Pension changes would hit newest workers the hardest in the pocketbook

SALEM — In a demonstration of the fraught political territory lawmakers enter when they scrutinize the state's public pension system, firefighters, nurses and teachers testified recently against two Oregon Senate bills aimed at reducing the costs of that system.

The bills, both sponsored by Sen. Tim Knopp (R-Bend) are the latest round in the Legislature's seemingly perennial battle with the costs of the Public Employees Retirement System. PERS faces an unfunded liability of at least $21.8 billion.

Senate Bill 559 would require that retirement benefits be calculated using the average salary from the final five years of employment, instead of the current three years.

Senate Bill 560 would take the 6 percent of salary that employees contribute, or have contributed on their behalf, to a defined contribution plan called the Individual Account Program and redirect it to their retirement benefits. The bill also caps the amount of salary used to set benefits at $100,000.

In 2015, the Oregon Supreme Court scuttled most of a package of PERS cost reforms the Legislature passed in 2013. That decision, in a case called Moro v. Oregon, essentially said that the Legislature could not make cuts to benefits already accrued. Therefore, lawmakers can only alter benefits not yet earned, which puts more of the burden on current and future employees.

The Legislature faces a complicated balancing act, one that attorney William Gary, who represented the Oregon School Boards Association in the Moro case, compares to a game of three-dimensional chess.

Gary told lawmakers last week that they'll have to balance sound public policy, political demands and the requirements of the law.

Some school officials, such as Cheri Helt, chairwoman of the Bend-La Pine School Board, said that cutting back on PERS benefits is the only option in order to prevent layoffs and further financial strain on local governments.

Others, such as Paul Kyllo, the vice chairman of the Salem-Keizer School Board, said that the cuts proposed in Senate Bills 559 and 560 would worsen districts' ability to recruit and retain talented people for positions that already are hard to hire for — such as math and science teachers.

Over the years, PERS has been divided into three generations, based on date of hire — Tier 1, Tier 2, and the Oregon Public Service Retirement Plan.

Detractors say the proposed changes disproportionately affect current employees — many of whom are on the Oregon Public Service Retirement Plan — and disincentivize new employees from entering public service professions.

Knopp said that according to an actuary, the approximate long-term savings from Senate Bills 559 and 560 would be $5 billion to $6 billion.

But Bob Livingston, a Salem firefighter and president of the Oregon State Fire Fighters Council, said last week the actuary did not take into account a significant precedent: that more state workers than expected retire in years when the Legislature vows to take up reforms to the system. When that happens, more employees leave to draw on retirement benefits.

Some witnesses testifying against the reforms also advocated for revenue increases.

The state faces two, somewhat interconnected financial problems: The nearly $1.8 billion shortfall in the budget that lawmakers must address by July 9; and the unfunded liability of PERS. Personnel costs make up a significant chunk of the state's costs every two-year budget cycle.

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