Washington's ailing pension system



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Posted on November 11, 2009 at 11:40 PM

Updated Friday, Nov 13 at 1:49 PM

SEATTLE - Inside a Seattle University building, part-time instructor Stan Finkelstein is enjoying the retired life. What's he doing?

He's teaching an evening management class, biking all over the place and traveling to places like Russia.

What he isn't doing is worrying about money.

"There's a certain awareness that my pension is rather substantial," said Finkelstein.

Retired after 30 years of government service, Finkelstein saved well for the golden years, plus he pulls in $113,000 a year in a guaranteed pension.

He's one of 100,000 current and former government workers in our state's oldest and most lucrative pension plans, commonly known as the PERS 1 and TRS 1. These plans were closed to new employees in 1977.

The KING 5 Investigators found some of the top retirees include former energy executive Rod Webring, who has the biggest pension of all, about $250,000 a year.

Former Gov. Gary Locke is another top pensioner, with $104,000 a year in state benefits on top of his salary with the Obama administration.

A widow of a Seattle firefighter gets about $155,000 a year, more than triple what her husband made when he retired.

There's nothing wrong with these large pensions. The employees earned them and the state constitution guarantees they'll get them, no matter what.

The problem? These old plans are about to go broke.

"It's a very serious situation," said Matt Smith, the State Actuary, who is paid to give the legislature his expert advice on how to keep our pension systems healthy. He recently issued the gloomiest report to lawmakers he’s ever given in his seven years on the job.

The report shows the old pension plans are now “at risk” of "running out of assets," be flat busted, in six to eight years.

"(That would be) the scenario of poor investment returns, if we have another decade like we just had where investment returns for an entire 10-year period were about 4 percent. (Our state) assumes 8 percent. If you have a flat period of investments and the legislature maybe not being able to fully fund these pensions, that's the scenario where you could see the (oldest) plans running out of money," said Smith.

If that happens, the money  - about $15 million a month and growing - will come straight out of the general fund, or from higher taxes.

"In other words we'll be writing checks from the budget to pension recipients," said Sen Joe Zarelli, Ridgefield, Wash. "And a lot of things have to go because that's a lot of money to take from the bottom line."

How much? About $2 billion a year for 20 years before the bill would begin to taper down.

With $2 billion the state could hire 27,000 additional teachers.

Or provide health insurance for every uninsured citizen in the state.

Or give free tuition to every higher education student in Washington.

The state's pension mess is partly due to the plummet in the stock market. The trust fund's lost $15 billion from the heyday two years ago.

There's plenty of blame for our state's lawmakers as well.

"The legislature is skipping payments, they're doing all kinds of shenanigans, essentially that is just compounding this problem over time," said Amber Gunn, Director of the Economic Policy Center for the Evergreen Freedom Foundation.

In the last five years lawmakers borrowed from state worker's pension plans - more than a half-billion dollars from the oldest systems.

They simply skipped contributions to the fund. They even passed on the payment two years ago during the highest budget surplus in state history.

"These are good times, these are exciting times," Gov. Chris Gregoire said in 2007.

But the good times didn't roll into the ailing pension plans. The leadership didn't find money for that.

In that surplus year they did however find $300,000 to fund a grizzly bear and a sugar beet study, $150,000 to open a legislative gift shop, and $30,000 to hire the first-ever state poet.

Sen. Joe Zarelli has pushed for making pension contributions for years, but he says irresponsible politics have gotten in the way.

"It's not a sexy thing to spend money on," he said. "They'd rather go out and create a program or get more money for something that they can get recognition for."

Senate majority leader Lisa Brown, D-Spokane, wrote the budget back in the surplus years.

We tried for two weeks to talk to her about those skipped payments. After she canceled our first interview in Seattle we scheduled an interview with her in Spokane. The camera and lights were set up, but Sen. Brown didn't show up. Her staff told KING 5 she had to run to a community event. After that, emails and phone calls to set up yet another interview were not returned.

Rep. Kelli Linville did agree to talk. She said Democratic aren't to blame. She points out Republican Dino Rossi wrote the budget when the first pension contribution went by the wayside in 2004.

"I don't want to throw stones, it's all of us. It's not one party or one leadership or one anything because like I said I believe everyone has not done the most they should," she said.

Rep. Linville says in the future she'll work to try to keep lawmakers from taking more from the pension fund to pay for other things. "My hope for the next (budget) is that the pensions are left alone. that we don't look to use the pensions as any leverage to balance the budget. We can't," said Linville.

The expert, State Actuary Matt Smith, says the worst case scenario can be avoided if lawmakers change their spending habits now. Business as usual, he says, isn't going to cut it. One of his recommendations to keep the fund afloat is to have lawmakers triple contributions to the pension fund over the next six years: from $661 million between 2009 and 2011, to $1.88 billion between 2013 and 2015.

That's a tall order given the current economic climate.