We all benefit from multiple forms of public service. Supporting a public pension plan, as part of compensation for firefighters, police, teachers, librarians and other public servants speaks volumes about what we value in Oregon.
A top issue in the gubernatorial campaign was the supposed “crisis” facing the Public Employees Retirement System. Many of the claims are false or too complicated to understand.
As a concerned citizen who has observed and participated in the Legislature’s debate about PERS for more than three years, I offer a few facts for the debate.
First, PERS is not broken or in danger of collapsing. In fact, the PERS funded ratio is 80.1 percent, one of the top 10 public pension systems in the country. In other words, 900-plus PERS member agencies could pay out 80.1 percent of contracted benefits if all their employees retired today. Only 30 percent of employees are even eligible to retire.
Oregon has dropped below 80 percent twice in the past 18 years — to a low of 77 percent. Nationally, the median funded ratio is 74.6 percent and any system funded above 80 percent is considered stable and healthy. Public pensions systems that are in crisis (Kentucky, New Jersey) are funded at 31 percent.
Yes, some local entities really are suffering because of PERS obligations. The payroll costs of benefits are affecting the availability of resources to fund valued public services. Those costly PERS obligations are related to the last court decisions, the 2006-08 economic crash, and all the Cadillac benefits promised to 66 percent of PERS members who were hired before 1996.
The truth is there are no PERS reforms that can instantly change the funded ratio or reduce employer obligations. But it’s also true that legislators modified those generous benefits for workers hired after 1996. Then, in 2003 they created the Oregon Public Service Retirement Plan (OPSRP) that now covers 22 percent of our current public servants. The OPSRP is sustainable and offers reasonable retirement benefits supplemented by Social Security.
Not all agencies are burdened. Some have high employee turnover so their work forces are primarily OPSRP beneficiaries. Many others, particularly school districts, invested in dedicated savings plans (side accounts) to support unanticipated and future obligations.
The contention that “employees should contribute 6 percent of salary” to PERS sounds like a solution, but that appealing soundbite has costs.
Under their contracts, employee compensation cannot be reduced, so employers would be required to offset contributions with an equal pay raise. FICA and benefit obligations also would increase, thus costing employers more than the 6 percent they pay now.
It’s been proposed that pensions be converted into a 401(k). But administrative costs of 401(k)s are nearly twice that of defined-benefit plans, according to the National Institute for Retirement Security. PERS is attractive because agencies save more than 25 percent by pooling risks and optimizing asset allocations, resulting in higher returns and lower fees.
Many argue that PERS issues have been ignored by Gov. Kate Brown and policymakers. A great deal of evidence contradicts that view. Lawmakers, PERS administrators, the governor and the Oregon Investment Council are committed to returning a historically sound system to top status. They understand the delicate interactions of the political, legal and work force issues.
For example, last winter Brown and the Legislature created an Employer Incentive Fund that offers matching grants to PERS employers with high benefit costs to create side accounts.
That same legislation directs any state legal settlement funds to PERS. Recently, Treasurer Tobias Read sent a $430,000 settlement from a rate-manipulation case to the pension fund. Gov. Brown also urged local governments to use the Comcast settlement to reduce PERS costs.
We all benefit from multiple forms of public service. Supporting a public pension plan, as part of compensation for firefighters, police, teachers, librarians and other public servants speaks volumes about what we value in Oregon. The solution is not to nullify the guarantees we made to public servants, but to carefully consider the long-term effects of our choices.
Edith Rusch volunteers for Tax Fairness Oregon, a citizen’s advocacy organization, and is not a PERS beneficiary.