NEWS RELEASE
April 18, 2001

OLYMPIA, WA Anticipating the pending $250 million raid on the LEOFF I Trust Fund surplus, by the Washington State Legislature, representatives of the LEOFF I Coalition remain committed to fight against any legislation (including Senate Bill 6166) that would "terminate" the LEOFF I statute

The legislature has until Sunday night 4/22/01 to formulate their biennium budget.

Currently, the centerpiece of the budget is $250 million of LEOFF I Trust Fund surplus. Some legislators say, "We need the money to balance the budget." While others describe the confiscation of the funds as "precedent setting, aggregious and outrageous".

Clearly, the "precedent" is not just raiding pension funds to provide band-aid budgeting, but especially the breaking of the promise to law enforcement and fire fighting personnel, who are bound to those funds by way of their employment contracts.

What happens next biennium, when there aren't funds to fill the gaps? Will the legislature then raid the teachers' funds, or the public employees' funds, or simply continue to deplete the LEOFF I Trust funds.

The prestigious law firm of Hagens-Berman, Seattle, Washington, is prepared to file litigation to stop the legislative raid on the LEOFF I Trust Fund. This action may be necessary, if the legislature pursues this reckless and dangerous approach to budgeting.

Mark Curtis, Chairman of the LEOFF I Coalition said, "The Legislature doesn't have a $250 million shortfall because they haven't taxed enough; but rather they have spent $250 million too much. Temporary fixes, breaking the promises of pension funds, is irresponsible budgeting."

LEOFF I Coalition
855 Trosper Road #108-126
Tumwater, WA 98512-8108

NEWS RELEASE
March 28, 2001

"$250 Million raid on the LEOFF I Retirement System surplus is egregious and outrageous!"

OLYMPIA, WA The LEOFF I Coalition, on behalf of 9,000 plus active and retired Law Enforcement Officers and Firefighters, will testify in strong opposition to SB 6166 today in the Senate Ways& Means Committee. . . "We [the Coalition] are strongly opposed to Senate Bill 6166, a bill that will trigger a preemptive raid on our LEOFF I Retirement System surplus," said Coalition Chairman Mark Curtis.

After reading the proposed legislation, [SB 6166], it is clear to the Coalition that the primary objective is for the legislature to get their collective hands on the LEOFF I surplus to establish a 'State Surplus Assets Reserve Fund to alleviate budget shortfalls.' To get to that end, the proposed legislation seeks to "get around" certain legislative and legal obstacles, Curtis said.

It appears that those Senate Legislators who want to make a preemptive strike on the fund surplus will have come to recognize that they have to deal with the reality that the pension system is one governed by laws.  In particular I would note per the bill's explanation summary: 'Under federal law, the state (as the sponsor of the retirement plan) cannot have access to the retirement fund, but upon restructuring the plan, the excess assets revert to the state'. The federal law may well be the Internal Revenue Code and regulations dealing with "qualified trusts" per RCW 41.26.057, however, it should not be conceded that it controls and mandates where the assets finally go. The federal law deals with whether or not the pension plan complies with the tax code, and the tax consequences can be dealt with separately.  As noted below, state law controls as to the rights of members and beneficiaries under the system," said Curtis.

Our legal research indicates the following . . .

• It is state law, not federal law, that controls when it comes to state created pensions. Federal law is important, but incidental for tax related matters as noted above.

• Backenhaus v. City of Seattle and other supporting cases are controlling on the issue of our pension being contractually and constitutionally protected. Pension rights can not be modified after retirement, and can only be modified prior to retirement ".for the purpose of keeping a pension system flexible to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system..Such modifications must be reasonable, and it is for the courts to determine upon the facts of each case what constitutes a permissible change. To be sustained as reasonable, alterations of employees pension rights must bear some material relation to the theory of a pension system and its successful operation, and changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages."

• It would be our contention that the legislative objective found in SB 6166, of creating a "State Surplus Asset Reserve Fund" is not sufficient to justify a revision in the current pension plan. Reference proposed fund number two, LEOFF Medical Benefits Risk Pool, the issue maybe open to question as to whether "lack of funding" is sufficient to warrant a change in the current pension system--a tax remedy may be more appropriate.

• SB 6166's bill summary cites the Koster v. Davenport case (8 Circuit, 1999). This case follows the "statutory" implementing basis for state pension plans, while Washington follows the "contract theory". Koster should not be considered authoritative in this discussion.

• The Hughes Aircraft (U.S. Supreme Court 01/25/1999) case cited in the bill summary deals with a private pension plan governed under federal ERISA statutory law. The Court noted that it did not have the leeway to apply "trust" or "equitable" principals to the facts of this case.

• It is true that the Washington State Supreme Court has not ruled on the question of who has a right to a public pension surplus, nor has it gone all the way to declare pension funds as being held "in trust" for the beneficiaries. These are the key two issues that would have to be litigated in the LEOFF I fund surplus scenario. However, our Supreme Court in Washington v. Yelle has held that pension funds are not state funds, "but are proprietary funds committed to the custody of the state treasurer as trustee for particular objects and purposes, and subject to disbursement solely upon authorization of the retirement board..."

• It would appear that the purpose of including in the proposed legislation the LEOFF Defined Contribution Retirement Plan, fund number 1, is to appease members and beneficiaries while complying with the strictures of the Bakenhaus case to provide "comparable new advantages" (benefits) if there are changes in the pension plan. Further, Bakenhaus, citing Marshall v. Pilots Assn., 206 Pa. 182, 55 A 916, notes that once vested,."His rights in the fund could only be changed by mutual consent."

• While it is true that the state has contributed to the fund, the state was also negligent in not contributing into the fund at its inception, which left LEOFF I extremely under funded. As noted in the bill's summary, the employees, employers, and the state have made contributions probably in the proportions cited. However, the funds have been "commingled" and it is contended that they are held in "trust" for the benefit of the LEOFF I members and beneficiaries. The Coalition strongly argues that any effort to take the surplus for non-fund purposes, i.e., for the State Surplus Assets Reserve Fund is in fact an unconstitutional taking in violation of the Fifth Amendment.

The Coalition is committed to protect the LEOFF I Law from unwarranted invasion by legislation such as SB 6166. We will vigorously oppose any and all legislation like SB 6166!" according to Curtis.