Washington Substitute Senate Bill 5085 would increase pension costs

A version of the following testimony was delivered to the Washington State House of Representatives Committee on Appropriations on March 13, 2025.

Thank you for the opportunity to offer my brief analysis of Substitute Senate Bill (SSB) 5085, which merges the Public Employees Retirement System Plan 1 (PERS 1) and the Teachers Retirement System Plan 1 (TRS 1) with the Law Enforcement Officers and Firefighters Plan 1 (LEOFF 1). While well-intentioned, this bill raises serious legal, financial, and fairness concerns that make it an unwise public policy. 

SSB 5085 proposes shifting assets from the overfunded LEOFF 1 retirement system to cover benefit increases in two underfunded plans, PERS 1 and TRS 1. This move not only raises potential IRS compliance issues but also sets a concerning precedent. Under SSB 5085, pension funds would no longer be managed strictly for their intended beneficiaries but instead used to shore up unrelated liabilities and grant new benefits in another plan. That is a fundamental change in how public pension systems have historically operated. 

Additionally, while the bill is being presented as a cost-saving measure, the Office of the State Actuary has indicated that those savings may never materialize. If the Combined Trust Fund earns an average return of 6% over the next 25 years—a rate in line with long-term forecasts for many state pension systems nationally—this bill would actually increase costs for taxpayers by $1.5 billion. If there are lower market returns in 2025, which looks likely, the state savings from the bill are nearly eliminated. That risk should not be overlooked. 

Perhaps the most important point to recognize is that the state has more than fulfilled its commitments to PERS 1 and TRS 1 members—providing billions more in benefits than these retirees were originally promised. When these plans were designed, members understood that they were not guaranteed a cost-of-living adjustment (COLA). Because of this, their pension contributions and benefits were structured differently from those in other plans that do include an automatic COLA. 

Despite this, the legislature has gone beyond their agreement and provided COLAs numerous times between 1989 and 2011 and again in 2018, 2020, 2022, 2023, and 2024. These increases were granted without funding, effectively adding costs that were never anticipated. Even more importantly, since 1987, every retiree in PERS 1 and TRS 1 has had the option to purchase a COLA through an actuarial reduction to their pension benefits. This mechanism was put in place so that members could individually decide whether inflation protection was a priority for them at the time of retirement. 

However, because the state continued to grant COLAs at no cost to retirees, there was no incentive for members to opt into the buyable COLA. Understandably, most chose not to reduce their initial benefits when they assumed they might receive an adjustment later on. Many of these retirees also left public service in their early-to-mid-50s, fully aware that their pensions did not include automatic COLAs. They made their retirement decisions accordingly and, in many cases, had decades to plan for inflation. Yet this bill now seeks to fund additional benefits for them using assets from LEOFF 1—a group that has no connection to this issue whatsoever. 

SSB 5085 presents risks that should give pause: it threatens the integrity of pension funding by increasing liabilities in two closed plans, it will likely not deliver the savings it claims, and it sets a precedent that could lead to future financial instability. 

I urge the committee to consider alternative ways to address Plan 1 members’ concerns without creating new risks for Washington’s pension systems and to ensure that any new benefits are funded in a way that is fair, legal, and fiscally responsible.