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Municipal
League of King County Position on
Initiative 790 Adopted by the
Board of Trustees, October 21, 2002 General
Election Ballot Measure Position and Rationale: The Municipal League of King County opposes I-790. While the Committee agrees that the current system does not appear to provide the beneficiaries sufficient opportunity to advise the legislature, the Initiative provides too much control over the pension to the beneficiaries. The beneficiaries have the majority of the Board members and the methods of enacting improvements may make it difficult to oppose increases; for example, by requiring a special session to convene to act within the 90-day deadline. The Initiative states that “all earning in excess of the actuarially assume rate of investment return shall be used exclusively for additional benefits.” The language on surpluses seems clearly to require that such funds be used exclusively to increase benefits and not to offset years in which surpluses do not accrue. The more recent Fiscal Note was prepared by an outside consultant retained by the State Auditor and appears to be more realistic than the earlier estimate which was made on the measure introduced to the legislature; this Fiscal Note suggests significant impacts on state and local budgets. Summary of Measure This initiative would change Law Enforcement Officers and Fire Fighters Plan 2 (LEOFF 2) Pension System as follows: 1) create a new Board of Trustees, appointed by the Governor and legislative leaders consisting of 3 police representatives, 3 fire fighter representatives, 3 local government representatives and 2 legislators. The Board is responsible for designing and implementing increased benefits for members of the plan subject to contribution limits. Actuarial costs must be determined before the Board acts on any increase. Increased benefits become effective within ninety days unless the legislature enacts a bill by majority vote of each house repealing the Board’s action. In addition to this method of increasing benefits, the Board may submit its recommendations to the legislature in the form of proposed legislation. These measures take precedence over all other measures in the legislature, except appropriation bills. The legislature may enact or reject without change or amendment the legislation. The initiative establishes ratios and caps for contributions to the benefit program. The cost of the minimum benefits is funded as follows: employee contributions 50%, employer contributions 30%, and state contributions 20%. Increased benefits may not exceed these ratios. In addition, increases are capped as follows: 1) employee cost may not exceed ten percent of covered payroll without the majority of the affected employees’ consent; 2) employer contributions may not exceed thirty percent of the cost, and may not exceed six percent of covered payroll; 3) state contributions may not exceed twenty percent of the cost, and may not exceed four percent of covered payroll. The measure states that when the investment returns of the trust exceed actuarial estimates, the excess funds “must be used exclusively for additional benefits.” Arguments for and against the measure as presented by proponents and opponents, supplemented with arguments identified by the committee are presented below. Proponents of the
measure have advanced these and other arguments IN SUPPORT: · The current board that makes pension decisions does not include any law enforcement or fire fighters; I-790 would give law enfo0rcement and fire fighters a direct role in making recommendations on their pension program. · Proponents say that beneficiaries are not allowed to participate in Social Security so that this is the only public pension plan that all members participate in. · The legislature retains effective control over the pension program. The legislature may turn down any proposal of the Board by acting within 90 days. · The contribution and capping provisions provide safeguards on the amount of increases possible under the measure; current law does not provide caps on contributions. · The State auditor originally determined that there would be no cost to the measure. · I-790 allows surpluses to be used to even out cash flow, not just fund increased benefits. Opponents of the measure have advanced these and other arguments AGAINST: · The composition of the board gives the fire fighters and law enforcement officers a majority of the board that will allow these members effective control of the Board. This Board composition, along with provisions discussed below, diminishes the legislature’s control of the pension program. · The requirement that the legislature must act within 90 days to vote against a Board proposal will make it very likely that Board recommended changes become law. · The state auditor has estimated that the measure will cost the state $4.8 billion and local governments $7.2 billion respectively over a 25-year period. · I-790 will increase pension benefits and costs to taxpayers, state, and local governments. The costs will require either cuts to essential services or increases in taxes. · Enacting I-790 could lead to a proliferation of separate pension boards for teachers, government workers, and other groups. · Surplus funds can only be used for increased benefits and not to even out years when the rate of return is lower than expected.
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