- Home
- Pension Watch
- State Actuary Presents a LEOFF 1 Review
State Actuary Presents a LEOFF 1 Review
- By Jerry Taylor
- Published 09/8/2009
- Pension Watch
Matt Smith, the State Actuary made this presentation to the LEOFF 1 Medical Benefits Committee at the August 25, 2009 meeting. It is an interesting review that demonstrates how the pension funding is viewed actuarially.
Historical
LEOFF 1 was created on March 1, 1970 (Chapter 209, Laws of 1979). It was a consolidation of municipal police and fire pension plans into a state-wide retirement system for law enforcement officers and fire fighters. In absorbing a number of jurisdictions that had no pension systems it created a system that had a significant unfunded liability. The state was and is responsible for paying off any unfunded liability
The first actuarial valuation recommended a state pension contribution of 33% of salaries for the state to combine with the statutory 6% for individuals and 6% for employers. Recognizing this large unfunded liability, the Stated did exactly what one would expect. They made no contributions for the first five years of the plan.
The original LEOFF 1 law (Chapter 209, Laws of 1969) mandated an amortization of unfunded liability over a period not to exceed 40 years from March 1, 1970. A fixed an amortization date of June 30, 2024 to reach full funding status was establish in 1989 (Chapter 273, Laws of 1989).
The State began contributions, finally, in 1976 and continued those contributions through 1999. The State contributions averaged just over 40% of pay. However, it is unclear whether or not that was 40% of total pay or 40% of the pay for the 1976 through 1999.
Fully Funded
LEOFF 1 reached a fully funded status in 1997. The legislature suspended state contributions in July 1999. Member and employer contributions were suspended in May 2000.
Health Assessment
Matt Smith explained that a health pension plan has sufficient assets to pay earned benefits. Measured by the “funded status”, healthy plans are those that are considered to be at least 80% funded. In contrast unhealthy are those with at least 60% but less than 80% funding.
Poor health and at risk plans are those with less than 60% funding. They are considered as being at risk of running out of assets prematurely.
LEOFF 1 is a healthy plan. Its last evaluation was as of June 30, 2007. At that time, it was 114% funded. It had a preliminary funded status of 129% as of June 30, 2008. But a lot has changed since the last valuation.
It was really an unprecedented change in a short period of time. Assets dropped almost 24% since the last actuarial valuation—that is $1.5 billion for LEOFF 1. Overall, the state is anticipating a 30% decline in funded status over the next eight to ten years.
Pension systems are facing unprecedented challenges. Currently the actuary is predicting a likely return of unfunded liability in the LEOFF 1 system at some point in the future. Much will depend on future investment performance and funding.
Since the extent of future losses in unknown, the actuary tracks three scenarios for the plan. Those are projections of expected returns on investments, a pessimistic outlook and an optimistic outlook.
Continued on next page...
Historical
LEOFF 1 was created on March 1, 1970 (Chapter 209, Laws of 1979). It was a consolidation of municipal police and fire pension plans into a state-wide retirement system for law enforcement officers and fire fighters. In absorbing a number of jurisdictions that had no pension systems it created a system that had a significant unfunded liability. The state was and is responsible for paying off any unfunded liability
The first actuarial valuation recommended a state pension contribution of 33% of salaries for the state to combine with the statutory 6% for individuals and 6% for employers. Recognizing this large unfunded liability, the Stated did exactly what one would expect. They made no contributions for the first five years of the plan.
The original LEOFF 1 law (Chapter 209, Laws of 1969) mandated an amortization of unfunded liability over a period not to exceed 40 years from March 1, 1970. A fixed an amortization date of June 30, 2024 to reach full funding status was establish in 1989 (Chapter 273, Laws of 1989).
The State began contributions, finally, in 1976 and continued those contributions through 1999. The State contributions averaged just over 40% of pay. However, it is unclear whether or not that was 40% of total pay or 40% of the pay for the 1976 through 1999.
Fully Funded
LEOFF 1 reached a fully funded status in 1997. The legislature suspended state contributions in July 1999. Member and employer contributions were suspended in May 2000.
Health Assessment
Matt Smith explained that a health pension plan has sufficient assets to pay earned benefits. Measured by the “funded status”, healthy plans are those that are considered to be at least 80% funded. In contrast unhealthy are those with at least 60% but less than 80% funding.
Poor health and at risk plans are those with less than 60% funding. They are considered as being at risk of running out of assets prematurely.
LEOFF 1 is a healthy plan. Its last evaluation was as of June 30, 2007. At that time, it was 114% funded. It had a preliminary funded status of 129% as of June 30, 2008. But a lot has changed since the last valuation.
It was really an unprecedented change in a short period of time. Assets dropped almost 24% since the last actuarial valuation—that is $1.5 billion for LEOFF 1. Overall, the state is anticipating a 30% decline in funded status over the next eight to ten years.
Pension systems are facing unprecedented challenges. Currently the actuary is predicting a likely return of unfunded liability in the LEOFF 1 system at some point in the future. Much will depend on future investment performance and funding.
Since the extent of future losses in unknown, the actuary tracks three scenarios for the plan. Those are projections of expected returns on investments, a pessimistic outlook and an optimistic outlook.
Continued on next page...