By PETER PRENGAMAN
The Associated Press
SALEM Gov. Ted Kulongoski rolled out a plan Thursday to solve the budget headache for the state's retirement system by taking back high stock market gains given to pension members in 1999.
The plan would also reduce the state's matching funds and do away with an 8 percent guaranteed return on pension accounts offered to longtime state employees.
Combined with other reforms working their way through the Legislature, the governor's blueprint would shave about $9 billion off the $16 billion shortfall facing the Public Employees Retirement System.
Margaret Hallock, labor policy adviser for Gov. Ted Kulongoski, presented the plan to the House committee on pension reform. She acknowledged it would be painful for retirees, but said the changes were necessary.
"We need to correct the errors," she said.
The plan has three parts.
First, it would shift a 6 percent pension contribution called the "employee pick-up" but usually paid by the employer into an account separate from the pension account.
Many retirees' benefits are figured using a "money-match" formula that doubles their final pension account balance. Monthly retirement checks are then calculated by taking the final sum and dividing it by the number of years a retiree is expected to live.
Shifting the 6 percent to a separate account would reduce the amount of matching funds due from the state, while ensuring employees get the money.
Second, the plan would restructure interest payments to employees hired before 1996. Those members are guaranteed an 8 percent annual return on at least a portion of their accounts. Kulongoski's plan would eliminate the guarantee.
Instead, it would give a percentage payout based on the stock market performance of the entire $30 billion state pension fund.
Finally, the governor wants the pension system to take back extra money paid into accounts in the stock market boom of 1999. That year accounts were given 21 percent returns, about 10 percent more than lawmakers say should have been allowed.
Under the plan, that money would be made up by suspending the cost-of-living increases in the pension checks of those who retired under the "money-match" option between 2000 and 2004.
Hallock said the suspension would be calculated for each pension member, and last long enough to make up the over-credited money.
Unions representing many of the 294,000 people in the system immediately ridiculed the plan.
"This is so far out of reality," said Mary Botkin from the American Federation of State, County and Municipal Employees "We'll see them in court."
Still, the Legislature is likely to pass the plan in one form or another.
Sen. Tony Corcoran, a Eugene Democrat and chair of the Senate pension reform committee, supported the proposal on Thursday while conceding it would come as a blow to many retirees.
"This is a huge hit to folks in the system," but necessary, said Corcoran.
Also on Thursday, the House committee passed a bill creating a new pension system for state employees hired after July 1, 2003 that resembles 401(k) plans offered in private business.