unfunded liability

PERS Bill Moves on Fast Track to Senate and House Floors

Tackling the still-growing Public Employees Retirement System unfunded liability is one of the thorniest political issues facing Oregon lawmakers. What appears to be their best shot this session is headed to the Senate and House floors. The bill is more patchwork than policy reform.

Tackling the still-growing Public Employees Retirement System unfunded liability is one of the thorniest political issues facing Oregon lawmakers. What appears to be their best shot this session is headed to the Senate and House floors. The bill is more patchwork than policy reform.

A PERS bill is moving in the Oregon legislature that is more patchwork than policy reform, but it may constitute all that can pass in the 2019 session. The fast-tracked legislation could reach the House and Senate floors as early as next week.

Senate Bill 1049 is unofficially, but politically tied to the Student Success Act, which generates an additional $1 billion per year to boost education funding and imposes a commercial activities tax on larger corporations. The critical 18th vote provided by Senator Betsy Johnson, D-Scappoose, was conditioned on legislative action this session on what she termed “substantive” reform of the Public Employees Retirement System. Johnson voted for SB 1049 in the Joint Ways and Means Committee.

The core provision in SB 1049 involves extending the minimum payment schedule for the $27 billion unfunded liability for another eight to 10 years, which accounts for the largest savings achieved by the legislation. Detractors called that another example of kicking the can down the road as opposed to actual reform.

“The bill does not meaningfully impact the system’s deficit or move Oregon any closer to solving its underlying pension problem,” writes The Oregonian’s Ted Sickinger, who closely tracks PERS issues.

SB 1049 includes a cost-sharing provision that would redirect a portion of employee pension contributions made to a supplemental savings plan that resembles a 401(k) plan. An amended version of the plan that was voted on left out an earlier provision that would have reduced the interest used to calculate the pension system’s money-match. The bill reverses a PERS decision and would give employees discretion on how to allocate investments in their own accounts.

Lawmakers added a provision to tap future net revenues from sports betting for an employer incentive fund to make lump sum payments to pay down liability. Lawmakers also tossed in a one-time $100 million contribution.

There was no mention of diverting personal income tax kicker rebates to reduce the PERS deficit.

Amendments to create a new tier of public employees who would receive a 401(k) plan in lieu of pension benefits didn’t pass in committee. 

Like most bills dealing with PERS, no one was really happy. Public employee union officials indicated they would explore a court challenge to cost-sharing provisions. Business advocates and some public employers didn’t think the measure went far enough. Legislators fretted over having to vote on the bill, fearing political consequences down the road.

“Not a single lawmaker questioned or expressed any apprehension about further underfunding the pension system and extending the deficit for another decade,” Sickinger reported. “That’s the bill’s main thrust – a strategy that could lead to further destabilization of the pension fund and land the issue back in lawmakers’ laps if investment returns don’t live up to expectations.”

In an even harsher judgment, Sickinger wrote, “Several committee members repeated the myth that greedy Wall Street bankers and the 2008 recession are to blame for PERS problems, rather than misguided and financially self-interested decisions by earlier legislatures and PERS boards that actually created the system’s structural deficit.” 

Governor Brown’s task force failed to coalesce around major proposals to reduce the PERS unfunded liability. Trial balloons on ideas such as raiding SAIF reserve funds didn’t gain any political traction. 

The PERS unfunded liability has continued to grow despite a strong economy and in the face of stock market volatility.

 

PERS: The Defining ‘Hot-Button’ Issue in the Governor’s Race

There have been grand bargains, court judgments, work groups, dire warnings, threats and inflated claims. Now there is a gubernatorial race that might turn on frustration over how to reform the Public Employees Retirement System. [Illustration Credit: Joan McGuire/Oregon Business]

There have been grand bargains, court judgments, work groups, dire warnings, threats and inflated claims. Now there is a gubernatorial race that might turn on frustration over how to reform the Public Employees Retirement System. [Illustration Credit: Joan McGuire/Oregon Business]

Ted Sickinger of The Oregonian has written a series of revealing articles about the Public Employees Retirement System (PERS), which his latest story calls the “defining issue” of the 2018 Oregon gubernatorial race.

Ted Sickinger is a long-time member of The Oregonian’s investigative team who has written extensively about the Oregon Public Employees Retirement Fund, from its arcane actuarial realities to the political firestorms it has ignited.  https://muckrack.com/ted-sickinger/articles .

Ted Sickinger is a long-time member of The Oregonian’s investigative team who has written extensively about the Oregon Public Employees Retirement Fund, from its arcane actuarial realities to the political firestorms it has ignited. https://muckrack.com/ted-sickinger/articles.

“Perhaps few issues more starkly delineate the views of Kate Brown and Knute Buehler in this fall’s gubernatorial election than Oregon’s public pension system,” Sickinger wrote. 

“Though PERS has been a hot-button issue in the state for decades, the political pressure may never have been higher,” he continued. “Schools, municipalities and government agencies are panicking as their required PERS contributions spiral to historic highs to help dig the system out of its $22 billion unfunded liability. There is no rescue in sight, and contribution rates are slated to jump again in July, pulling another $550 million a year out of public budgets statewide.”

Republican challenger Buehler has used the issue as a political club to criticize Governor Brown’s leadership. Brown has searched for ways to buy down the unfunded PERS liability and insists she won’t punish hardworking public employees. 

As Sickinger describes it, Buehler has promoted a set of PERS reforms closely paralleling those backed by Oregon’s business community. Brown dismisses Buehler’s “threats and bluster” and says she will concentrate on “actual solutions that solve the problem.” 

In reality, the window of possible changes isn’t very wide. “There is a limited menu of changes to the pension system considered economically meaningful and legally viable in light of past decisions by the Oregonian Supreme Court,” Sickinger says. “None would erase the pension deficit, though it is possible to make cost reductions that would help [public] employers.”

Sickinger walks through ideas on the table – public employee cost-sharing, which Oregon public employees already do, a $100,000 salary cap to limit large pension payouts and a transition to a 401(k) plan. 

Sickinger’s article touches on incentives and investments, including Brown-backed legislation to entice public employers to make an extra contribution to PERS and have the contributions matched by 25 cents on the dollar. Buehler calls the idea “political theater” with minimal impact on the unfunded liability.

Brown touts professional changes in the state treasurer’s office to achieve a higher rate of return. Buehler dismisses this, claiming the Oregon PERS portfolio has been one of the best performing funds in the nation.

Regardless of your politics or gubernatorial preference, Sickinger’s reporting on a major state issue is informative and cast illumination on claims, counter-claims and outright inaccuracies. 

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For starters, there were 145,963 Oregon PERS retirees through December 2017 – 127,687 of whom are considered Tier 1, the group with the most court-tested retirement benefits. Another 67,840 Oregon public employees are eligible to retire – 22,300 of whom are in Tier 1.

For the rest of the story, read Sickinger’s story, including a YouTube video on how Oregon got $22 billion in the hole.