By Tom Henderson • Staff Writer • 

Work session focuses on PERS and other disasters

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Comments

Rotwang

28 percent. That's horrible. Any candidate who won't work to slash that figure doesn't deserve one vote. I'm looking at you, Kate.

Larry3

Sadly, while employees funded their half of the Tier 1 pensions, the employers put nothing into it until the bill came due. In retrospect, that was not a wise move.

Don Dix

The guaranteed return on accounts and the money match option bloated the liability to employers, especially during down markets and investment strategy.

As for employees funding one half of their accounts -- not so sure that was the setup. Sometime in the early 80s (I believe), employee raises for the biennium were replaced by employer contributions to retirement accounts. It was only a two year deal, but somehow became a mandated requirement. The legislature had some play in that move, which benefited themselves as well.

One more 'rule' -- it stated all retirement pay would be based on the final 3 years of employment. A 25 - 30 year legislator @ less than $30K, Margaret Carter, left the position and was 'rewarded' with a 'created position' @ DHS. The pay was approx. $120K which became the base pay at retirement. Talk about working the system. It makes one wonder how many of those examples are out there!

Larry3

All of the deficit is on the employer side of the ledger. Employees contributed 6% of their pay, and the employer was supposed to contribute 6%, but they didn't. PERS was counting on excess earnings from the employee account to reduce the government expense. That worked until it didn't.

In 1996 they created Tier 2, which had no guaranteed earnings, but retained the employer match, so anyone hired between 1996 and 2003 is Tier 2. In 2003 they shut down PERS entirely. All hires since 2003 have a 401k style retirement with no government money funding it. All they have to do is meet their Tier 1 contract obligations to people who were hired over 22 years ago, and those retirees are already dying off. Tier 2 will start retiring in 8 years, and once again they put no money into their half of the obligation.

The employer pick up of the employee contribution was in lieu of a pay hike. If they gave the employees more money, the employer would be responsible for Social Security and Medicare taxes, unemployment claims, comp claims, etc. It was just cheaper to give the raise as a retirement benefit. At a time when inflation was running 9% a year and stressing budgets, it seemed like a good idea. The employer pick up is just part of the pay check, and has nothing to do with the PERS shortfall.

There aren't many $120k positions open at the state. The average PERS pension is $29,720 per year, and since the state capped COLAs at 2% max, retirees look forward to a steadily declining pension. Inflation last year was 4.5%. If you're looking for outrageous pensions, check out football coaches. Chip Kelley coached 4 years and walked away with a $300k/year PERS pension. If you think that's outrageous, quit paying football coaches over a million bucks a year. It's moot any more, because there are no new PERS pensions anyway.

Don Dix

Larry3 -- PERS is not limited to state workers -- cities and counties are included.

It seems to all revolve around the legislature. Since 1971, PERS laws have been made exclusively by legislators who were or who could become PERS members and since 1984 every PERS lawsuit has been decided by judges who were PERS members. Today, no PERS law can be made or changed without the consent of PERS members. While PERS members are entitled to a seat at the table when PERS retirement benefits are being decided, they are not entitled to every seat at the table. But that is what PERS members have had since 1971.

The system is a circle -- a closed circle -- and only PERS members decide what is and what is not. And that's how Oregon got to this point.

Sal Peralta

I can't agree with Larry's analysis. The main problem with PERS is that prior to 2003, the board was run by the public employees who, according to a court decision, failed to act as responsible fiduciaries of the fund when they chose to award the full rate of return to retirees when the fund over-performed the 7-8% that is guaranteed. In 1999, and I believe twice in the 1980's, the fund returned close to 20 percent and paid that full amount rather than save it to solidify the fund. That, plus the money match, plus absolutely ridiculous salary packing provisions created a system that cannot meet its obligation despite a nearly 10 percent annual return over the life of the investment portfolio. Because it's Oregon, the statute of limitations had past by the time the court considered any of this and therefore there is now apparently nothing we can do about it. 70 percent of the system's liability is in current pensions that the courts have now said cannot be touched. This has a huge impact on the state budget but a bigger impact on school districts and the biggest impact on cities and other local jurisdictions.
It's also worth pointing out that most current workers are not on the Tier I and Tier II systems that created the problem. If anything, they are negatively impacted by all of this because it means that governments need to maintain services with far fewer resources.

Sal Peralta

Also, Don should give credit where it is due. A lot of good legislators basically put their careers on the line in 2003 to fix the worst abuses of the system. Several of them got primaried and beaten. That said, what they did that year was maybe the only bright spot.

greenjeans

Sal - I can agree with nearly everything you stated, but you left one key fact out. It was the 1998 PERS Board that really harpooned the program so in that you are correct. They credited the entire market gain to the employee accounts. However, that PERS Board was operating under the oversight of the legislature. Yes they made that decision but the legislature in 1998 was completely asleep. For decades the PERS system was totally solvent and a fantastic program that was financially sound with 6% coming from the employer and 6% coming from the employee. The investments far outran the commitments for years, it was a great program. Enter money match and huge contributions to the employees accounts - decided by the PERS Board under the watchful eye of the legislature(sarcasm) - and you have an insolvent fund.

Sal Peralta

Greenjeans - No disagreement here. 2003 was a rare year of courage. I think it underscores one of the ways undue influence from any quarter can negatively impact the public interest with respect to policy decisions of government boards. I get at least 2 calls per week now about matters before the council. They are all nice and friendly and knowledgeable and 100% dedicated to their client's interest regardless of the public benefit or impact of a policy. The public has almost no similar presence on matters of economic interest. Most people are just too bust living their lives to pay attention.

Sal Peralta

In the previous comment, I meant to say that i get probably 2 calls per week from lobbyists now and that there is rarely any similar public presence on matters of economic interest to the public. Mark Davis is one of the few people who pays attention and comes and testifies to matters of the public interest. I hope that others will start to pick up that mantle as well.

Jeb Bladine

Here's an abstract from a current scholarly publication about the Oregon PERS crisis:

"Like a number of other states, Oregon has been hampered in its pension reform efforts since 1996 by its state supreme court’s embrace of the “California Rule,” a doctrine arising, in Oregon’s case, from a misunderstanding of federal Contract Clause precedent. Under the misreading, states such as Oregon have been restricted from reducing pension benefits for government employees once they have been hired, even for work that lies in the future and may not be performed for decades and even where the benefit promises carried no time commitment. The Oregon Supreme Court has recently abandoned this position. However, it has been using its mid-1990s adoption of the rule as a means of suppressing the application of a set of state constitutional provisions designed to rein in pension spending, as well as later legislation aimed at drawing back some measure of unjustifiable pension-authority largesse in the late 1990s. The court must act swiftly now to reverse this legal position, revive Oregon’s constitutional provisions, and permit legislative action that will undo the consequences of the court’s long-term error."

The paper is long and probably too scholarly for Oregon lawmakers to absorb and act on. But for anyone willing to look more closely at the overall PERS picture, here's a link:

https://www.mercatus.org/system/files/shepard-oregon-pensions-mercatus-working-paper-v1.pdf

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