Oregon government employers will be required to contribute an additional $1,100,000,000 to their employees’ Public Employee Retirement System (PERS) accounts during the next budget cycle. That is an additional $1.1 billion that will not be available to fund classroom studies, public safety and services for our most vulnerable citizens.
$1.1 billion is a lot of money and it is helpful to put it into perspective. For instance, it would pay nearly 8,000 teachers or about 6,000 police or firefighters for two years. Alternatively, it would fund virtually every state program designed to help our most vulnerable citizens with money to spare.
The PERS structural funding problem is no surprise. The reports of huge deficits, and skyrocketing contribution rates are too numerous to count. The PERS trust fund experienced nearly $20 billion in losses during the 2007 financial debacle. The PERS trust fund remains about $13 million short of full funding to service its liabilities. The $1.1 billion increase in employer contributions is required during the next budget period in order to help make up for those unrecovered losses.
Several changes to the PERS contribution and benefit distribution system could be made that would help to stabilize the fund. The system was originally structured so that both employers and employees contributed 6 percent of salary to the trust fund. About 70 percent of the government employers now contribute the 6 percent employees’ contribution.
Each percent that is contributed by the employers costs Oregon taxpayers about $125 million each budget cycle. Eliminating this “6 percent pick-up” would save Oregon taxpayers $750 million per budget period.
Oregon taxpayers currently pay $36 million per year to offset Oregon income tax liability for PERS retirees who no longer live in Oregon and who no longer pay Oregon income taxes. Eliminating this inequitable offset would save $72 million per budget period and reduce the PERS liabilities by $450 million
PERS retirees’ benefits are calculated based on their last three years of earnings. The Tier 1 employees are allowed to include both the lump sum of unused vacation and sick leave pay in that calculation, thereby significantly increasing their PERS benefits. Tier 2 employees are only allowed to include the sum of the unused sick leave in the calculation. Elimination of both these “perks” would save Oregon taxpayers $240 million per budget period and reduce the PERS liabilities by about $400 million.
PERS retirees’ benefits include a cost of living adjustment. About 7 percent of PERS members retire with less than 10 years of public employment. Eliminating the cost of living adjustments for employees who retire with less than 10 years of service would save Oregon taxpayers $90 million per budget cycle and would reduce the PERS liability by about $450 million.
Bills were introduced to address each of these PERS corrections. Unfortunately, no action has been allowed on any of these cost-saving bills. For instance Senate Bill 897 would begin to address the PERS problem by requiring employees to pay their own 6 percent of the PERS contributions that is currently being “picked up” by about 70 percent of all PERS employers. The bill would save Oregon taxpayers $750 million per budget cycle.
Unfortunately, this week Senate Democrats voted unanimously to prevent the Senate from taking action on the SB 897. They appear not to recognize that PERS expenses are eating our state and local government as well as our school district budgets alive. They appear unable to grasp the reality that the current PERS program is unsustainable.
The cost of PERS will increase by $1.1 billion for the 2011-13 budget cycle and nearly that much more during the following 2013-15 budget period. We simply cannot continue to ignore the problem.
Hopefully, the legislative leadership will come to their senses and take action. There is still time remaining to adopt at least some of these cost saving measures. To do less will jeopardize our ability to continue to fund essential Oregon services.