By Richard C. Warbrouck
A Message From President Warbrouck - March 7th 2019
On February 21, 2019 when I was in Olympia for a hearing on two LEOFF I retirement system bills dealing with pension and disability board eligibility and prior act funding I was advised that I should schedule a meeting with Senator Kevin Van De Wege. Director Roy Orlando and I attended a meeting with Senator Van De Wege and Steve Nelson, the Executive Director of the LEOFF II retirement Board.
(Senator Van De Wege is an active LEOFF 2 Firefighter and was just elected to the Senate after several terms as a Representative. His email address is Kevin.VanDeWege@leg.wa.gov. His Olympia address is 212 John A. Cherberg Building, PO Box 40424, Olympia, WA 98504, and his phone number is (360) 786-7646)
Much to my surprise I was informed that they intended to introduce a LEOFF I – L-2 merger bill. The senator passed out a draft format of the merge concept Steve Nelson seem to be familiar with the outline or intent. Now I know why; as this outline is very similar to the bill that Steve drafted and was discussed last year in the dead of the night, behind closed doors during the budget deliberations.
The draft document reads as follows:
LEOFF MERGER DRAFT
Merges LEOFF 1and LEOFF 2 Delay until receive IRS approval (Does not delay State rate reduction) STATE:
0% LEOFF 2 contribution rate for 2019-21 & 2021-23 (saves $295M GFS Local employer still pays 30% and employee still pays 50%)
Beginning in 2023-25 state contributions restart but start phasing out and transitioning to employee/local employer by 2030 when employee share is 55% and local employer is 45%
Repeal Public Safety Enhancement Account and Benefit Improvement Account saves $100M GFS In 2019-21 and 2021-23, and $50 million per biennium thereafter LEOFF 1
> : $15,000/member payment Approximately $240M from LEOFF 1fund Include dental in retiree medical – $Unknown local government LEOFF 1 Governance unchanged (SCPP & PFC) EMPLOYER:
LEOFF 2 contributions for 2019-21 directed into LEOFF 1Retiree Medical Account $105M LEOFF 2:
$Transfer from LEOFF 2 into Benefit Improvement Account
Rate-setting authority solely with LEOFF 2 Board beginning 2023 (OSA reasonable)
LEOFF 2 Board protected – authority and budget At the meeting the above was distributed but not much more in the way of information was provided. No explanation was given for the various proposals nor was any explanation given to explain the $15,000 per member payment provision.
Steve Nelson advised that he had not informed the LEOFF II Board of this proposal and that they had granted him blanket authority to do anything he wants–seems like a serious conflict of interest because of his position as the Executive Director.
What have we done?
After the meeting contact was made with Dennis Lawson who is the President of the Washington State Council of Firefighters and the Chair of the LEOFF II Board. He stated that he was unaware of the proposal even though the WSCFF lobbyist appeared to be aware of the proposal. In fairness to WSCFF, Dennis Lawson was out of town and the lobbyist did not attend the meeting. Dick Warbrouck will be meeting with Dennis Lawson shortly, so we should soon discover the position of WSCFF relative to the proposal.
On Monday, February 25, representatives of the Retired Fire Fighters of Washington, the Retired Seattle Police Officers Association and the Washington State Retired Police Officers Association met with our attorney, Phil Talmadge. It was decided that we should have Mr. Talmadge send a letter to Senator Van De Wege seeking clarification and details. In addition to the Talmadge letter Dick Warbrouck also wrote directly to Senator Van De Wege asking a number of questions.
The Senator has delegated his answers to Steve Nelson. Steve’s answers are as expected—everything is just fine and legal. He cites legal positions taken during the previous rounds of merger proposals even though we have established that those opinions do not hold up under examination. You can review some of the documents here: http://leg.wa.gov/SCPP/Publications/Pages/SCPP2016MergerStudy.aspx
We have also been in contact with the Association of Washington Cities and the Association of Washington Counties. Both have indicated they will not support the proposal. WACOPS was not aware of the proposal but is now on board and opposes the proposal. We have not yet spoken with COMPAS.
What happens next?
We are waiting to determine the position of the Council of Fire Fighters and will be reviewing the legal actions we may need to take if the bill goes forward. We are advised by Steve Nelson that it is the Senator’s intent to draft a merger bill that will be approved by the IRS and will meet all Washington state legal requirements as laid out in Bakenhus and Weaver. The Senator is currently working with stakeholders, including RFFOW, to finalize the merger proposal and will send draft legislation to them. The Senator anticipates having a draft bill ready by March 18.
