The Associated Press
SALEM - The news just keeps getting worse for Oregon's public pension system.
The pension fund shortfall could reach $15.7 billion by the end of the year, said Mark Johnson of Millman USA, actuary for the state Public Employees Retirement System.
The Oregonian reported Wednesday that PERS records show the shortfall has already soared above $15 billion, noting that Johnson's estimate assumes strong stock market returns during the next two months.
Meanwhile, the (Salem) Statesman-Journal reported Wednesday that a group of 10 labor and local government representatives have been meeting secretly in Salem since early this month to deal with the problem.
They are being led by Bill Braly, a policy adviser in the state Department of Administrative Services who also led talks on workers' compensation insurance system reform two years ago. The group includes representatives from the Oregon State Fire Fighters Council, the Oregon Education Association and the Oregon Public Employees Union, as well as administrators from Lane County, Portland and Roseburg.
Gov. John Kitzhaber, with the agreement of Gov.-elect Ted Kulongoski, has asked the group to prepare a compromise PERS reform package for the 2003 Legislature, Braly said.
"Our target is mid-December to have some preliminary answers," he said. Until then, Braly and the negotiators have agreed to keep the talks secret.
The PERS fund was battered in 2001 by the Wall Street slump and generous payouts to recent retirees, leaving it with a $9.7 billion long-term shortfall to begin 2002.
Because of that shortfall, Johnson said last week that Oregon governments may have to pay 40 percent more for employee pensions.
The situation has worsened in 2002 because of the stock market, where much of the $33 billion fund is invested. The PERS fund has lost about 9 percent of its value since January, state records show.
A bull market would ease the situation, but the shortfall's rapid growth makes it tougher for the pension fund to recover and will put greater financial pressure on government agencies.
"This is not a problem that better investment returns will fix," said Randall Pozdena, a member of Kitzhaber's PERS task force.
The shortfall is the difference between the money PERS has now and what the system needs to cover the future cost of pensions. Today, for every $1 it needs in the future, PERS has just 68 cents, according to recent PERS estimates.
Taxpayers close the shortfall through contributions by government employers, such as cities, counties and school districts. Government employers are charged by PERS to finance pensions for the system's 294,000 public employee members.
Government officials say the added costs will mean cuts in services.
Most PERS members have the option to put their money in a fixed account that offers a guaranteed 8 percent annual return, even if the pension fund gets socked by the stock market.
The promise ended for public employees hired after 1996, but it still drives most of PERS liabilities.
The growing shortfall will surely add to momentum for changes to PERS during the 2003 Legislature.
"The question that this poses for us is whether we can face this year after year; I believe we can't," said Rep. Tim Knopp, R-Bend, who leads a House task force on PERS.
Public employee groups have said the pension system is a contract that the state cannot undo and that the stock market has created a short-term problem that does not require major reforms.