Lawmakers wrangle changes to cut PERS costs
SALEM — Thousands of Oregon public workers could see smaller retirement pots if lawmakers pass a slate of changes to the state's retirement plan.
About 176,000 people working for state and local government, ranging from teachers to firefighters to wildlife biologists, are part of the Oregon Public Employees Retirement System, known as PERS.
Under a proposal from Republicans and Democrats in the Legislature, employees who make $30,000 a year or more could expect to see the benefits they were going to get reduced, depending on when they were hired and how long before they plan to retire.
The change would continue until the state catches up and nearly fully funds the retirement system.
As of October, the system has only about 73 percent of the money needed to pay benefits in the years ahead, according to Oregon PERS. That change would affect the vast majority of public employees in the state. About 97 percent of Oregon employees hired before Aug. 29, 2003, make $30,000 or more. About 90 percent of employees hired since then do, according to an analysis from actuarial firm Milliman.
Lawmakers' proposal, revealed in early May, would also implement new financial maneuvers to try to tame the impact that the system's debt is having on government year-to-year.
By and large, state and local government entities like cities and schools have to pay more money toward employee retirements every year. It's a state of affairs that, combined with limits on local property taxes, is putting the squeeze on government services, diverting money to pension costs instead of local services.
In the coming years, local governments were expecting more dramatic increases in retirement costs. Lawmakers' proposed changes could bring down those expected increases. In the two-year budget starting in 2021, for example, actuaries expect that about 32 percent of payroll costs would be going to pensions. Under the proposed plan, that share of payroll going to benefits could dip to about 26 percent.
Oregon has a hugely complicated retirement system, and its complexity is partly due to years of attempts to rein in its high costs. The system is about $26 billion in debt.
Four years ago, the state's Supreme Court said that policymakers can only change future benefits, and can't tweak benefits that employees have already earned.
Oregon public employees get a retirement plan that has two distinct parts: a basic pension, and a savings account that's similar to a 401(k).
Lawmakers have proposed reducing the amount of money that goes to the savings account. Under the plan, employees would contribute the same amount of money to their retirement, but end up with less money when they retire. That's because part of the money they contribute to the savings plan would instead be helping pay for a pension that they don't currently contribute to.
Actuaries ran the numbers on lawmakers' plan, using three hypothetical examples of public workers in the state. Oregon's public workers are separated into three tiers depending on when they were hired, and the proposed cuts could affect each group differently. Employees could see benefits generated by the savings plan go down by 7% to 12.5%, depending on when they were hired and how much time they have left until retirement.
But that's a reduction in the savings plan only. The plan would also cap the amount of money that the state uses to calculate each employee's benefits.
Benefits are partially based on a figure known as final average salary, which, in simple terms, approximates an employee's annual salary at retirement. The proposal would cap that figure at $195,000. In each generation of hires, that change could reduce benefits for a fraction of 1% of workers.
Unions oppose changes
A bipartisan group of lawmakers is behind the proposal, which has been in the works for some time, Speaker Tina Kotek, D-Portland, said in an interview.
But Kotek declined to say specifically who was involved in the negotiations.
The proposal came at the end of a week where most Republicans in the Senate skipped out on floor sessions. Their absence was an act of protest over Democrats' efforts to pass a slate of policy priorities, including a new business tax to fund public education.
But lawmakers began working on the plan long before Republicans staged their walkout last week, Kotek said.
Gov. Kate Brown unveiled her own plan several weeks ago, which focused on lowering schools' costs and employed other methods, such as using a surplus from the state's workers compensation fund, to pay down the debt. Several initiative petitions aimed at addressing the system's debt are waiting in the wings as well.
Labor groups came out against the latest proposal. Union members turned out for a May 10 hearing on the proposal, including a score of firefighters clad in yellow shirts.
In a press release, Keep Oregon's Promise, a group of public employees advocating against retirement benefit reductions, warned that employees may sue the state should the reforms pass.
"Oregon educators have shown time and again that they will stand up for their students," said John Larson, president of the Oregon Education Association, the state's largest teachers union. "If lawmakers turn their backs on educators and cut retirements, we will see them in court."
Union groups claimed May 10 that the proposals would affect benefits that employees have already accrued. But Kotek said all of the proposed reforms are prospective. "If you decided to retire today, none of this would affect you," she said.
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