediately upon passage of the bill for the remainder of the 2011-13 biennium saving as much as $80 million general fund (Sections 1 & 22).There is no reduction in employer or member rates.

Note that this savings for the state was not proposed in the Governor’s budget.It shorts the pension system by $80 million. The merger does not restore or replace the $80 million.  So, if they merge the two, then LEOFF 1 ends up losing $40 million or half of the $80 million.  That is like each LEOFF 1 member writing a $5,000 check to LEOFF 2. That does not sound like a good deal to me.

LEOFF 1 & 2 Benefit Protections – All LEOFF 1 benefits, including local disability board benefits, are guaranteed to not be reduced (Section 5).The same protection is applied to LEOFF 2 member benefits.

Section 5 does not protect Local Disability Boards and does not protect benefits granted by Local Boards after 2003.Under this article LEOFF 1 benefits would be reduced and there is a possibility for the elimination of local boards. Also this section makes all members of the system the same and therefore entitled to all benefits.It opens the door for LEOFF 2 to claim LEOFF 1 medical benefits but there is not system to pay for that.It could fall on the cities and counties.

Governance – The LEOFF Board would have the authority to adopt contribution rates, actuarial methods and actuarial assumptions for both LEOFF 1 and LEOFF 2.The Board’s actions would not be subject to legislative revision as long as they were certified as reasonable by the State Actuary (Sections 9, 13 & 16).Board members could be appointed from either LEOFF 1 or LEOFF 2 (Section 7).The LEOFF Board would have greater authority over the Board’s budget.(Section 11)Legal expenses could be paid from the retirement fund (section 20).

LEOFF 1 members are effectively excluded from representation on the board. All nominations must come from either WACOPS or WSCFF.Additionally, all of the board positions are currently filled and no change is proposed.LEOFF 1 would need a guarantee of 50% of the LEOFF membership on the board. The current structure is totally unacceptable to LEOFF 1 and appears to violate contractual rights as well.

The setting of rates is vested in an unelected board.The majority of the members of this board are LEOFF 2 members including one of the legislator members.The board members have a vested interest in improving LEOFF 2 and the bill will remove any legislative oversight.

This may be a good deal for LEOFF 2 but it is bad public policy.

Future LEOFF Funding – The assets in the LEOFF 1 retirement fund are currently projected to be sufficient to meet the future liabilities of the plan but there is some risk that increased costs could put LEOFF 1 into pay-as-you-go (“pay-go”) status.The two primary risks of increased costs for LEOFF 1 liabilities are 1) less-than-expected investment returns; and 2) higher-than-expected inflation.

A merger of the LEOFF Plan 1 and LEOFF Plan 2 retirement funds commingles the liabilities of both plans.So, an increase in LEOFF 1 costs would become the shared responsibility of LEOFF members, LEOFF employers and the State according to the 50-30-20 ratio currently in place for LEOFF 2 (Section 10).The risk of LEOFF 1 going into pay-as-you-go “pay-go” status is reduced to zero.

The requirement to pay off any unfunded liability in LEOFF 1 by 2024 is eliminated

(Section 12).

Both LEOFF Plan 1 and LEOFF Plan 2 currently have a very substantial amount of unrecognized investment losses from the historically poor investment returns of 2008-2009 so the challenge to maintain stable contribution rates and full funding of the merged system, particularly over the next five years, is significant.

It is clear that both LEOFF 1 and LEOFF 2 believe both plans are well funded and at little risk of pay-go status. If that were a certainty LEOFF 2 would be obliged to oppose be bill as LEOFF 2 members under this bill would be responsible for any LEOFF 1 pay-go.

READ THE BILL – the information published by WACOPS is incorrect.