As described in Part 1, in 1975 the Oregon legislators passed a law that allowed anyone who had served in the Oregon legislature before January 13, 1975 to retroactively join PERS. Those legislators who retroactively joined PERS would receive a PERS retirement benefit computed on the basis that they had been PERS members the entire time they had served in the legislature. This 1975 law also made legislators the only persons who could receive PERS retirement credit for years served after age 65 and it increased the percentage of average salary used to compute legislators’ lifetime pensions by 35%. The legislators were the only PERS members who received a pension increase in 1975. The law passed by a cumulative vote in the Senate and House of 66 to 17.
In order to retroactively join PERS, all the legislators had to do was pay the employee PERS contributions for all prior years of service as a legislator, which they could pay in one lump sum or by installments payments which would be deducted from their salaries. Initially, the legislators had a nine and one-half month window, until July 1, 1976, to retroactively join PERS and pay all required employee contributions. The legislature then almost immediately extended time for payment of the contributions until July 1, 1977. Subsequent legislatures eventually extended the window for retroactive enrollment to January 11, 1987 and the time for payment of contributions to July 1, 1991.
While this may appear reasonable, it’s not. The legislators who retroactively joined PERS were entitled to full PERS retirement benefits which included a retirement annuity, funded with employee contributions and earnings on those contributions, and a lifetime pension, funded by employer contributions and the earnings on those contributions. Since those employee and employer contributions had not been made, there were no earning to help fund the benefits. That meant that the PERS legislators placed a greater than normal burden on the people of Oregon to pay the legislators retirement benefits.
In 1979 the legislature passed a law that allowed public employers to pick up employee PERS contribution for the public employees. When a public employer did that, and most of them did, the public employee made no contribution to PERS. In most cases, the persons deciding to pick up the employee contributions were also PERS members whose own employee PERS contributions would also be picked up. The PERS legislators even arranged to have their own employee contributions picked up.
In 1981, with most of the legislators in PERS, the legislature again increased the percentage of average salary used to compute the PERS lifetime pension, but this time they increased it for all PERS members, not just for themselves. The percentage for police, fire fighters and legislators was increased 48%, from 1.35% to 2%, and the percentage for all other employees was increased 67%, from 1% to 1.67%. These increases raised the maximum lifetime pension benefit for all PERS employees, which was funded by employer contributions, to 50% of their average salary. In addition to the lifetime pension, PERS members would also receive a retirement annuity funded by the employee contributions that were mostly being picked up by the employer.
The changes made to PERS between 1975 and 1981 changed it significantly. In just six years, the PERS legislators in promoting their own personal financial interest had substantially increased the PERS retirement benefits and had virtually eliminated the requirement that PERS members contribute anything to their own retirement plans. The entire cost of funding PERS had been shifted to the people of Oregon. Unfortunately, the worst was yet to come.
Part 3 will discuss the addition of Oregon’s judges to PERS in 1983 and the disastrous consequences of that action in 1996.