PERS was created in 1945. For the first twenty-five years, legislators were not allowed to join PERS. But in 1971 the Oregon Attorney General ruled that legislators could become PERS members. This report examines the changes that took place regarding the funding of PERS retirement benefits after legislators were eligible to receive those benefits.
BEFORE LEGISLATORS. Originally, the PERS retirement benefit after full career (30 years for general service and 25 years for police and fire service) was 50% of the retiring public employee’s final average salary (FAS).
PERS Employers and PERS Employees each contributed half of the amount necessary to fund that 50% retirement benefit. That 50% benefit included social security, which was also paid for 50/50 by the employer and employee.
In 1970, the Employer contribution was the amount required to fund 20% of FAS and the Employee contribution was the amount required to fund 20% of FAS. Social security made up the other 10%.
AFTER LEGISLATORS. In 1971 Legislators were allowed to join PERS. They then made the following changes to the PERS funding obligations of Employers (the people of Oregon) and the Employees:
a. 1971, the Employer contribution was increased to amount required to fund 25% of FAS and the Employee contribution stayed at the amount required to fund 20% of FAS;
b. 1973, the Employer contribution was increased to amount required to fund 30% of FAS and the Employee contribution stayed at the amount required to fund 20% of FAS;
c. 1979, PERS Pick Up enacted. It allowed PERS Employers to elect to pay PERS Employee contributions. That election was made by the Employer’s managers, who were PERS members. If the Pick Up election was made:
(1) the Employer contribution increased by about 1%, because the amount picked up was treated as employee salary and that artificially increased each employee’s FAS; plus,
(2) the Employer also paid PERS Employee contributions, equal to 6% of employee salary, so the Employee paid nothing.
When the pick up election was made, the Employer contribution went to amount required to fund 31% of actual FAS, plus 6% of the salaries and the Employee contribution for most PERS members went to ZERO.
d. 1981, the Employer contribution was increased to the amount required to fund 50% of FAS and the Employee contribution for most PERS members stayed at ZERO.
RESULT OF LEGISLATORS JOINING PERS. During the eleven year period from January 1, 1971 to December 31, 1981, legislators:
a. increased PERS Employer contributions by 150%; and,
b. allowed PERS administrators to make pick up elections that would artificially increase the PERS Employer contributions and reduce PERS Employees’ contributions to ZERO.
The above facts indicate that before legislators joined PERS they insisted that both Employers and Employees contribute equally to funding PERS. But once legislators were allowed to join PERS their position on PERS funding changed dramatically. They decided not only that PERS benefits were going to substantially increase but, since they were now PERS members, they were not going to pay for any of the benefits. The people of Oregon were going to pay the entire amount.
Clearly, once the legislators became PERS members, their personal interest in PERS influenced how they voted on PERS laws. The PERS legislators had a conflict of interest that was directly adverse to the people they represented, the people who were the beneficiaries of their public trust. That is wrong and I believe that the changes to the PERS laws made after 1970 are invalid until those changes are specifically approved by the people of Oregon though a statewide vote.