Oregon state and local officials are now getting more specific projections of how much more governments will have to pay in the next two-year budget cycle for contributions to the public-pension system.
The bad news: Most rates are going up 4 or 5 percentage points for the cycle that starts in mid-2019 — and higher contributions mean less money will be available for other employee benefits or public services.
The good news: The rates may not be as high when the Public Employees Retirement System board sets final numbers next fall, because rates will be based on the system's valuation as of Dec. 31.
Oregon's public-pension fund rose from $69.2 billion in November 2016 to $76.4 billion in October, the board was told Friday, Dec. 1, when the preliminary 2019-21 rates were released. The final 2017 valuation will be unveiled Feb. 2.
The growing PERS fund also may shave the system's unfunded long-term liability, pegged at $25.3 billion at the end of 2016, by a billion or two by the end of this year. That liability is spread out over a few decades.
Still, PERS Board Chairman John Thomas said given that large number, "This problem is not going to go away."
Board member Stephen Buckley said: "We need to look at ways to address the funding issues other than simply continuing to increase employer contributions."
About seven of every $10 paid out in pension benefits comes from investment earnings from the PERS fund. Most of the rest comes from government employers.
More than 900 government employers that are members of PERS will get detailed reports through mid-December. The reports were prepared by Milliman, a firm that does the actuarial work for PERS.
The rates are based on several factors, including (1) the mix of workers hired before and after August 2003, when lawmakers overhauled benefits; (2) the share of police and fire employees, who qualify for greater pensions than other workers, and (3) whether government employers have set aside money, known as "side accounts," to offset some of their pension liabilities.
The PERS board is scheduled to set final 2019-21 rates at its Oct. 5 meeting.
The projected rates are "collared," so that much of the increase is spread over the following two two-year budget cycles.
PERS Executive Director Steve Rodeman said the agency consulted with an employer advisory group about the possibility of letting the rates jump over a single budget cycle instead of spreading out the increase.
"The big jump we would see in 2019-21 would be even bigger," Rodeman said, and the idea was dropped.
At the end of 2016, far more public employees (107,262) are covered by the post-August 2003 pension program, which is less generous, than in pre-1996 (26,964) and 1996-2003 (38,257) programs.
However, the vast majority of PERS retirees (124,171) qualify for the more generous pre-1996 benefits, which are known as Tier 1.
The PERS board did vote to transfer $186.9 million not needed for contingencies into the fund that pays out benefits to retirees. Combined with a similar action April 3, the board has added a total of $532.7 million to the fund.
That's about 10 percent of a $5 billion target set by Gov. Kate Brown to reduce the system's unfunded liability.
That number was chosen because it is the estimated amount of loss that resulted from a 2015 decision by the Oregon Supreme Court, which ruled that reduced cost-of-living adjustments approved by the Legislature in 2013 cannot be made retroactive to benefits earned before 2013.
A task force named by Brown submitted proposals to raise money to reduce that liability in a report Nov. 1. It did not recommend any specific proposal, which will be up to Brown and the Legislature to consider.
"We are not a legislative body. But we do understand the math," PERS Chairman Thomas said. "We are going to do what we have to do to maintain sustainability."
The PERS Board oversees the pension system, and the Oregon Investment Council oversees the public-pension and other funds. But Thomas said neither can tackle the bigger questions about long-term liabilities.
"This is not something that can be unilaterally fixed," he said. "It's going to be something that various constituent groups need to get together on, do some brainstorming, and look at the long-term issues. This is not going to go away. It needs to be addressed."
Among the seven task force members was Lawrence Furnstahl, chief financial officer of Oregon Health & Science University and a PERS Board member.
Although news of increased investment earnings is welcome, Furnstahl said PERS also must prepare for worst-case scenarios outlined in Milliman's latest report.
Though the PERS fund has made substantial gains in the past year, it lost 28 percent of its value during the collapse of financial markets that finally bottomed out in March 2009.
PERS Board member Steve Demarest agreed with Furnstahl that it is prudent to be prepared.
"But let's keep our fingers crossed and hope for the best," he added.