By CHARLES E. BEGGS
The Associated Press
TIGARD - The Public Employees Retirement Board voted to begin using new life expectancy tables in 2004, a move that could shave $1.5 billion or more from the pension system's projected shortfall.
Analysts said basing pension calculations on mortality tables adopted in 1978 inflates the employers' costs for the retirement system for state and local government workers by an estimated $135 million a year.
The change, which does not affect current retirees, is expected to result in a court challenge by unions on the grounds that it will mean smaller checks than future retirees had been promised.
The change, set for Jan. 1, 2004, won't be official until the board adopts rules this fall following public hearings.
The board on Monday did include a provision that no worker would receive a smaller pension check after the change than he or she would have received by retiring at the end of 2003.
Retirees draw their pension benefits for life, with payments based on how long they're expected to live. Because people now live an average of four years longer than they did when the outdated tables were adopted, the pension system must make payments longer than it has money for them, and taxpayers have to make up the difference.
The old tables account for about $1.5 billion of an $8.5 billion shortfall facing the pension system, which covers 294,000 retired and active employees.
The board chose a change of mortality tables in 2004 over two other options.
One would have phased in the change over five years, reducing the shortfall by about $1.2 billion. A union-proposed plan to apply new tables only to future earnings would trim the shortfall by almost $500 million.
The board is under pressure from local governments and the Legislature to change the mortality calculation to help reduce the shortfall.
Because of the overall potential deficit in the system, state and local governments are facing a planned $260 million annual increase in the payroll charges that fund the retirement benefits.
Most of the shortfall is caused by declines in the pension fund's stock market holdings coupled with a requirement that most members of the system are entitled to earn a minimum of 8 percent annually on their accounts.
"I think we have to make this decision with the utmost haste," said board member Steven Bjerke.
Fellow member Emile Holman said: "The time has come that we need to present some good news to this system."
Robert Muir, an assistant attorney general, said the feature aimed at protecting employees from retiring with reduced benefits would help make the shift "defensible" against claims that it harmed employees contractual pension rights.
The Legislature in a June special session passed a measure that will send any legal challenges to the pension changes directly to the state Supreme Court in hopes of speeding a resolution.
Board Chairwoman Dawn Morgan of Salem, a union activist, said "litigation risk" led her to oppose the change.
"How much do you want to risk to the courts?" she said.
She predicted the change will cause many experienced workers to opt for retirement.
"I think there still will be a drive out the door," she said.