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Preliminary 2019 earnings of 13.56% may allow board to moderate 2021-23 contribution rates for governments.

A healthy 2019 return on investments by Oregon's public pension system promises some relief ahead for member governments and state and local taxpayers in the next two years.

The Public Employees Retirement System board got the official word Friday, Jan. 31, that preliminary 2019 returns were 13.56%, up from the 12.19% estimate in November — and up from the dismal .48% return at the end of 2018.

"It's good to see the number this year as opposed to last year," said Sadhana Shenoy, PERS board chairwoman.

Pension benefits are based on investment earnings from the $80 billion PERS Fund, one of the nation's largest public pension systems, and on contributions by member governments. Because virtually all of the 150,000 public retirees accrued their benefits before August 2003, they account for the largest share of the system's liabilities.

Though the board will not set 2021-23 contribution rates for state and local governments until October, they will be based in part on that final 2019 number. Actual rates will hinge on their mix of pre- and post-August 2003 employees — the latter group has a less generous pension plan — and their number of police and firefighters, whose pensions are higher than those of general employees in both plans.

Higher pension contribution rates, which are not optional, mean there is less money for member governments to spend on employee pay and other benefits and direct services for the public.

Although preliminary figures indicate there may be a modest half-percent drop in average contribution rates from 25%, the board will have other factors to take into account before fall.

"We are still boosting contribution rates to help shore up the status of the program to get it to 100% over time," said Matt Larrabee of Milliman, the firm that does actuarial work for PERS. He said the system's unfunded liability — $27 billion at the end of 2018 — will drop $24.1 billion at the end of 2019, and if the money from side accounts is counted, to $18.9 billion. Side accounts are amounts set aside by member governments to pay part of their future pension liabilities.

The system's funded status would improve from 75% to 79%, counting side accounts.

The Legislature made changes to PERS in 2018 and 2019.

In 2018, lawmakers created a fund, subject to available state money, to give member governments an incentive to set aside money for side accounts. For every dollar put up by a member government to cover future pension liabilities, the state will contribute 25 cents.

In 2019, lawmakers redirected some of the money from individual account plans created in 2003 to the defined-benefit plans that serve pre-2003 retirees. Public employee unions are challenging that move in court. If the Oregon Supreme Court strikes it down, contribution rates would have to go up about 1.3 points, although the timing of increases will hinge on when the court issues a decision.

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NOTE: Adds comments by PERS board chairwoman.

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