SB 5357: Concerning actuarial funding of pension systems. - Washington

Engrossed Substitute Bill → Substitute Passed Legislature · 5 edits

MODERATE

This bill updates Washington State's pension funding laws to reflect new actuarial assumptions and revised contribution rates for the 2025-2027 period. It lowers the long-term investment return assumption from 8% to 7.25% and adjusts salary growth projections, which necessitates changes to how pension costs are amortized and funded. The legislation establishes specific contribution rates for various public employee retirement systems and suspends certain minimum contribution requirements for Plan 1 liabilities during the current biennium.

Scope change

The bill expands its scope by amending multiple existing RCW sections regarding pension funding assumptions and rates, in addition to adding new temporary sections for specific contribution rates.

FISCAL

The long-term investment rate of return assumption for pension calculations was lowered from 8% to 7.25%, and salary growth assumptions were adjusted from 4.5% to 3.25%.

Specific employer and member contribution rates were set for the 2025-2027 biennium, including a 5.00% rate for public employees and 7.00% for teachers.

REQUIREMENT

Minimum contribution rates required to amortize unfunded liabilities in Plan 1 were suspended or set to zero for the 2025-2027 period for public employees, teachers, and school employees.

MODIFIED

The amortization period for benefit improvements in Plan 1 was extended from ten years to fifteen years.

TIMELINE

New temporary sections were added to establish specific total employer and member contribution rates for various retirement systems through June 2027.

Substitute Bill → Engrossed Substitute Bill · 5 edits · Apr 24, 2025

MODERATE

The bill updates pension contribution rates for Washington state employees to reflect improved financial health, allowing for lower initial payments that will gradually increase over the next two years. This change reduces immediate fiscal pressure on employers and employees while ensuring long-term sustainability of the pension funds.

Scope change

The scope of the bill remains focused on setting contribution rates for specific retirement systems, but the specific rates and the timeline for those rates have been significantly modified.

FISCAL

Contribution rates for the public employees' retirement system were split into two periods: 5.00% for 2025 and 6.15% for 2026, replacing a single flat rate of 5.50% for both years.

Contribution rates for the teachers' retirement system were split into two periods: 7.00% for 2025 and 8.16% for 2026, replacing a single flat rate of 7.75% for both years.

Contribution rates for the school employees' retirement system were split into two periods: 6.00% for 2025 and 7.59% for 2026, replacing a single flat rate of 6.75% for both years.

Contribution rates for the Washington state patrol retirement system remain unchanged at 14.50% for employers and 8.75% for members.

TECHNICAL

The bill title was updated from 'Substitute Senate Bill' to 'Engrossed Substitute Senate Bill' to reflect its current legislative status.

Bill → Substitute Bill · 5 edits

MODERATE

The bill was revised to simplify the pension funding structure by removing complex, temporary rate adjustments and consolidating the legislation into a single, permanent section. The changes shift the focus from short-term amortization of unfunded liabilities to a long-term strategy that leverages the current well-funded status of the systems to reduce contribution rates over the 2025-2027 biennium. This revision aims to alleviate fiscal pressure on employers and employees while ensuring the long-term stability of Washington's pension funds.

Scope change

The bill's scope was narrowed from a complex mix of permanent amendments and temporary rate fixes to a focused act establishing specific, lower contribution rates for the 2025-2027 period. The applicability of the act was extended from a single fiscal year to a two-year period.

TIMELINE

The temporary contribution rate schedule was extended from the 2025-2026 fiscal year to the 2025-2027 fiscal biennium.

FISCAL

Specific contribution rates were lowered across all pension systems, including the Public Employees' Retirement System (5.50%), Teachers' Retirement System (7.75%), and School Employees' Retirement System (6.75%).

REQUIREMENT

Provisions requiring the amortization of unfunded liabilities over specific short-term periods were removed, replacing them with a focus on normal cost funding.

Detailed calculations for amortizing unfunded liabilities for the Public Employees' Retirement System and other plans were deleted from the text.

SCOPE

The act was simplified by removing the addition of a new section and instead integrating the rate changes into a single new section.

Concerning actuarial funding of pension systems.

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