Early: Ballot measures would make PERS problems worse
Recently, a corporate-backed group in Oregon, PERS Solutions, took the first step in getting anti-worker initiatives on the November 2020 ballot. Even after retirements were cut in the 2019 legislature, these initiatives would stop pensions altogether, breaking the promises made to teachers and other public employees, and replace them with risky defined contribution-style retirement plans. Oregonians should soundly reject these ballot measures, after hard lessons have been learned in other communities who similarly undertook such a massive and expensive upheavals to their retirement systems only to reverse course and reinstate their pensions for public employees.
Here's why: these communities learned that eliminating pensions did not reduce the unfunded liability and in fact, caused costs to increase for taxpayers. This is similar to the analysis that Oregon's PERS provided to lawmakers last year and is why the legislative committee tasked with addressing the PERS unfunded liability did not move forward with a defined contribution plan.
In 1991, lawmakers in West Virginia faced a tough situation. After years of underfunding the West Virginia Teachers Retirement System (TRS), lawmakers closed the pension system and moved all newly-hired teachers to a 401(k)-style retirement plan. After 14 years and more lawmaker underfunding, TRS funding status dropped to 25 percent. The state also conducted a study on teacher preparedness for retirement, finding that teachers were not saving enough to retire with dignity. With all of this information, lawmakers decided to reopen a pension-based TRS to current and future teachers, the funding status of the plan rose, and now teachers are able to retire with security.
Kentucky, Michigan, and Alaska all experimented with 401(k) systems and they didn't work. Pension stability was reduced, and there were massive reductions in skilled workers, putting public services at risk. The loss of secure pensions is especially problematic for first responders, who put their lives on the line for their community every day.
Palm Beach, Florida, has been deemed a "cautionary tale" for other public employers. City leaders moved all current and future police officers and firefighters to a hybrid-style retirement plan, causing major issues with recruitment and retention. Officers and firefighters retired, leaving massive gaps in staffing and resulting in millions of dollars of new costs to recruit and train new public safety personnel. After four years, Palm Beach recognized the mistake and reinstated secure pensions.
Additionally, these proposed ballot measures do not reduce the unfunded liability for people who have already retired. Not only will the unfunded liability of PERS worsen with the proposed plan, but the retirement security of public employees will be harmed. First, 401(k)s put workers at the whims of the market. Unlike pension plans, which pool assets, workers are individually responsible for fluctuations in the market.
Second, 401(k)s do not provide an adequate retirement income. In fact, according to Fidelity, the median 401(k) balance in America is just over $24,000 total, which is clearly not enough to retire on. Pensions on the other hand provide a median benefit of $17,576 every single year someone is retired.
Additionally, as pointed out by analysis by Oregon PERS agency, 401(k)s tend to have higher fees and far less regulation than pension funds. Those fees go right from workers' wallets into the pockets of Wall Street investors.
PERS is currently funded at 80%, one of the best funded pension systems in the nation. This is due to reforms put in place in 2003 and 2013 that continue to stabilize the system. PERS members just took another cut in 2019. Enough is enough. These proposed ballot initiatives will only do harm to the pension system and the people who are counting on it for a secure retirement. Oregonians should learn lessons from other states and say no to ballot measures that will increase taxpayer costs and reduce retirement security.
Bridget Early is executive director of the National Public Pension Coalition, which is based in Washington, D.C.
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