The Associated Press

SALEM - The state's public employee retirement system is in rough shape today, and, apparently, it's going to be in tough shape in 2052.

A new computer simulation shows that 50 years from now the system will feature large shortfalls and high employer rates, with taxpayers picking up the tab.

The study by PERS comes on top of news this week that employers' rates are expected to climb 40 percent beginning next year, and the shortfall has grown to $15.7 billion dollars.

The twin pieces of bad news will likely increase pressure on the 2003 Legislature to deal with the pension issue when it convenes in January.

"Saving and fixing the system will require more immediate action than anyone had imagined," said Rep. Tim Knopp, R-Bend, chairman of a House task force on the Public Employees Retirement System.

The 295,800 PERS members, both active and retired, are divided into two groups. Those hired before 1996, known as Tier 1, enjoy an 8 percent guaranteed return on their regular retirement accounts. They also can invest up to 75 percent of their money in a higher-risk stock account that has no guarantee. The 1995 Legislature created a Tier 2 for new hires. These workers have no guarantee on either their regular or higher-risk accounts.

Most of the recent debate about the retirement system has focused on Tier 1 and its guarantee. The simulation released Thursday projects what will happen when most Tier 1 employees have retired or died, and the system is dominated by Tier 2 workers.

Gov.-elect Ted Kulongoski, who asked PERS for an analysis of Tier 2's viability during his campaign, says he won't let the Legislature leave Salem without addressing the pension issue.

"It's a top priority," spokesman Scott Ballo said.

The simulation shows that the rates paid by school districts and state and local governments, and supported by taxes, will climb from an average of 15.6 percent of payroll in 2003, to a high of 30 percent in 2020, then drop to about 14 percent, before climbing again to about 20 percent by 2050.

At those rate levels, the shortfall - the difference between the money PERS has on hand and what it needs to cover its future pensions costs - will gradually decline over the next 20 to 25 years to a low of $5.7 billion, then begin climbing to $42.5 billion in 2050. But because the size of the pension fund also will grow dramatically during this period, the share of the system that is funded will grow from about 60 percent today to almost 90 percent.

Jim Voytko, PERS executive director, said analysts were surprised to find that even after most of the Tier 1 workers are dead, the simulation showed employer rates will remain far above historic levels, with taxpayers still paying off a large shortfall.

"We don't fully understand this," Voytko said. He said it could be a glitch in the model.