PERS pension debt clouds Oregon's fiscal future
A recent opinion piece carried by Pamplin Media about public employee pensions ("Ballot measures would worsen PERS problems)" misrepresents the purpose and effects of Oregon pension reform initiatives that our coalition may ask voters to consider in the November 2020 election.
There's no question that the Oregon Public Employees Retirement System's (PERS) $26 billion unfunded pension liability is draining public budgets — forcing layoffs of teachers even when school budgets are rising, raising tuition for students attending Oregon colleges and universities, and forcing local governments to cut essential services like police and fire.
Ultimately, it's taxpayers who are carrying the added cost caused by past mistakes by public officials. In 2010, PERS pensions cost each Oregon household about $600 a year in state taxes. PERS now costs the average Oregon household more than twice that at $1,600 a year in taxes. Over the next few years, the cost per household could exceed $2,200 every year in taxes and keep climbing.
The executive director of the national pension lobbying organization for public employee unions who submitted the opinion piece distorted specific details in the Oregon PERS Solutions initiatives:
— It is impossible to say whether a 401(k)-style plan is better or worse than a pension plan without knowing how much is being contributed to the former and how lucrative are the terms of the latter. The insufficiency of retirement balances in defined contribution plans across the nation is, more than anything, a function of relatively tiny employer and employee contributions. Our initiatives, which would establish a 401(k)-style plan at 12% of pay (6% paid by employers and 6% paid by employees), would be generous by comparison to most private plans and would be sufficient to generate lifetime retirement incomes equivalent to Oregon's current pension plan for new employees.
— Pension plans like PERS have built-in subsidies for career employees and those who experience significant salary growth over the course of their employment. That's because pension benefits rise with salary increases. But a significant share of higher pension benefit costs is borne by PERS payroll assessments applied to lower-income and short-term employees. Even worse, short-term employees who never vest in the pension plan are left with nothing to show for up to five years of participation in the plan. By contrast, defined contribution plans are a fairer way to balance costs and benefits across the workforce. Because they are more portable, they can be more valuable for those who move in and out of public sector jobs.
— The 80% funding level is misleading in two ways. First, it includes billions in borrowed funds (via pension obligation bonds) that are still being paid off by public jurisdictions. Accounting for the debt service still to be paid for these bonds, the funding ratio declines to closer to 73%. Not including this "second credit card" in assessing the funding level would be like taking out a home equity loan to pay off a car loan and claiming to have wiped the debt on your car. Secondly, Oregon's pension program is more generous — and therefore more costly — than most if not all other state plans, making the amount of underfunding disproportionate to our tax base and the state's economy. As the most recent study of state pension plan liabilities compared to each state's total personal income shows, Oregon's pension debt is third highest among the 50 states, behind Alaska and New Mexico.
— Finally, the criticism of defined contribution plans ignores the fact that the Oregon Legislature and the state treasurer have enacted and are promoting a 401(k)-style retirement savings program for private-sector workers (Oregon Saves). Why is that appropriate for private-sector workers but not those in the public sector?
It is possible to reform PERS, maintain adequate and competitive retirement benefits for public workers and free up funding to improve our schools and maintain essential public services. These are our goals in promoting a new approach to retirement benefits for public workers.
Chris Telfer, a certified public accountant and former state senator from Bend, is a chief
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