Business-backed PERS reforms aim for ballot
SALEM — Current and future public employees wouldn't have as generous a retirement under initiative petitions being pushed by business interests in yet another effort to reform the state's notoriously complex and expensive retirement system.
The effort has attracted two big names in Oregon politics — former Gov. Ted Kulongoski and Chris Telfer, a former state senator and a member of the Oregon Lottery Commission.
Kulongoski and Telfer say the amount that local governments, like cities and school districts, pay to the Public Employees Retirement System each year is poised to grow so much that they will struggle to provide basic services.
Oregon PERS Solutions, a business-funded group backing the petitions, estimates those payments will increase by $10 billion over the next eight years if the system isn't changed.
Instead, Kulongoski and Telfer want some of that money to go to other needs such as road repairs and teacher salaries. They are putting their political might behind two ballot measure initiatives that would reduce future retirement benefits for current and new public employees starting in 2021.
The state's 145,000 current retirees in PERS wouldn't be affected.
Backers estimate one approach could save public employers $5 billion, and the second could save $3.3 billion. The backers would advance only one measure to the 2020 election.
PERS is a hybrid system, which, in simple terms, consists of two parts: a basic pension and a retirement savings account similar to a 401(k). If successful, the effort may mean that for new employees, the state could emulate OHSU's retirement options. Workers there have the option to either get the pension plan or to contribute to a 401(k)-style savings plan, but not both.
Under both petitions, public employees would contribute to the costs of their pension. But they wouldn't have to contribute more money than they already do to retirement, because the money they contribute to the existing 401(k)-style plan could get redirected to make the required pension payment instead. And the state would either create a new 401(k)-style savings plan for new hires or have the state treasury study creating one.
Although benefits would be reduced under the petitions, backers argue public employees and taxpayers could see other positive effects — such as being able to hire more teachers or paying those teachers more.
But if the state does nothing, schools and other public entities would have to make cuts to cover rising PERS bills, said Tim Nesbitt, interim executive director of Oregon PERS Solutions. "If we make no changes, the path we're on means layoffs, and tighter budgets for raises," he said.
Nesbitt is a former chief of staff to Kulongoski when he was governor and before that, was a state union leader. As part of Kulongoski's post-recession Reset cabinet, Nesbitt authored a report on the state's fiscal problems.
Oregon PERS Solutions has received funding from the Oregon Business Council to push the petitions. The council's directors include representatives of major Oregon businesses such as Intel, Portland General Electric and Columbia Sportswear.
An 'equity argument'
Employer assessments to fund retirements are expected to subside eventually, as more current retirees — who benefit from more generous retirement plans before the state made drastic reforms in 2003 — die and their benefits end.
Unions counter that the latest proposal would effectively add a fourth tier to PERS, adding complexity to a famously mind-boggling system.
They also say cutting future benefits wouldn't provide any relief from the system's current $26.6 billion pension debt, or unfunded liability.
"These corporate-backed proposals would drastically reduce the promised retirement benefits to working teachers, firefighters and other public employees," Patty Wentz, a spokeswoman for the Oregon PERS Coalition, said in a statement. "They will create more problems than they solve, don't reduce the unfunded liability, and would result in more lengthy and costly legal battles for the state and local school districts."
According to a poll from FM3 Research, commissioned by public employee groups, about 33 percent of respondents supported and 56 percent opposed "further cutting retirement benefits for public employees" to address the unfunded pension liability.
The margin of error in the August 2018 poll was plus or minus 4.3 percent, with a 95 percent confidence interval.
Lawmakers took testimony on similar ideas last month.
In 2016, the Oregon Supreme Court overturned most of a slate of 2013 reforms that aimed to cut costs in the system. The upshot of that decision was that lawmakers can't tweak retirement benefits that PERS employees have already earned.
Seventy-two percent of the pension debt is attributed to benefits due to workers who have retired, and 22 percent is due to closed accounts, said Melissa Unger, executive director of SEIU Local 503, in legislative testimony last month. "Cutting benefits doesn't change the math that we must pay for that debt," Unger wrote.
The median PERS recipient gets about $24,000 per year, Unger said.
Kulongoski said that employees may be getting less in salary and other benefits because covering retirement benefits is so costly. "It seems to me there's an equity argument for these young workers coming in, who are probably taking less in salary, taking less in other benefits, to be able to pay for this increasing PERS cost," Kulongoski said in an interview.
Gov. Kate Brown's office has considered using a surplus from the state's workers compensation fund to partially pay down the system's debt. Brown is also proposing to give school districts an additional $100 million in the 2019-21 biennium to cover PERS costs.