The Associated Press

SALEM — Republican lawmakers say they want to cut costs in the Oregon Public Employees Retirement System by closing it down and replacing it with a new pension plan.

PERS is facing an $8.5 billion shortfall in retirement benefits to 294,000 current and retired public employees in Oregon.

Fully funded a decade ago, the retirement system now has just 81 cents for every $1 that it will need to pay pensions.

Taxpayers will have to make up the difference as PERS increases rates to raise an additional $260 million annually.

Responding to calls for PERS reform, House Speaker Mark Simmons, R-Elgin, formed a committee this week that is considering junking the entire system and replacing it.

"We know that in the world of pensions, plans are terminated and replaced," said Jim Voytko, PERS executive director. "It could be done here."

Voytko said he is not promoting a replacement plan, but only responding to lawmaker questions. None of the proposals would affect public employees who are already retired.

It's not clear, however, whether a replacement plan could withstand a court challenge by public employee unions, which argue the state and its pension system have made promises that cannot be broken.

But the idea of closing PERS and replacing it is the most dramatic suggestion so far to change a pension system which guarantees that most public employee retirement accounts will grow 8 percent each year, whether or not PERS investments make that much.

During the stock market boom, the board overseeing PERS has earned an average of 13 percent annually but failed to save enough money to cover costs during lean years.

On Thursday, the Republican committee heard a proposal that would close PERS for public employees hired after July 1, 2003. The idea, which is only a draft bill, would create a legislative task force and require a still-undefined 401(k)-style pension for new employees.

Under such a system, an employee and employer would both contribute to a retirement account, and the cash value of the accounts would set the employee's pension payment at retirement.

"We need to set Oregon's sight on this issue," said Rep. Rob Patridge, R-Medford, who drafted the plan along with Rep. Tim Knopp, R-Bend.

Lobbyists for public employees unions said Thursday that they have presented their own reform proposals over the years but the special session was the wrong place to deal with such a difficult issue.

Limiting the replacement system to 401(k)-type plans also drew opposition.

"This is an option that, quite frankly, I believe is unfair for employees," Brian DeLashmutt, a lobbyist representing police, corrections, and parole officers, told the new House Special Session Budget Committee on PERS.