October 17th 2018

LEOFF I Coalition Newsletter: 4/22/03

By Mark Curtis

It is now time to confirm that we believe that the current LEOFF 1 funding will be insufficient to enable every retiree/survivor to have the benefits due them up to or past 2039. We expect about 2000 people will still be alive then.

See the "findings," dated 1/17/03 on our website for a very good explanation.Bill Kantor patiently dug up detail and numbers that were difficult to nail down. We gave him some previous research, and he ran with the wind to expand his knowledge. Bill demonstrates how our pension fund is "transferred between systems," and "deductions" for administrative expenses, and "redefining" occur. The smoke and mirrors exposed the system that seeks to stake a claim on our "surplus" that we no longer have. We cannot accurately predict when the fund will recover. "Smoothing" (spreading out) of pension funds over years of need is now a management style to avoid more contributions and move the actuarial benchmark yet again.

We also can say that the LEOFF 1 pension system ceased to be fully funded in September 2002, noted by the Actuary. And, an Investment Board spokesman told the Pension Funding Council in November 2002, that we were barely fully funded. That council meets only every two years, and cannot fix the funding until then, if so inclined. The fund continues to erode faster that it can stabilize with no sufficient interests or new funding will ever occur.

The Governor had announced in his state-of-the-state message that his party had a mission to allow state pension funds to be invested in state area start-up companies to stimulate the economy. And since then, the DRS Outlook February 2003 publication devoted several pages to show off the State Investment Board work of prior investments in state companies. Our state government excels at control over pension funds and believes it owns these funds. Pensioners disagree.

But, our own State Supreme Court disagrees with us. The appeal by the Retired Public Employees Council of Washington was lost. The court said that the PERS pension fund was not a trust, and all PERS pension funds are state money. Further, it said that the director of the DRS is not a fiduciary. The IRS may one day have some concern if pension funds are transferred into the state general funds, contrary to the state exemption status now in effect.

A New York case showed what could happen to adversely affect our disabled retired. Employees in New York approved pension funds used for non-pension fund uses. The IRS took the state to task because those monies went into their state general fund, in conflict with disability exempt status. We need to watch dog our own state and encourage IRS compliance with regulations so we do not lose that benefit.

A recent complaint for Declaratory Judgment and Injunctive Relief was filed in Skagit County regarding a Snohomish County concern. The issue is expected to determine whether or not the Snohomish County Disability Board may set particular policy. The Coalition supports the defense efforts of that Disability Board, and the request for support explained by Ken Crowder.

We all need to resist any degradation of our pension system or any others as well. Failure to stand up for other pension systems or ourselves could cause us to fall victim to the results identical to the State of Oregon. We had reported the Oregon suit by employee groups during the early formation of the Coalition. Employees won, but the Oregon Legislature failed to re-fund the pension deficits. That state is now said to be $10 billion in the hole on the matter. Their whole state budget isn't that much. The ways to fix that problem would be to either, "raise taxes or lower benefits, or a combination of both," said our State Actuary in response to a question. We have trouble with our own state legislators causing our funds to be transferred around. But, our government has not buried us as deeply as Oregon as yet. Oregon government has failed at fiduciary responsibility. We certainly cannot turn our backs. Note: in the recent DRS Summary Comprehensive Annual Financial Report (CAFR) for 2002, on page 4, we see, "on a daily basis, the Investment Board reviews…… and shifts assets whenever the allocation range for an asset exceeds the approved range or when cash is needed elsewhere". This is another way to say they shift our surplus, a further confirmation of the findings of Kantor's work.

Page 5 of that report indicates that what was known as the "Pension Trust Fund Expenses" have been renamed "Deductions to Pension Plan Net Assets." Deductions include the cost of administering the retirement systems. The Investment Board expenses are funded by the earnings on investments, and maybe also the Investment Council.

Three points could be made here:
- We paid for the services of pension fund administration.
- The State DRS wasted no time in restating a distancing of the word "trust" to shift deductions to net assets.
- "Restatement" is a tactic to be reckoned with, as a method of using our funds contrary to what is needed for long-range pension health.

We had reported that the Association of Washington Cities and Towns had announced prior to session that they planned to introduce a bill to control our surplus. That did not happen in this term. They did want SHB 5664, which made changes to the criteria arbitrators must use in police and fire interest arbitration. They wish to use the implicit price deflator of cost of living adjustments and amend the binding interest arbitration statutes. This would require consideration of a jurisdiction's ability to pay and eliminate comparables outside the state for all interest arbitration. The Bill did not pass out of the house of origin this session.

We should not assume any end to a threat. The cities did some groundwork on this, and may well be a major concern next year.

We opposed HB1204, but find ourselves governed by a renamed "Select" Joint Committee on Pension Policy." We supported the LEOFF 2 bills to help their initiative 790 work, and they appear to have won that enabling effort. HB1198 would permit a non-Plan 1 Disability Board to vote. The Board already saw an earlier legislative act to let Plan 1 on the Board. We had a lot of trouble with the current Bill, but saw the approval of a vote was better than letting the employer have the upper hand in votes. While many of us would far prefer that only a plan one person serve, some places have no plan 1 candidates available or willing to serve. That will emerge as a real problem sooner than later. The legislative session is still grinding on. When over, we hope to participate in a meeting in or near Walla Walla and possibly the Yakima region.

We ask that the reader share this information with LEOFF 1 people who may not be keeping up on what our system still faces in the future.

We continue to lose some people to inaccurate email, moving, or passing on. One of our number was activated for military duty a second time as a LEOFF 1 police chief, i.e., Ricky Thomas of Hoquiam PD to the Coast Guard. Wish him well and safe return soon.