Glenn Hansen

MultiCare Health System
President, WSIA

Why the Pension Problem in Washington?

What is your pension plan?  For me, it’s whatever I contribute to my 401K or similar plan limited by tax law per year and my own savings initiatives.  For others, it might be a defined pension plan with a guaranteed income amount based on some formula of wages and years of service.  Lastly, it is the workers compensation system as it is currently set up.

The following examples are entirely fictitious but are used to illustrate why our system needs to be reviewed and reformed.  We must discuss these issues.

Let’s say that you are age 60 and plan to retire at age 65 and are vested in your retirement plan savings, whatever they may be.   If you are injured at age 60, what have you lost?  First, you have lost a certain percentage of your take home earnings until the date you would have retired.  Second, you have lost the value of contributing to your 401k or the additional value of your defined pension pay for working those 5 years. You may lose health care contributions, but you may have lost those anyway at retirement.

Under our current system, what do you get to compensate for your loss?  You get roughly 65% of your wages for the rest of your life and it doesn’t matter what your other retirement income sources are or how long you would have been a wage earner post injury.  There is no cap on the length of time you receive your pension even though the pension represents more than your actual loss.   Why not develop a way to figure out what was lost and pay for that instead? 

Let’s put this into perspective.  For a full time employee who is married and making $25 per hour, wages would work out to be $4400 per month before taxes.  65% of those wages would equate to $2860 per month as a time loss rate and those wages are tax free.   Using the 2009 tax tables and deductions for married couples of $18,700 from a gross income of $52,800, the tax on $52,800 (4400 per month) would be roughly 4276.00 on taxable wages of $34,100.  After FIT taxes (356.33 per month), your take home is 4043.66, so at $2860, you are at 70% of take home wages tax free.

I’m no actuary, but I reviewed some life expectancy tables and found that for men 65 years old the life expectancy is 16.67 years and for women age 65 the life expectancy is 19.5 years.    For our employee above, at the time loss rate without any Supplemental Pension Fund rate increases at all, and a life expectancy of 16.67 for a male, we are talking about $572,114 in payments over those years.  Is that representative of what was truly lost?  Remember, you are also assessed for claims costs at a rate somewhere between 15 and 20% per year so using 16% you’ll also pay $91,595.45 in claim cost based assessments so this claim now cost you $663,709.45 before SPF.   These payments are for a person who would have worked another 5 years and then received retirement benefits.  Will everyone have a pension?  Probably not, but I think it needs to be considered that some will.  (I’ve excluded a separate discussion of 2nd injury fund here).      

What is lost is the incentive for return to work.  With high benefits, no time limits, and 15% of a pension reserve paid to some trial lawyers for each pension, there is a disincentive to get people back to work.  One lawyer called me on an employee participating in a training program and asked if I’d consider a second injury pension.  How would that benefit the worker?  Let’s keep this topic alive. 

As President this year, I want to hear your thoughts and concerns.  What are we doing right?  What could improve?  Please don’t hesitate to contact me at glenn.hansen@multicare.org to let me know your thoughts.

Updated 9 February 2010

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