A controversial plan to let future state employees opt into a 401(k) style pension plans – instead of fixed-payment pensions that most receive today – won passage in the state Senate by a narrow vote of 25 to 22 on Thursday.
Senate Bill 5851 also lets existing members in state-run Plans 2 and 3 to make an irrevocable switch into the new option – dubbed the Public Employee Savings Plan – in early 2015.
Republican Sen. Pam Roach of Auburn was among those voting for the bill. But Roach first won passage of an amendment to let new state employees that opt for the 401(k)-style option to later revert or buy their way into the fixed-benefit plans that would remain available.
Sen. Barbara Bailey, R-Oak Harbor, is prime sponsor of the bill, which is a milder approach than Senate Majority leader Rodney Tom’s proposal to force all new hires into 401(k) plans after mid-2014.
“Many people across the country are now going to these plans because they do offer choice. They do offer flexibility,’’ Bailey said in a floor speech supporting her legislation.
The Washington Federation of State Employees has been hostile to either proposal to tinker with pensions, arguing the plans are cost effective and not in need of change. The union’s leaders also believe Bailey’s amended plan would dilute assets in the existing second-generation retirement plans that offer fixed benefits in retirement.
New state workers already have a choice of entering into a hybrid pension – Plan 3 – that is one-half fixed benefit, one-half 401(k).
Federation spokesman Tim Welch said Roach’s amendment was an attempt to reduce the bill’s harm to workers. “But still the bill overall is a bad bill. I don’t think there is any way you can dress it up,” Welch said. “We believe that it will undermine the current successful retirement system that we have …”
State Treasurer Jim McIntire, a Democrat, also has voiced opposition to the plan while touting the benefits, low cost and efficiency of the existing system.
The bill got the bare minimum of votes for passage and it faces skepticism, if not opposition, in the Democrat-controlled House. In the run-up to the vote, Democratic Sen. Karen Fraser of Thurston County spoke against it. And Democratic Sen. Steve Conway of Tacoma offered an amendment requiring the whole idea to be studied by the Legislature’s Select Committee on Pension Policy.
The study would have looked at the financial impact on existing pension plans and on contribution rates for state employees and both state and local governments. Some pension experts say the mobility of cash invested in the 401(k) style plans would reduce the State Investment Board’s ability to invest large blocks of pension money for long periods in private equities – which the SIB has used to generate high returns in excess of 8 percent a year, on average, over two decades.
The vote roll call is here. Only one member of the minority Democratic Caucus voted in favor of the bill. That was Sen. Jim Hargrove of Hoquiam who has been casting votes on behalf of ailing Republican Sen. Mike Carrell of Lakewood. Two Democrats who are part of the Republican-dominated Senate Majority Coalition – Sen. Tom of Medina and Sen. Tim Sheldon of Potlatch – also voted for the measure.
As the bill moves to the House, it is shaping up as a possible bargaining chip in the ongoing Senate-House budget talks. Lawmakers say they are working toward finishing work Sunday, the last day of a 105-day regular session, but few believe they’ll get done – meaning there could be a prolonged period of time to consider the measure.