If PERS had a theme song, no song would be more appropriate than Bobby McFerrin’s “Don’t Worry, Be Happy”. It is the perfect song for PERS because laws made by PERS legislators have eliminated any possibility that Oregon’s financial problems can reduce PERS retirement benefits. Since that can not happen, PERS members have absolutely nothing to worry about.
Twenty-six years after PERS was created, Oregon’s legislators were permitted to join PERS in 1971 by an Oregon Attorney General opinion. Most legislators joined PERS and then went on a blitzkrieg of PERS enhancements. During the next twenty-five years, PERS benefits were increased twenty times.
It was during that period, in 1989, that the PERS legislators made sure that funding PERS retirement benefits for them and for all other PERS members would be Oregon’s number one financial priority. The primary purpose of Oregon government shifted from providing services to the people to funding retirement benefits for the State’s public employees. That change is one of the primary reasons we are seeing such large cutbacks in government services today. Each Oregon governmental agency receives a certain amount of money each year. The agency must first use that money to pay its PERS assessments. It is only the money that is left after the PERS payments that can be used to provide the services that the agency was originally created to provide. Unfortunately, the amount of money State agencies receive is not going up as fast as the amount the agencies are required to pay to PERS, so the agencies must reduce services to make up the shortfall.
PERS is funded from two contribution sources. One contribution is a percentage of each PERS employee’s salary, 6% of salary for non-judge PERS members and 7% of salary for judges. 70% of this contribution is paid by the public employers. The other PERS contribution also comes from the public employers. The public employers, of course, are really the people of Oregon.
This second employer contribution is used to fund a lifetime annuity for each PERS employee. That annuity provides an employee who retires after 30 years of service with 50% of the employee’s final average salary. The amount each employer must pay to fund those annuities is determined actuarially, every two years. That determination is based on the estimated amount required to pay all of that employer’s annuity payments, the estimated earnings on the PERS investment fund and the amount in the PERS investment fund. Due to the stock market losses in 2008, the employer PERS contributions were doubled for 2011 – 2013 and are expected to continue increasing.
As of December 31, 2010, PERS estimated the value of the PERS investment fund at about $57 billion, which was $8 billion less than what was required to pay all PERS retirement obligations. So far in August, 2011, the stock market has lost approximately 15% of its value. That means that the PERS investment fund has lost billions of dollars and its unfunded liability is much higher than it was at the end of December, 2010. If those losses are not made up, the PERS employer contributions will be substantially increased again to make up for that loss. As a result, the money available to pay for services to the people will be cutback even more.
While that is bad for the people of Oregon, it has no impact on PERS retirement benefits. The PERS legislators have required the people of Oregon to pay the full PERS retirement annuities no matter how much money is in the PERS investment fund. That’s why “Don’t Worry, Be Happy” is the perfect theme song for PERS.