The PERS pick up is unfair, fundamentally unfair. It’s fundamentally unfair because it gives the 70% of PERS members who have their employee contribution picked up an additional benefit, based on fictional income, that they never received. That’s unfair to the people of Oregon who are required to pay for the PERS pick and it is unfair to the 30% of PERS members who do not receive the pick up.
PERS retirement benefits generally consist of two separate components:
- a benefit funded by employee contributions. The employee funded benefit depends on the amount of the employees contributions the were paid, plus earnings on those contributions.
- a benefit funded by employer contributions. The employer funded benefit is based on the number of years the PERS member has worked, multiplied by the employee’s final average salary, multiplied by a percentage determined by the legislature. Today the percentage for Tier One and Two police and firefighters is 2%, for OPSRP police and firefighters it is 1.8%, for Tier One and two general service employees it is 1.67% and for OPSRP general service employees it is 1.5%. The higher the employee’s final average salary, the higher that employee’s employer funded benefit will be.
PERS employees receiving the pick up have their employee contributions paid for them by the people of Oregon. That lets them keep the money that they would otherwise have paid to PERS. The pick up amount is 6% of salary for all PERS employees except judges and the pick up amount for judges is 7% of salary. The pick up increases the take home salaries of those PERS members. This take home salary benefit of the pick up is obvious.
But there is another benefit created by the pick up that is not obvious at all. This benefit comes from the fact that the amount picked up is treated as salary for determining a PERS member’s final average salary, a component in computing the employer funded benefit. It is not, however, treated as salary for any other purpose. That gives PERS members receiving the pick up a fictional salary for purposes of the employer benefit. Since that fictional salary is higher than their actual salary it inflates their employer funded benefit. They receive retirement benefits for salary they never earned.
This is an example of the unearned pick up benefit. Assume that two persons, Ted and John, are hired on the same day as general service employees by Oregon public employers that participate in PERS. Ted and John both work as PERS members for 30 years and they receive the exact same salary of $30,000 per year. During their 30 year careers, Ted and John each earned total gross salaries of $900,000. The only difference between them is that Ted received the pick up for his entire 30 years while John never received the pick up. As a result of the pick up, Ted received an extra $150 per month in take home pay, a total of $54,000 more than John during that 30 years.
Not only does Ted get $54,000 more than John for doing exactly the same work that John did, Ted also will receive a higher employer funded pension because that $150 monthly pick up amount is included in his final average salary. In this case, Ted’s employer pension will be $1327.65/mo ((2500 monthly salary + 150 pick up = 2650) x 30 years x 0.0167). John, on the other hand, will receive an employer pension of $1252.5 per month (2500 monthly salary x 30 years x 0.0167). Ted gets $75.15 a month more than John for the rest of his life. That is $901.80 a year and if Ted and John both live 20 years after they retire, Ted gets an additional $18,036. And this is just for one employee.
PERS says that as of December 2010, 113,386 persons were receiving PERS retirement benefits and that the average salary of person retiring between 1990 and 2009 was $43,859. PERS also says that the average years of service for people retiring during that period was 23 years. According to PERS, 70% of PERS members receive the pick up. In that case, 79,370 of the current retirees would have had their employee contributions picked up. If all of those retirees were general service employees, the people of Oregon are paying those retirees almost $72 million per year in retirement benefits attributable exclusively to including their pick up payments in their final average salary. That amount is computed as follows:
1. Average annual salary $43,859 x 6% pick up = $2630 in annual pick up payments per employee;
2. $2630 annual pick up x 23 years average service x 0.0167 = $906 per retired employee;
3. $906 per retired employee x 79,370 retired employees = $71,909,220 per year.
The PERS pick up is unfair to the people of Oregon. PERS legislators who receive the PERS pick up have required Oregonians to pay PERS retirement benefits on fictional income that was never earned by any PERS member. That wrong and it must be changed.
For general information on PERS see PERS By The Numbers, November 2011 at: http://www.oregon.gov/PERS/docs/general_information/pers_by_the_numbers_11_11.pdf.