Opinion: The nation’s first pension raid is happening in Washington state

🎧 Washington’s Pension Raid: A Dangerous National Precedent

Ryan Frost believes Washington does not have a pension surplus problem. It has a spending problem.

Ryan Frost
Washington Policy Center

Retired Washington firefighters and police officers are suing the state to stop one of the most dangerous pension raids in American history.

They should win, and the courts should not have to work hard to get there.

House Bill 2034, passed during the 2026 legislative session, would strip billions of dollars out of the Law Enforcement Officers’ and Fire Fighters’ Plan 1 (LEOFF 1) pension fund and redirect that money to unrelated state spending. The state calls the maneuver a “termination and restatement,” as if the phrase itself changes what the bill does. It does not. According to the House bill report, the legislation terminates LEOFF 1, creates a “restated LEOFF 1,” transfers enough assets to fund the new plan at 110 percent of liabilities. Everything above that line would be declared a surplus, available for the state to spend on general obligations as it sees fit.

LEOFF 1 is not being terminated in any meaningful sense. Washington is not buying annuities, closing the trust, and ending the state’s obligation, as a private employer might do when terminating a pension plan. The state would continue owing the same pension promise through a state-run retirement system while moving billions of dollars out of the fund that was built to secure that promise.

States have done plenty of irresponsible things with pensions. They have skipped contributions, underfunded plans, expanded benefits during strong markets, stretched out debt payments, and used optimistic investment assumptions to make annual costs look lower than they really are. Washington did its own version of that in 2025, when lawmakers raised the assumed rate of return for several state pension plans. That move made the budget look better by assuming higher investment returns in the future, thereby lowering the amount the state is required to pay into the pension plans.

HB 2034 goes well beyond the usual pension games. It reaches into a pension trust and removes assets for non-pension purposes.

That distinction matters because public pension law is built around a basic rule: pension assets exist for, and are held for the exclusive benefit of, their beneficiaries. Pew found that every state has adopted the exclusive benefit rule in statute, constitution, or regulation, requiring fiduciaries to act for the exclusive purpose of providing benefits to beneficiaries. The beneficiaries are the retired workers, surviving spouses, and others entitled to benefits. The state can be the sponsor, employer, funder, guarantor and stakeholder. Those roles matter, but none of them make the state a beneficiary.

This is why the precedent is so dangerous. The problem is not merely that LEOFF 1 is overfunded, although that is why lawmakers targeted it. The problem is the legal theory behind the raid. If the Legislature can take pension assets because it believes the remaining money is enough to keep checks going out, then every pension fund in the country becomes vulnerable whenever lawmakers decide they need the money badly enough.

Once courts accept the idea that pension assets may be redirected as long as retirees are expected to keep receiving monthly checks, the statutory protections around pension funds become moot. A plan would not need to be massively overfunded to become a target. Lawmakers could argue that a smaller cushion is sufficient, that future contributions can make up the difference, that the state guarantee protects retirees, or that the budget emergency justifies taking money now. A frequent falsehood in the public pension space is that an 80% funded ratio, meaning the plan has 80 cents for every $1 owed, is “healthy.” The American Academy of Actuaries has had to repeatedly warn academics, journalists, and legislators that using the 80 percent funding as a benchmark for plan health is inappropriate.

If Washington courts uphold this law, the entire dispute will shift from whether pension assets are protected to how much money politicians think they can safely remove.

No court should create that rule.

California already showed why courts cannot allow this. In 1991, Gov. Pete Wilson tried to use California Public Employees Retirement System (CalPERS) assets to help close a budget shortfall. The courts blocked the raid, and California voters later strengthened constitutional protections for pension assets and stripped their Legislature’s governance over them. The lesson was clear enough: pension trust assets are not a budget reserve for politicians.

Washington appears to be trying to get around that lesson by changing the form of the transaction. Instead of simply admitting it is taking the money, the state says it is terminating the plan, recreating it, and then taking what is left over. Courts are not required to pretend the label controls the substance. A pension plan has not truly ended if the same state-run system continues paying the same benefits while the state keeps the obligation and removes the surplus assets.

There is also an actuarial problem buried inside the state’s argument. The 110 percent funding target depends on the liabilities being measured correctly. Those liabilities are measured using assumptions lawmakers can influence, including the assumed rate of return Washington recently raised to 7.25 percent. If the assumed return is too high, the liabilities are understated and the so-called cushion is smaller than advertised. The same Legislature claiming the fund has more than enough money also helped define how much “enough” is.

The Office of the State Actuary highlighted this danger quite succinctly. They point out that the chances of LEOFF 1 dropping below 100% funded, thus requiring contributions from the state for the first time since the year 2000, will increase from 5% to 40% under HB 2034.

And where, exactly, are the national pension defenders?

There is an entire Washington, D.C., class of organizations whose public mission is to defend defined benefit pensions. The National Institute on Retirement Security (NIRS) publishes regular research on the value of DB plans, and travels around the country promoting them. The National Conference on Public Employee Retirement Systems (NCPERS) represents more than 650 public retirement systems, plan sponsors, unions and service providers. NCPERS also blacklists any organization that offers alternatives to the defined benefit design. Yet on Washington’s pension raid, the response from that world has been silence.

That silence is revealing. When the threat to a defined benefit pension comes from a red state, a pension reformer, or a proposal to move new hires into a more sustainable plan design, NCPERS and NIRS are immediately vocal. When the threat comes from inside their camp, trying to backfill a bloated state budget, the defenders of public pensions suddenly have nothing to say.

The only substantive national policy critique came from the Reason Foundation’s Pension Integrity Project, which warned that HB 2034 redirects LEOFF 1 pension assets to non-pension spending. A free-market think tank should not be the only national voice willing to say that public pension assets belong in the pension fund.

That should embarrass every organization that claims to defend defined benefit pensions.

Conclusion

The courts should block HB 2034 because the alternative is absurd. If this legislation stands, every public pension plan becomes a budget reserve with better branding. Lawmakers in every state would have a roadmap to declare their plan overfunded, create a new account, leave the benefits nominally unchanged, and spend the surplus somewhere else.

That would destroy the incentive to responsibly fund public pension systems and go against every existing pension protection law. Washington law itself says pension funds are to remain in the fund for the purpose of paying the obligations of the fund.

Why should taxpayers, employers, employees, or pension boards support building a strong funding cushion if politicians can raid it the moment the state budget gets tight? Why should retirees trust statutory protections if the legislature can write around them with a “termination and restatement” label?

Washington does not have a pension surplus problem. It has a spending problem. HB 2034 is the latest in a series of one-time funding raids by the current legislative majority, and it would not fix the budget problem lawmakers created. It would tell every public employee in America that a pension plan is safe only until politicians decide the money belongs to them.

Ryan Frost is the director of the Centers for Budget and Tax Policy at the Washington Policy Center.