When the first PERS law was passed in 1945, it specifically provided that the objective of PERS was to provide a retired public employee with a retirement benefit after 30 years of service equal to 50% of that employees average salary during the employee’s last five years of service. That retirement benefit was to be funded with contributions from each PERS employee and from that PERS employee’s employer. The employee was expected to contribute 1/2 of the amount required to fund that benefit and the other 1/2 of the funding requirement would be paid by the employer. Remember, however, that the term “employer” means the people of Oregon as they pay the employer contribution.
How things have changed since 1945. Today only 30% of public employees contribute anything to funding their retirement benefits. The employee contributions for the other 70% are paid for them by the employer. The total combined employee and employer contributions to PERS in 2010 was estimated at $1,475,000,000. Of this amount, the 30% of PERS employees who actually contribute to PERS paid in $152,000,000, about 10% of the total. The remaining 90% of the contributions were paid by the public employers. In addition, on average the PERS retirement benefit for PERS members with 30 years of service since 1990 has been 80% of the PERS member’s final average salary for the three highest compensation years.
In addition to employee and employer contributions, PERS is also funded by investment earnings. For 2010, the earnings were projected at almost $6,000,000,000. If the investment earning actually fall below this projected amount, however, the public employers must make up the shortfall through higher employer contribution rates.
There is another significant change in PERS since 1945. It is that change which is largely responsible for the titanic shift in the PERS funding burden from 50/50 between employees and employers to 10% employees and 90% employers. In 1945, legislators were not PERS members and they had no personal financial interest in PERS. Since 1975, most of the legislators have been PERS members and their personal financial stake in PERS caused them to change the laws for their own benefit.