The Washington state Supreme Court was right to reject public sector union claims on two provisional retirement benefits provided by the state Legislature during the dot-com stock market boom of the late 1990s.
The decisions were not favorable for thousands of Thurston County government workers and retirees, but they will save state taxpayers about $10 billion over the next two decades.
At issue were two pension benefit increases granted in 1995 and 1998, but later repealed by lawmakers as the Great Recession started in 2007 and deepened in 2011. One granted an automatic 3 percent annual increase to pensioners in older plans, regardless of the inflation rate. The other, called gain sharing, increased benefits when investment returns were high, but never decreased them again as investment returns dropped.
The court found that in both enhancements, lawmakers explicitly included language giving them the right to repeal these enhancements when economic conditions changed. It was a correct legal decision that abided lawmakers’ intent and also avoided inflicting harm on taxpayers.
That’s little consolation for public employees who shared the Legislature’s enthusiasm about the 1990s stock market boom and agreed to give up their rich defined benefit plan in favor of a plan that mixed lower defined benefits with defined employee contributions and gain sharing, which kicked in when investment returns exceeded expectations by 10 percent for four consecutive years.
Those employees who switched plans were lured in by the promise of riches fueled by endless market growth. In hindsight, it was a bad decision.
The unions’ attorney argued that workers would have had to read the fine print in the state statutes that created the benefits to understand the increases could be taken back. Yes, of course. No one should make an important financial decision without reading and understanding all the applicable terms and conditions.
State lawmakers have expressed regret over the issue, though that doesn’t ease the pain for those whose retirement benefits aren’t as rosy as they had hoped. Sen. Barbara Bailey, R-Oak Harbor, said legislators got excited about how well pension plan investments were doing in the 1990s, but “it’s was one of those things that probably shouldn’t have been done at all.”
Amen to that.
The silver lining in this case is that public workers will face less pressure to radically reform the entire public pension system than if the court’s decision had gone in their favor.
The idea surfaced during the last session to convert all plans to a defined contribution benefit in which employees fund their own retirement. It’s a movement that’s gained momentum in other states and the private sector.
A victory for the state in this case probably benefits everyone – public employees and other taxpayers – and it surely avoids adding more complication to the difficulty of writing the 2015-2017 biennium budget.