According to the Department of Retirement Systems (DRS), the state Supreme Court will hear the appeal in the gain sharing case. The court may also hear the case regarding public pension automatic cost-of-living adjustments (COLAs).
Gain sharing was established in 1998. Under the program, extraordinary investment returns were used to enhance retirement benefits for certain Plan 1 and 3 members. (For details, see our 2007 policy brief.) As we noted in 2007,
Gain-sharing was intended to augment state employee benefits by using extraordinary stock market returns at essentially no cost to taxpayers. Gain-sharing was supposed to pay for itself. But periods of high growth are eventually balanced with periods of low growth.
. . . gain-sharing taps money that would otherwise cover future retirement cost obligations. Giving away returns in peak years essentially lowers the average rate-of return on pension fund investments. Contribution rates will have to be raised in the future to compensate.
With the recent recession, investment returns have declined but members continue to receive increased benefits. Because of the way the law was written, the excess investment returns become part of the base pension rather than a one-time distribution.
Gain sharing was repealed in 2007. According to DRS,
In 2007, the Legislature approved a law which repealed gain sharing provisions for members of certain state retirement plans and replaced them with other pension-related benefits, including options for early retirement. In approving the replacement benefits, the Legislature made them contingent on the successful repeal of gain sharing.
Pension plan members and retirees affected by the repeal brought suit, challenging both the repeal and the contingency provisions. King County Superior Court Judge Richard Eadie ruled that the repeal of gain sharing was invalid, but he also ruled that the state can terminate the replacement benefits if gain sharing is ultimately reinstated.
I wrote about the COLAs (which were repealed in 2011), and the Superior Court judge’s decision on them, here. More from DRS:
The state has petitioned the state Supreme Court to take direct review of the trial court’s ruling on annual increases. If the petition for review is accepted, there is a possibility the gain sharing and annual increase cases would be heard together because of the similarity of the legal issues.
Both gain sharing and the automatic COLAs were repealed by the legislature because they were simply too costly to continue. Both programs had been enacted with explicit language that they were not to be considered contractural rights. Even so, the courts have so far found that the state could not repeal them. If the Supreme Court agrees, there will be a significant impact on the state budget. As I noted here, in 2011 the state actuary estimated that if gain sharing and the automatic COLA were reinstated, employer contributions would increase by $639.7 million in 2013-15.
Washington Research Council 