The Associated Press

SALEM — Gov. Ted Kulongoski said Thursday he wants a new pension system created for new public employees and that he'd accept a plan that ended government payment of employee shares of pension contributions.

Kulongoski outlined standards — some general and some specific — for a reform of the Public Employee Retirement System.

At a news conference, the Democratic governor called on lawmakers to quickly approve legislation ordering PERS to immediately update outdated life-expectancy tables. PERS currently plans to update the tables next year.

The 294,000-member retirement system for state and local government workers faces an estimated long-term shortfall of $15 billion.

While changes might reduce employees' future benefits, Kulongoski said reforms must not decrease what workers have accrued to this point or penalize employees who are already retired.

"We will not reach into retirees' accounts," Kulongoski said.

He said he could accept a plan that eliminated the so-called "6 percent pickup."

Employees technically contribute 6 percent of their salary toward their retirement plan, but many employers in the late 1970s began agreeing to pay or "pick up" the contribution in lieu of a wage increase.

Ending that requirement for employers such as cities and counties would save them money, but it's not considered likely unions would agree to the change without some kind of wage or benefit boost in return.

"That is part of a collective bargaining agreement, so we'll have to go back to the drawing board," said Mary Botkin of the American Federation of State, County and Municipal Employees.

Such proposed pension changes could make it "challenging for the state to recruit and retain talented workers," she said.

Kulongoski is also proposing a two-year wage freeze for state employees and teachers as part of his plan for dealing with the state's budget shortfall.

Sen. Tony Corcoran, D-Cottage Grove, chairman of a panel that's likely to handle most PERS legislation, said proposals to freeze pay and health care premiums and then to also cut out employer PERS contributions could mean a $2,000 to $3,000 pay cut for 20,000 state employees.

"What we need is the stock market to recover," said Corcoran, head of the Senate General Government Committee.

Like most stock investments, those held by the PERS fund have dropped sharply the past two years while the pension system was required to pay employees 8 percent annual minimum returns on their accounts.

A bill to forbid the system from paying more than 8 percent returns was approved Thursday by the House PERS Committee and goes to the full House for action.

The PERS board paid as high as 20 percent returns during the stock boom of the 1990s, instead of putting earnings over 8 percent into reserve.

Actuaries estimated capping returns on employee accounts at 8 percent will save government employers about $100 million a year in pension costs.

Changing the mortality tables that date to 1978 also would save the pension system money.

Because people now are living four years longer on average, their guaranteed monthly pension payments have to continue longer than is budgeted for under the obsolete tables.

Kulongoski said he wants the change made as of Jan. 1, 2003.

He said he might accept creation of a new pension plan to give future employees a choice of a fixed benefit amount, based on years worked and salary, or one in which they would that put their contributions into something similar to a 401(k) plan.

The governor said it's up to lawmakers to work out details but that any changes must reduce the system's spiraling costs, eliminate uncertainties and be simple and understandable.

He said the Legislature never meant "to create a system that pays excessive benefits" in which some workers retire with pensions larger than their final salaries.

"This program is a series of unintended consequences," he said. "This is a complicated system that lends itself to gridlock. I will not accept gridlock. It is going to be resolved this (legislative) session."

Kulongoski, a former state attorney general and former state Supreme Court justice, added that a solution could very well end up in court.

"There's nothing I can do to avoid litigation," he said.