As reported in Parts 1 and 2, the objective of the Oregon Public Employee’s Retirement System (PERS) from its beginning in 1945 through 1966 was to provide retired state employees with 50% to 60% of the employee’s average income. This 50% to 60% retirement pay was to come from an annuity funded by employee contributions, a lifetime pension funded by employer contributions and from social security.
In 1967, the PERS retirement objective was eliminated. Thereafter, the retirement benefit would be whatever amount could be provided through the employee funded annuity and the employer funded lifetime pension. There was no longer a maximum retirement benefit target and social security was no longer a consideration in the total amount of retirement benefits a PERS member could receive. The new law also provided that the lifetime pension was to be a certain percentage of the employee’s final average salary multiplied by the employee’s years of service.
While the 1967 provisions result in only a slightly higher PERS retirement benefit that year, the use of a percentage of average salary in computing the lifetime pension opened the door to substantial increases that would occur after legislators were first able to join PERS in 1971. In 1971 and 1973, the legislators increased the 1967 lifetime pension percentages. As a result, the pension for police and fire fighters went from 23% of average salary in 1967 to 33.75% of average salary in 1973. For all other state employees, the pension went from 20% of average salary in 1967 to 30% of average salary in 1973. In 1971, the maximum years of service limitation was also eliminated and replaced with compulsory retirement age.
In 1975, the legislators passed a PERS law that applied just to them, a law like none before it or after it. That law allowed any person who had ever served in the legislature to retroactively join PERS by paying the employee contributions that person would have paid had they joined when first elected to the legislature. This law also provided that the legislators would receive the same lifetime pension percentage as police and fire fighters. By enacting this law, the legislators clearly put their own personal financial interests first and procured for themselves the highest possible retirement benefits.
In 1979 the legislature passed a law that allowed public employers to elect to pay the employee PERS contribution for the public employees. When a public employer made that election, and most of them did, the public employee made no contribution to PERS. In most cases, the persons making the election for the public employer were also PERS members and they directly benefitted from that election. Even the PERS legislators elected to have the people of Oregon pay their employee contributions for them.
In 1981, with most of the legislators in PERS the legislature again increased the lifetime pension percentages. This time, the police and fire fighter percentage was increased from 1.35% to 2% and the percentage for all other employees went from 1% to 1.67%. These increases raised the maximum lifetime pension benefit for all PERS employees to 50% of their average salary. That 50% was 117% greater than the original 1967 percentage for police and firefighters and 149% greater than the 1967 percentage for all other public employees.
Just 10 years after the legislators joined PERS, the total PERS retirement benefits available to a public employee far exceeded the original PERS objective and the people of Oregon were left with the obligation of paying for those benefits with higher taxes and lesser government services. Governor Kitzhaber’s 2011 – 2013 proposed budget included $7,500,000,000 for PERS, a $1 billion dollar increase from the prior biennium. That increase is needed to fund the lifetime pension benefit for PERS retirees. That same proposed budget left the Superintendent of Public Instruction lamenting the fact that the amount budgeted for K – 12 education was $1 billion short of what was required to maintain service to the Oregon’s children.
Part 4 of this report will examine the actions of the legislators in 1975 through 1981 compared to their obligations under Oregon’s Ethics code, which went into effect in 1975.