Gov. Bob Ferguson (D-WA) signed E2SHB 2034 on April 1, and the date suited the occasion. The law terminates the Law Enforcement Officers’ and Firefighters’ Retirement System Plan 1, creates a successor plan on paper, then sweeps nearly $3.9 billion in surplus out of a plan that was 160% funded, including $569 million directly to the Climate Commitment Account. Washington faced a $2 billion budget shortfall, found a pension sitting flush, and reached for it. Every yes vote was a Democrat.
LEOFF 1 closed to new members in 1977. Contributions were suspended around 2000 after the plan reached full funding. The surplus didn’t come from over-contribution or an accounting error. It grew because the Washington State Investment Board compounded returns inside a closed trust for 25 years without new money entering the system. RCW 41.26.040(3) states that all funds in the LEOFF account “shall remain in that fund for the purpose of paying the obligations of the fund.”
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The legislature just redirected nearly $4 billion of those funds to cover a budget gap. Nine retired first responders have filed a federal class-action complaint, arguing contract clause violations under both constitutions. The average LEOFF 1 annuitant draws $5,413 a year in base benefits. The legislature looked at that figure and at $3.9 billion and chose the larger one.
Washington’s maneuver is the clearest example of a national pattern. Public pension funds are being redirected toward political objectives — ESG mandates, DEI governance screens, climate commitments — with real costs absorbed by beneficiaries and taxpayers who had no say in those decisions.
The accounting structure makes this easy to conceal. Public plans operate under GASB Statements 67 and 68, which allow funds to discount liabilities at their assumed investment return, currently averaging 7.0%. The private sector isn’t permitted to do this. The Milliman 100 Pension Funding Index, released in May 2026, reported that the 100 largest corporate defined benefit plans — governed by ERISA, required to mark liabilities at market rates — carry a funded ratio of 107.8% and a surplus of $94 billion. Stanford’s Joshua Rauh and Oliver Giesecke applied market-rate methodology to public pension data and found actual unfunded liabilities near $5.1 trillion — against the officially reported $1.27 trillion per the Equable Institute. One accounting convention, applied differently between sectors, produces a fourfold difference in the reported gap.
The political mandates sit on top of this gap and widen it. CalPERS manages roughly $500 billion and is committed to net-zero emissions by 2050, constraining its investment universe. Its 10-year annualized return through fiscal 2023 was 6.1% against an assumed rate of 6.8%. The Reason Foundation reports that 84% of public plans underperformed a passive 60/40 portfolio over 20 years. Harry Markowitz’s efficient frontier doesn’t expand when you strip asset classes from the investable universe for political reasons.
Thirty years in institutional investment management give me a specific frame for what’s happening. A fiduciary who invests beneficiary assets to advance political preferences has breached his duty. The standard is clear. In the private sector, under ERISA Section 404(a)(1)(B), that fiduciary faces removal and make-whole liability. For public pension trustees, the enforcement mechanism is considerably softer. Which is precisely how we got here.
CHILD RAPE, THE DEATH PENALTY, AND A RULING FIVE STATES WANT OVERTURNED
Illinois holds $201 billion in unfunded pension liabilities across state and local plans, the most of any state. Required contributions already consume about 20% of the general fund. When a legislature establishes the precedent that actuarial success can be swept for general use, every budget-constrained statehouse takes note. A fund that did everything right — disciplined investment, no new contributions for 25 years, 160% funded — can be terminated to fill a budget gap. Actuarial success stops being an achievement. It becomes a target.
The case for defined contribution plans has always rested partly on this point: Politicians can’t reach into personal accounts the way they can reach into a pooled trust. Washington state just proved it.
Jay Rogers is a financial professional with more than 30 years of experience in private equity, private credit, hedge funds, and wealth management. He has a BS from Northeastern University and has completed postgraduate studies at UCLA, UPENN, and Harvard. He writes about issues in finance, constitutional law, national security, human nature, and public policy.
