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Legislature ponders use for excess in PERS contingency fund

 <   The Senate Workforce Committee, led by Sen. Kathleen Taylor (D-Milwaukie), took testimony Wednesday on the Public Employees Retirement System Contingency Reserve Fund.
(Photo by Jake Arnold, OSBA)

The Senate Workforce Committee held an informational hearing this week regarding the Public Employees Retirement System and the Contingency Reserve Fund. Executive Director Steven Rodeman gave  an overview to the committee explaining what a contingency reserve is, the reason for the fund and its past uses.

The fund was created for several uses. If a jurisdiction (i.e., school district) is insolvent, the reserves could be used to pay liabilities. There is also a “catch all” that allows the PERS Board broad discretion in allocating these funds. For example, the PERS Board used the Contingency Reserve Fund to restore payments to PERS members after the Oregon Supreme Court in the Moro case struck down cuts in cost-of-living adjustments.

The Contingency Reserve Fund receives an allocation when investment returns are more than the assumed rate, currently 7.5 percent. The fund receives a portion of the excess during the PERS Board annual crediting process. In 2016, earnings on the PERS fund did not exceed the assumed earnings rate so the board could not make an allocation. The reserves have grown, though, and the PERS Board has asked stakeholders to give recommendations for how the excess in the Contingency Reserve Fund should be used.

Funds held in the contingency reserve are not factored into the system valuation for use to pay liabilities (i.e., benefits). The PERS rates for employers are set for the next biennium based on the system valuation done at the end of odd-numbered years.

Rodeman said at the March 28, 2016, PERS Board meeting that the board had adopted a funding level for the contingency reserve of 0.25 percent of the system accrued liability. With the Dec. 31, 2015, system valuation, the contingency reserve is now considered overfunded by $345.8 million.

Rodeman explained how excess funds have been used in the past:

  • Redistribute the excess funding proportionally to those accounts and reserves whose earnings are used to fund the contingency reserve.
  • Credit the excess funding to an existing reserve or account (e.g., the benefits-in-force reserve to support future benefit payments).
  • Retain the excess funding in the contingency reserve and allow future charges against the reserve or growth in the system’s accrued liability.
  • Apply the excess funding toward other purposes, as this reserve can be used to provide for any contingency that the PERS Board determines appropriate.

 OSBA is interested in possibly retaining excess funding in the contingency reserve to help offset the difference when the PERS system does not meet the assumed rate. This would bring down the employer rate.

 OSBA will submit a formal recommendation next week, before the March 15 deadline.

- Lori Sattenspiel
Interim director of legislative services