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Growing PERS liability gains attention in Legislature

After sobering testimony Feb. 15 on the challenges of funding the Public Employees Retirement System (PERS), state Sen. Tim Knopp offered three more legislative concepts that could potentially become bills.

Based on recommendations by Milliman, the state’s actuary, Knopp will propose lowering the multipliers used to figure benefits to 1 percent or 1.2 percent. Currently those multipliers range from 1.5 percent to 2 percent, depending on area of service. Knopp (R-Bend) also will propose changing the interest rate for money match, as well as eliminating vacation and sick leave payments that increase the final average salary, known as “spiking.”

Each would reduce the benefits paid to retirees to try to close the gap on the state’s unfunded liability, which swelled to $21.8 billion last year.

The courts have said that the state can’t change benefits already earned by PERS members. That leaves only two ways to fill the gap: Put more public money into the system or pay less out to future retirees.

On Wednesday, representatives from the Oregon State Treasury made it clear: The PERS problem is not an earnings problem.
 
John Skjervem, the treasury’s chief investment officer, testified that in 2016 the PERS fund had net earnings of 6.9 percent, below the 7.5 percent assumed rate of return, increasing the unfunded liability. And that was a good year.

According to Skjervem, Oregon is ranked No. 1 among its peers for its fund growth over a 10-year period, making it hard to see how its investors can do much better.

Sen. Betsy Johnson (D-Scappoose) shared the question she gets from constituents: If falling short of the assumed rate keeps increasing the unfunded liability, why not just lower the assumed rate?

Steven Rodeman, PERS’ executive director, said doing so would immediately make the problem worse for employers. Benefits paid must equal the combination of contributions from employers plus expected earnings on the fund. If the assumed rate of return goes down, contributions from employers must go up to maintain benefits.

Sen. Tim Knopp    < Sen. Tim Knopp (R-Bend) listens to testimony Wednesday about the financial health of the Public Employees Retirement System.
(Photo by Jake Arnold, OSBA)
 

Knopp has introduced two bills already this session that would affect future retirees’ benefits.

Senate Bill 559 would use a five-year salary average to determine benefits rather than the current three-year average. Senate Bill 560 would send members’ 6 percent contributions to the pension fund rather than to individual supplemental retirement accounts. It would also cap the final average salary for that calculation at $100,000.

On Monday, the Senate Workforce Committee took public testimony on PERS. Union members protested against cutting pensions and decried the growing inequality between earlier retirees and current public employees.

Bend-La Pine School Board Members Peggy Kinkade and Cheri Helt laid out the problems schools face.

Helt presented the committee with a 10-year chart of expected PERS contribution increases for Bend-La Pine. Each biennium’s increase equates to dozens of lost teachers, lost days and lost programs.

Kinkade emphasized the effect on teachers of growing PERS contributions. The increasing share of district budgets spent on PERS holds down teachers’ wages and limits hiring, which in turn drives up class sizes.

“We must take care of these teachers as they retire, but what are we sacrificing for the next 10, 20, 30 years to protect an unsustainable system?” Kinkade said. “Oregon’s PERS debts and liabilities are crippling our ability to serve today’s students and teachers.”

– Jake Arnold, OSBA
jarnold@osba.org