A Washington judge has ordered the state to pay roughly $120 million to thousands of public school teachers for withholding interest on pension contributions they made more than two decades ago.
But those more than 26,000 teachers will need to wait for payments, as the state is now appealing the decision. Washington’s Department of Retirement Systems concedes it’s liable in some form, but disagrees on the magnitude of the penalty. The agency declined to comment as the litigation remains pending.
The case stretches back to the mid-1990s when most teachers’ transferred their retirement funds to the state’s Teachers Retirement System, or TRS, Plan 3.
For many years, interest didn’t accrue on contributions in the quarter they were deposited. This became clear when the pensions transferred.
“Unbeknownst to anyone, their computer program was only doing the interest based on the ending balance of the last quarter, so you lose out on all of your interest every quarter you made a deposit,” said Alex Strong, attorney for the plaintiffs who has been working on the case for the past 11 years.
And at the time of the transition, the Department of Retirement Systems did not credit the workers’ interest on their pension contributions for at least a quarter, according to court filings.
For example, plaintiffs in this case transferred their state-managed retirement accounts from TRS Plan 2 to Plan 3 in 1996, according to court documents. Because they transferred mid-quarter, they had a zero balance in their Plan 2 accounts at the end of that quarter. So the state didn’t credit their accounts for the interest earned that quarter or the one before.
This interest was supposed to be paid at an annual rate of 5.5%, compounding quarterly.
The uncredited interest earnings amounted to around $13 million at the time of the transfer.
But that disputed sum has been earning interest since, as the current and former teachers haven’t had access to the money. Factoring in that compounding interest, Thurston County Superior Court Judge Christine Schaller ruled last month that the state owed the teachers $118 million — an amount that could grow further as the case drags on.
The lawsuit has already been before state and federal appeals courts over various issues several times. In 2018, the U.S. 9th Circuit Court of Appeals ruled the state owed teachers the interest “skimmed from their retirement accounts.”
Given that ruling eight years ago, Strong has been “baffled” the state hasn’t rectified this sooner.
“The teachers are excited to finally get the money that belongs to them, hopefully it happens sooner rather than later,” Strong said. “We’re glad that even after 20 years of litigation that the teachers’ constitutional rights are being vindicated, they’re going to get their property returned to them, and we really do hope that we can finally bring this case to a resolution here.”
Over the years, the original $13 million has been withheld and has accrued interest in the state’s commingled trust fund of retirement accounts for many public employees. That money is invested by the Washington State Investment Board and has grown 8.65% per year on average.
The same thing happened to state and local public employees in the Public Employees’ Retirement System plan, but the state long ago settled litigation for some of those workers.
By now, roughly 61% of the teachers covered in the current litigation have retired, Strong said.
“They really should have been figuring out how to fix the error, rather than hiring outside counsel and spending lots of money to try to keep money that didn’t belong to the Department of Retirement Systems,” he said. “It’s past time for them to return the money that belongs to the teachers and get this case over with.”
A spokesperson for the Department of Retirement Systems noted the ruling, if upheld, wouldn’t affect the health of Washington’s well-funded public retiree pension system.
