Retired police officers and firefighters filed a federal lawsuit Thursday to block Washington State from pulling nearly $4 billion in surplus assets out of the Law Enforcement Officers’ and Firefighters’ System Plan 1 (LEOFF 1) pension fund — money the state wants to redirect toward closing a massive budget gap. The suit was filed May 1, 2026, in the U.S. District Court for the Western District of Washington.
At the center of the fight is Engrossed Second Substitute House Bill 2034, signed by Gov. Bob Ferguson on April 1, 2026. The law restructures LEOFF 1, terminates its current legal framework by June 30, 2029, and funnels the plan’s surplus into a newly created Pension Funding Stabilization Account — from which the Legislature may transfer money directly to the State General Fund during the 2027–29 fiscal biennium.
How the Money Would Move
LEOFF 1 is currently 160% funded as of the 2024 actuarial valuation, with roughly 5,945 retirees and beneficiaries on the rolls. State actuaries project the plan will reach approximately 225% funded by the end of the 2027–29 biennium — producing a surplus the plaintiffs allege is at least $3.3 billion, with state actuaries projecting roughly $3.9 billion and the House budget relying on a $4.5 billion total transfer figure, available for transfer under the law’s formula.
On June 30, 2029, the State Treasurer must transfer funds equal to 110% of LEOFF 1 liabilities into a restated plan. From what’s left: $569 million goes to the Climate Commitment Account, and the remainder flows into the Pension Funding Stabilization Account for legislators to sweep into the General Fund. The state is already drawing on the fund separately — using $880 million to backfill withdrawals from the rainy day reserve in the current budget cycle, helping plug an estimated $2 billion near-term shortfall.
The Legal Challenge
The lawsuit was brought by law firm Hagens Berman on behalf of nine named plaintiffs. It argues that E2SHB 2034 violates RCW 41.26.040(3) — a state statute stating that all funds held in a firefighters’ or police officers’ pension fund “shall remain in that fund for the purpose of paying the obligations of the fund.” Plaintiffs also invoke federal contract impairment doctrine and the landmark Washington Supreme Court precedent Bakenhus v. City of Seattle (1956), which established that public pension rights are contractual — deferred compensation the state cannot unilaterally redirect.
“We believe this law is entirely against the state and federal constitutions and that our clients are absolutely entitled to the funds legally established for their benefit. To use them for other purposes would be a gross miscarriage of justice.” — Steve Berman, Hagens Berman
Former Congressman and lead plaintiff Dave Reichert — himself a retired law enforcement officer — didn’t mince words:
“These are cops that put their lives on the line for years and some for decades, working in life-or-death situations, some still battling PTSD and other job-related disabilities. The remaining members are in their 70s and 80s, and we are taking this personally. The state should do what’s right and honor this contract.” — Dave Reichert
The Risk Hiding in the Fine Print
The legal arguments are serious. The actuarial picture is worse. Washington’s own state actuary found that under E2SHB 2034, the probability of an Unfunded Actuarial Accrued Liability (UAAL) emerging by fiscal year 2045 increases from 5% to 40% — roughly an eightfold jump in risk. Under current law, about 100 out of 2,000 economic scenarios produce a UAAL. Under the new law, that number climbs to 800.
Bill sponsor Rep. Timm Ormsby (D-Spokane) has defended the legislation, arguing member benefits remain fully guaranteed and that redirected surplus dollars “will be used for the benefit of all Washingtonians.” The Attorney General’s Office said it had not yet fully reviewed the complaint as of Thursday morning.
What’s at Stake for Public Employees Statewide
LEOFF 1 covers employees hired before October 1, 1977. Retirees receive an average annual benefit of $5,413 as of the 2023 actuarial valuation, plus an uncapped cost-of-living adjustment tied to the Seattle-area CPI. About 40% receive tax-exempt disability benefits equal to 50% of final average salary, along with full medical coverage. Reichert estimates roughly 5,500 members remain alive — a population shrinking at about 8% per year.
Analysts watching the case warn that a state victory could embolden future legislatures to target surplus assets in other pension systems. That concern isn’t abstract — lawmakers already raised assumed investment returns from 7.0% to 7.25% and took a four-year payment holiday on unfunded liabilities in PERS 1 and TRS 1 last session, moves that created an estimated $6.5–$7 billion in future costs.
Watch for: A motion for preliminary injunction that could halt implementation before the June 30, 2029 transfer deadline. If the court declines to act early, the case will likely hinge on whether Washington’s contract impairment doctrine extends to surplus assets — a question no state court has directly answered in the LEOFF 1 context.
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