As described in the article “PERS, Before and After Legislators – Employer/Employee Contributions” after legislators were first allowed to join PERS in 1971, they fundamentally altered the way PERS benefits were funded. Prior to legislators being able to join PERS, the people of Oregon, through the public employers, and the public employees both contributed to that funding. But once legislators were allowed to personally benefit from PERS, they changed the funding so that the public employers (the people of Oregon) were required to pay 100% of the funding for most PERS members, including the PERS legislators.
But the PERS legislators did much more than just alter the way PERS was funded. They created significant new PERS benefits. Benefits they had never dreamed of until they were in a position to personally gain from those new benefit. These are some of the most significant PERS benefit enhancements created by the PERS legislators after 1970:
1. 1973. The ability to use unused sick leave as part of final average salary (FAS). The employer funded PERS pension is based in part on FAS. By 1981,the PERS legislators had increased the employer funded pension from 20% of FAS to 50% of FAS and the higher the FAS, the larger the pension. By allowing unused sick leave to be treated as salary for FAS purposes, the PERS legislators allowed FAS and, as a result, their employer funded pension to be artificially increased.
2. 1975. The guaranteed minimum rate of return on employee accounts. The PERS employee contributions were held in separate accounts for each PERS member. After the legislators were able to become PERS members, they decided that their employee accounts should earn a guaranteed minimum rate of return each year, no matter what they actually earned in the market place. To ensure that their accounts would get the guaranteed minimum return, they made the people of Oregon guarantee them that they would get it. If the market returns were less than the guaranteed minimum, the people had to pay each PERS member the difference. And to top it off, the PERS legislators let the PERS members who controlled the PERS Board to decide what the guaranteed minimum rate of return would be.
3. 1979. The PERS Pick Up. This new benefit, which was only intended to last for two years, allowed administrators of public employers, who were PERS members, to elect to pay the PERS contributions for the PERS members, in addition to paying their PERS employer contributions. Most public employers made that election and, as a result, since 1979, most PERS employees do not contribute anything to their retirement benefit, plus they get an artificial 6% increase in salary for FAS purposes which also gives them a higher employer funded pension. For more information on the effect of the PERS Pick Up, see the previous article “PERS, Before and After Legislators – Employer/Employee Contributions”.
4. 1981. The PERS Pick Up was made permanent.
But the PERS legislators were not satisfied to simply shift almost the entire PERS funding burden to the people of Oregon and to create fantastic new PERS benefits for themselves. They also put themselves and a small group of other PERS members in total control of the PERS laws. That control would prevent the people of Oregon from changing PERS benefits without the consent of PERS members. And, as the people of Oregon would soon find out, those controlling PERS members were not about to consent to any change to the PERS laws that would reduce their PERS benefits. The next post will describe how the PERS legislators achieved total control over the PERS laws and what I am doing about it.