In our judgement the barriers presented by the IRS rules as well as Bakenhus and Weaver are insurmountable. This is not new ground and they have tried this in one form or another three times in the past. We feel that the exclusive benefit rule still applies.
The issues here are complicated, so we will be addressing them in subsequent emails and web postings. You might want to take a look at what the proposed back in 2017. See our 2017 posting for more information
And, just to throw a little more oil on the fire, we have been advised that there is an effort going forward to transfer $321 million from the LEOFF II Benefit Trust to the LEOFF II Benefit Enhancement Fund. I suspect that is why they want the LEOFF 1 money to back fill the hole that would create.
More to follow. Be sure to stay in touch with your organization and that you inform everyone as to what is going on. Also, make sure everyone signs up for emails at LEOFF1.Net.
Oh, you might want to let the Senator know what you think of the idea. Kevin.VanDeWege@leg.wa.gov
This is an example submitted by Director Roy Orlando of how to begin your letter or email to Senator Van De Wege:
Many LEOFF members are asking what they should say when they call or email Senator Van De Wege’s office. Of course the members can add to or alter my comments. I hope this will be helpful in guiding our members as the questions come in.
Dear Senator Van De Wege,
I am a member of the LEOFF system and I am opposed to the current LEOFF 1/2 merger proposal. The proposed merger is unfair to the members of the LEOFF system and the employers. The State of Washington is without question the primary beneficiary of the merger being considered. I’m shocked that a Firefighter is proposing this merger. As a Senator and active Firefighter it seems that your proposal contains elements of conflict. I request that you rescue yourself from this unacceptable matter immediately.
You can add any of Director Orlando’s comments or any of the comments in the following list 1-20. Comments that can be made in regards to the proposed L1/2 merger in letters, emails or in phone calls to Senator Van De Wege or in phone calls to the Legislative Hotline: 1-800-562-6000.
1) The LEOFF I members were promised their own independent retirement system when they were hired. How can the State renege on that promise?
2) The LEOFF I Retirement System and the LEOFF I Fund should be protected under the Bakenhus decision.
3) Senator Van De Wege should not sponsor a bill that will benefit him personally as a LEOFF II member.
4) This is too complicated. L-1/L-2 merger too many questions unanswered, we the LEOFF I members feel violated.
5) Not enough information for or against the merger; need more information.
6) Can’t fully address a major issue like the proposed L-1/L-2 merger after a bill is dropped and we have one or two minutes to comment.
7) When the last three attempts to merge L-1/L-2 have failed, why is this proposed merger any different?
8) Will the legislators, House& amp; Senate have the opportunity to analyze all the information, including all legal opinions before voting on another L-1/L-2 merger?
9) Why does Senator Van De Wege feel the LEOFF II system should inherit the so-called surplus in the LEOFF I System?
10) How was the $15,000.00 dividend to the LEOFF I members calculated?
11) Do the employers who also made contributions have a claim to the surplus?
12) Why should the State withhold the State’s contributions into the LEOFF II Retirement Fund pending a decision by the IRS? If the IRS denied the merger how will the State repay the contributions that were incorrectly withheld?
13) How will individual legislators be prepared to vote on a merger without a complete report as a result of a study and a majority and minority report?
14) Typical of the State to transfer money from one fund to the other that isn’t even there, it’s only projected. This is like an owner borrowing money today based on the projected value of his or her house ten years from now.
15) Why is it equitable to allow the State to discontinue the L-2 contributions, give the employers nothing, give the members $15,000.00 and give the rest to the LEOFF II Fund, a Fund that is 109% funded and while considering a bill to transfer 300 million dollars out of the L-2 Fund to another benefit improvement fund?
16) The members should receive a full detailed report on the impact of a merger so they can respond appropriately.
17) Answer the bill question! “Why is a merger needed? Both L-1/L-2 retirement systems are fully funded.”
18) During the first stakeholder meeting Senator Van De Wege could only answer a few questions. He did say that the State will be the winner in the merger.
19) Why does the State want relief from future L-II of the plan to the members and the employers when the State is funding all the other State retirement plans?
20) In spite of the initiative maybe it’s time for the Legislature to take control of the LEOFF II Retirement System. How much money would be saved?
Senator Kevin Van De Wege
PO Box 40424
Olympia, WA 98504