The Office of the State Actuary (OSA) curated this content in order to help interested parties understand how COVID-19 may impact Washington State retirement systems.
This content will no longer be updated beyond calendar year 2021 as it becomes increasingly difficult to separate impacts due to COVID-19 since 2020.
Unexpected significant events, such as COVID-19, can bring about a different future than what we initially projected. When discussing plan health and risk, we identify three main influences on future expectations as (1) investment experience, (2) choices made by policy makers, and (3) demographic experience. All three influences are impacted by the COVID-19 pandemic.
We witnessed some of these influences since the start of the pandemic. In June 2020, the GF-S Revenue Forecast was lower than expected in addition to lower than expected 2020 fiscal year investment returns; however, even with these lower than expected forecasts and returns, the legislature adopted the full required contributions for the 2021-23 biennium. Conversely, by June 2021, the GF-S Revenue Forecast was higher than expected with historically high 2021 fiscal year investment returns. The bounce back does not necessarily mean the COVID-19 cycle is complete and it is currently unknown how COVID-19 will impact these influences in the future. Additionally, COVID-19 may impact the longevity of current and future retirees, retirement behavior, salary growth, and cost of living adjustments but the full extent of these impacts may not be known for a long time.
Fortunately, pension plans are funded over a very long time period and engineered to be less reactive to current climates. Any impacts due to COVID-19 will be reflected through the standard processes for funding. This funding design gives contributing members and employers time to prepare for any increases in funding requirements and legislators and local government leaders time to prepare for the impacts in budget planning.
Additionally, as of publication of this webpage, the Washington State retirement systems are in a relatively good position to withstand poor future experience due to COVID-19 with forecasted declines in contribution rates due to the Legislature’s commitment to full funding over the past few biennia and above expected short-term investment returns. See the
2021 Report on Financial Condition and
2020 Actuarial Valuation Report (AVR) for additional information on latest pension plan health.
Looking beyond 2021, we will continue to monitor pension plan health and any experience that varies from our expectations regardless of the source/cause. Future changes in contribution rates and plan funding will reflect this emerging experience. Natural time lags in our state’s standard contribution rate-setting cycle and asset smoothing methods will defer some of the near-term impacts of any experience that varies from our expectations. Emerging experience could also lead to future changes to our long-term assumptions as part of our ongoing experience studies. However, because we need to accumulate sufficient credible experience to warrant any assumption changes, we don’t expect impacts from any assumption changes for several biennia.