The following article was published recently in the Salem Statesman Journal. It reports the projected increase in PERS employer contribution rates that will go into effect on July 1, 2013. The increases are based on the value of the PERS Fund on December 31, 2011 and the estimated value of the PERS obligations on that same date. Since many PERS benefits are guaranteed, they cannot be reduced when the value of the PERS Fund assets decrease. Under the existing PERS laws, the only way to make up the deficit in that case is to increase the PERS employer contributions. Since PERS members currently control all three branches of Oregon government, it is unlikely that those laws will change.
The article indicates that the average increase for each PERS employer will be 5.4% which will bring the total PERS costs for those employers to 21% of their payroll, plus another 6% if the employer picks up its employees PERS contributions. To put that into context, lets look at two Oregon school districts, the Bend-La Pine District, which has a current payroll of $60 million, and the Eugene District 4J, with an $80 payroll. Starting in July, 2013 Bend-La Pine will have to increase its PERS payments by $3.24 million dollars a year and Eugene 4J will have to pay an additional $4.32 million to PERS. Those additional PERS payments come right off the top and must be paid before either of those districts can spend one cent on education. The only option those school districts will have to pay their increased PERS obligation will be to further reduce the education of our children which was the only reason those school districts were created.
The same general result will occur with every Oregon governmental entity. Services will be reduced in order to fund increased PERS obligations, obligations that were created by Oregon legislators only after the Attorney General allowed the legislators to join PERS in 1971. Don’t complain about the current level of Oregon government services, enjoy them. In seventeen months we will be calling 2011 – 2013 the “good old days”.
SALEM STATESMAN JOURNAL ARTICLE, Jan. 27, 2012:
PERS rates likely to increase by a third in 2013
Public employers now pay on 15.6 percent of payroll to PERS, payments that will ensure the system’s financial stability over the next 20 years.
Those rates likely will increase to somewhere around 20.5 percent to 21 percent of payroll when new PERS employer rates are set for the 2013-2015 biennium, said Matt Larrabee, an analyst for agency actuarial consultant Milliman. That amounts to an estimated increase in PERS employer rates of around 33 percent.
Following Larrabee’s presentation, PERS board chairman James Dalton urged public employers to plan for PERS rates to go “up and to the right” in the coming biennium.
Larrabee spoke to the board after PERS Executive Director Paul Cleary laid out reported earnings from PERS’ investment portfolio, which is managed under the Oregon State Treasury.
The PERS investment fund earned just 2.2 percent in 2011, and 7.3 percent over both 2010 and 2011. Both figures are well below the 8 percent annual target PERS has set for its investment earnings.
About 71 percent of PERS’ revenue comes from earnings off of its investment fund, which was worth $54.7 billion as of the end of December.
The rest comes mainly from employers. When investment earnings fall, the amount paid by employers increases to cover the difference and maintain the system’s financial stability.
Increases in pension rates can drain money from other priorities that a public employer might have — parks, roads, school equipment and the like.
PERS’ investment earnings were dented by its stock portfolio, which suffered an 8.2 percent loss in 2011. Rumblings in the international market put the largest dent in the portfolio, with PERS’ foreign stocks down 13.45 percent for the year, Cleary said.
“The equity market has yet to fully recover” from the 2008 market downturn, Cleary said. “This year, you didn’t see any recovery, and in the international market it fell quite a bit.”
PERS’ real estate and bond holdings did offset investment losses and allowed the fund to end the year slightly ahead.
Larrabee’s statement is an unofficial estimate. The report on PERS financial health that will be used to set 2013-2015 rates will be presented in July, and employer rates for the coming biennium will be set in September.