SB 5916 is a Bad Bill
April 24, 2013
SB 5916 passed out of Ways & Means with a “do pass“ recommendation on Tuesday, April 23rd. It is bad bill for both LEOFF 1 and LEOFF 2.
It purports to deal with the issue of “excess compensation” and deals with all pensions except LEOFF 1 in determining how it would define the term. Essentially it targets any inclusion of compensation beyond base salary in setting the amount of the pension benefit. Apparently under some systems it is possible to pack overtime, sick time, vacation leave and other lump sum end of career payments into the calculation. While this would impact LEOFF 2 it should not be a large issue as they average over a five year period in determining the final average compensation. Still, it could impact some people assigned to high overtime areas as it limits the amount to 125% of base salary. Earlier in the session the Select Committee looked at this proposal and the amount was 150% of base salary. It did not pass out of the Select Committee. It has now been resurrected and is harsher that originally proposed.
It also deals with “excess compensation” or “pension spiking” for a few LEOFF 1 individuals. Essentially it says that all LEOFF 1 retirements since June 30, 2011 DRS must conduct an onsite audit of employer compensation records in all cases where the base salary reported for a LEOFF Plan 1 member increased by more than 10 percent in the final two years prior to retirement. Notice how LEOFF 1 gets an even harsher level of definition – 110% v 125% for other systems.
The bill states that LEOFF Plan 1 members and employers may appeal to the director of DRS any disability board decision to grant or deny coverage for a requested medical service. The director must review the appeals using standards recommended by the Health Care Authority medical director. This section, establishing the DRS review of appeals of local disability board decisions, is made effective March 1, 2014.
Obviously for LEOFF 1 this review process is very disturbing. First, there is already an appeals process and it has been used a number of time over the 43 years LEOFF 1 has been in effect. Case law has clearly identified the authorities of the local disability boards those decisions have held up in numerous lawsuits.
Basically this gives the employer a second bite at the apple. First they generally control the majority on disability boards. The selection process for board membership is clearly stacked in favor of the employers and these boards routinely reject benefit coverage they deem inappropriate. Now, a second bite comes with the ability to appeal to DRS. That then creates another quasi-judicial process that will essentially allow a disgruntled employer to harass the board and member. The key to this is that there are a certain few cites and fire districts that do not want to pay anything. Members subject to the decision of those boards have often been deprived of benefits common throughout the state.
We would anticipate battles and LEOFF 1 organizations will have to organize and raise funds to assist members subject to this new appeal process. The employers, on the other hand, have the public treasuries to fund their appeals.
Finally, this section would set the standard for the DRS review to the standards of the Health Care Authority. That standard is totally different from LEOFF 1 standards as defined by 41.26.030 and 42.26.130.
It looks like there will be numerous expensive court battles arising from this bill.
This bill is not a bill that will help with the state budget. In fact, it will hurt it. If they are able to identify some inappropriate cases of “excess compensation” the employer must pay the cost of that into the pension trust. So the money goes to the pension system not to the budget. I really have no problem with that so long as it is truly an abuse. It is appropriate that DRS investigate such abuses. However the standard that defines the abuse needs to be clarified as it is a very complicated matter. This is not the kind of thing that should be rushed through without proper review and without any real opportunity for the members, cities, counties and fire districts to have input.
The bill is actually retroactive, so that people who are already retired could be adversely impacted. As members of this system we conducted our financial planning and based or retirement investment decisions on our understanding of the law. The last LEOFF 1 hired already has 36 years of service. None of us can go back and change our investment strategies where those decisions were made over 40 years ago. There is no way to recoup and individuals will be hurt.
The bill is a last-minute deal. No prior notice to anyone. On April 17th we were informed of the bill with the first hearing on April 18th. Then a bunch of amendments were offered and another hearing was set for April 23rd. This is in the last two weeks of the legislative session when it is difficult to even talk to legislators. The bill is not fixing anything that could not be better fixed later with thoughtful consideration of the consequences, and unintended consequences, of the bill’s provisions. The accelerated process ignores the established review process for pension issues and it does so with no justifying need. This is just plain bad government and those senators bringing it forward should be ashamed of themselves.
We actually do not know what is motivating this. Some think the AP articles have generated the action as a kneejerk reaction. I think the AP articles and their timing are something beyond a reporter finding a good subject to write about. Obviously we will never know, so we must say it is just a matter of the legislature letting newspaper articles drive public policy -- hardly a prescription for good legislation.
You should fight this and fight it now. Call your legislator. Call all the legislators. They need thousands of phone calls in Olympia today. Thousands of emails would be a good thing, too. It still has to get out of Senate Rules and through the House and then be signed by the governor, so we still have the opportunity to convince the legislators to stop this bill.
Save some money – it looks like we might be in court if this passes.
For more information go to www.leoff1.net.