Board unveils latest projections for PERS
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 Employees Retirement 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. That's apparently true in Lake Oswego, officials say, where increasing property taxes are expected to cover some but not all of the higher rates.
The good news: The rates may not be as high when the PERS board sets final numbers next fall, because rates will be based on the system's valuation as of Dec. 31.
"The numbers are still preliminary," City Councilor Jeff Gudman told The Review this week, but he said the latest rates would cost the City an additional $1.5 million per year over the 2019-20 biennium.
"Estimated property taxes will increase about $1 million per year, or $2 million over the two years," Gudman said. "That leaves about a $1 million difference, and that's before contracted payroll increases, health care cost increases, other increases, etc."
Oregon's public-pension fund rose in value from $69.2 billion in November 2016 to $76.4 billion in October, the board was told on Friday, 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."
Added board member Stephen Buckley, "We need to look at ways to address the funding issues other than simply continuing to increase employer contributions."
About $7 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 the mix of workers hired before and after August 2003, when lawmakers overhauled benefits; the share of police and fire employees, who qualify for greater pensions than other workers; and 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 next year.
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.
But wIthout collaring, "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 those in Tier 1 who were hired before 1996 (26,964) and those in Tier 2 who were hired from 1996-2003 (38,257).
However, the vast majority of PERS retirees (124,171) qualify for the more generous Tier 1 benefits.
The PERS board did vote last week 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," 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.
Listed below are the actual 2017-19 and the projected 2019-21 contribution rates, as a percentage of payroll, that selected agencies will pay into Oregon's public pension system.
The first set of numbers is for employees hired before August 2003. The second set is for employees hired after August 2003. The third is for police and fire employees hired after August 2003; they qualify for greater pension benefits.
State of Oregon: Pre-2003, 18.67 to 23.83 percent; post-2003, 10.78 to 16.25 percent; public safety, 15.55 to 20.98 percent.
Clackamas County: Pre-2003, 23.07 to 27.61 percent; post-2003, 14.82 to 19.62 percent; public safety, 19.59 to 24.35 percent.
City of Lake Oswego: Pre-2003, 24.31 to 29.37 percent; post-2003, 14.69 to 20.08 percent; public safety, 19.46 to 24.81 percent.
Lake Oswego School District: Pre-2003, 13.02 to 20.29 percent; post-2003, 7.69 to 14.67 percent; public safety, 12.46 to 19.40 percent.