The Cost Of PERS, It’s Going Up

PERS provides different types of retirement benefits to retired Oregon public employees, depending on the date they became PERS members.  As of December 31, 2010, the actuarial estimate of the amount required to pay those PERS retirement benefits was $63.8 billion.  On that same date, PERS records showed that it had approximately $56.5 billion in its investment fund, a $7.3 billion shortfall.

The money in the PERS investment fund comes from three sources:

1.  The earnings on the investments in the PERS investment fund;

2.  Employee contributions, which are a fixed percentage of each PERS employee’s salary (PERS reports that 70% of employee contributions are actually paid by the employers, rather than the employees); and,

3.  Employer contributions, which are the amounts needed to pay lifetime annuities to each PERS employee, plus the amount necessary to make up any shortfall in the PERS investment fund.  The employer contributions are adjusted on July 1 of every odd-numbered year, based on the value of the PERS investment fund on December 31 of the preceding odd-numbered year.

On July 1, 2011, employer PERS contributions were increased an average of 50%, from 10% of payroll to 15%, for the 2011 – 2013 biennium.  This increase was primarily due to large stock market losses in 2008, which caused the value of the PERS fund on December 31, 2009 to be less than what was required for PERS to pay its projected retirement
obligations.  If the $7.3 billion deficit that existed on December 31, 2010 and the stock market losses that have occurred in 2011 are not made up by December 31, 2011, employer PERS contributions will again go up starting July 1, 2013.  In that case, government services will be cut back even further.  There is no alternative to service cutbacks, since government agencies are required by law to pay their PERS assessments first.

PERS has not always been this way.  Prior to 1971, the year that the Oregon Attorney General withdrew a 1963 opinion that prohibited legislators from joining PERS and ruled that they could join, the PERS laws were very different.  Here are some of the changes to those laws that were made after the legislators were allowed to joined PERS:

1975.    The legislators made two major changes this year:

(1)  They passed a law that allowed any person who had ever been a legislator to retroactively join PERS and they kept this window for retroactive PERS membership open for the next sixteen years; and,

(2)  They also passed the law that required their employee PERS accounts to be credited with a guaranteed minimum rate of return.  The guaranteed minimum rate of return would be set by the PERS Board which was dominated by PERS members.  The PERS members on the Board liked the idea of the guaranteed minimum rate of return so much that they raised it two times before the end of 1975.  This benefit only applies to employee contributions made before August 29, 2003 on behalf of PERS members hired before 1996.

1979.     55 out of the 90 legislators were PERS members in 1979 and they passed the PERS pick up law.  The PERS pick up allows PERS members to require that their employee PERS contributions be paid for them by the people of Oregon.  This law was to be in effect for only two years but before the end of that two-year period, it was extended permanently.   PERS estimates that during the 2011-2013 biennium, the PERS pick up will cost the people of Oregon $874,000,000.

1983.     This year 84 of the 90 legislators were PERS members and they passed a law that made almost anyone who became an Oregon judge after 1983 an automatic PERS member. Persons who were judges before 1984 were given the option of staying in their existing retirement plan or joining PERS.  If they stayed in the old plan, they had to pay 7% of their salary into the plan each month.  If they joined PERS the State would pick up
their 7% contribution for them.  That gave each judge who joined PERS an immediate 7% increase in salary.  It also gave the judges the highest pick up amount, since the pick up amount for all other PERS members was 6%.

1989.     At this time, 82 of the 90 legislators were PERS members and they passed a law that allowed the State to withhold all money that a governmental agency was entitled to until that agency had fully paid it PERS assessments.  This law required PERS funding to be paid first by.

In response to the cost of funding the drastic escalation in PERS benefits created by the PERS legislators, the people of Oregon passed Ballot Measure 8 in 1994.  That law eliminated the PERS pick up, it eliminated the guaranteed minimum rate of return and it
prohibited the use of unused sick leave to compute an employee’s final average salary.   PERS members did not like the elimination of those benefits so they sued to have Ballot Measure 8 thrown out.  In 1996, the Oregon Supreme Court, made up of seven justices  who were all PERS members and who all received the benefits eliminated by Ballot Measure 8, declared Ballot Measure 8 to be unconstitutional.

The PERS laws are the way that they are today for only one reason.  Those laws have been made exclusively by PERS members and all lawsuits challenging those laws have been
decided by PERS members.  The vast majority of Oregonians are not PERS members but their interests have not been represented when those laws were made, even though they have to pay for PERS.   That is fundamentally unfair and the people of Oregon have every right to demand that it be changed.

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About Dan Re

I am an attorney who has lived in Bend and practiced law since 1981. In educating myself about the Oregon Public Employees Retirement System (PERS), I was shocked at how the PERS laws were changed by the legislature, once legislators were allowed to join PERS in 1971, 26 years after PERS was first created. Those changes personally benefitted the legislators who made them at the direct financial expense of the people they were elected to represent. That is wrong and I intend to change it. In 2009, I started a non-profit 501(c)(4) corporation, In RE The People, Inc., for the purpose of informing concerned citizens of what happened regarding PERS and other issues of social and civic importance. I then created this blog to further that objective.
This entry was posted in Ballot Measure 8, fundamental fairness, Oregon judges, Oregon legislators, Oregon PERS and tagged , , , , , . Bookmark the permalink.

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