By PETER PRENGAMAN
Of The Associated Press
SALEM - Lawmakers moved toward overhauling the state pension system Friday as both the House and Senate passed bills to sharply scale back the retirement benefits of state workers and scrap the Public Employees Retirement System for new workers.
Taken together, the reforms would shave about $9 billion off the estimated $16 billion shortfall facing the system over the next 25 years.
They would also lower employer rates, thus freeing up hundreds of millions of dollars that school districts and other state agencies could use to pay the salaries of current employees.
The savings would come from scaling back retiree pensions, considered to be some of the most generous in the country.
"It's impossible to reduce costs of PERS if we don't rein in the future benefits," said Rep. Tim Knopp, R-Bend.
But other lawmakers said public employees were being asked to pay too big a price for a problem they didn't create.
"They say sacrifice is good for the soul, especially for someone else's soul," said Rep. Mary Nolan, D-Portland. "We should ask everyone to sacrifice," not just public employees.
The biggest change is a bill passed by the Republican-controlled House, 38-20. It now moves to the Senate, where it's expected to pass.
The bill would slow pension accounts in two ways. First, the 8 percent annual return guaranteed to state workers hired before 1996 would be eliminated. Instead, those employees would get a return based on the performance of the $30 billion PERS fund, heavily invested in the stock market.
But if the stock market produced negative returns, as it's done the past two years, pensioners would simply get 0 percent interest.
Second, the bill would shift the 6 percent pension contribution - called the "employee pickup" but usually paid by employers - to a separate non-pension account, like a 401k.
Finally, the bill aims to recoup excessive returns paid into retirement accounts during the stock market boom of 1999 by freezing the cost of living increases of people who retire between 2000 and 2004.
The changes would be implemented July 1.
The pension board estimates that under the bill, people who retire in 2010 after working 32 years would have a monthly benefit of $4,987 instead of $6,951.
The unions that represent many of the 294,000 Oregonians in the system say the Oregon Supreme Court will likely overturn the changes based on a breech of contract.
"It will be incredibly complicated to untangle," said Michael Slater from Service Employees International Union Local 53. "It will cost Oregon a lot more money" to fix later on.
The House also passed a bill Friday to create a new pension plan for people hired after July 1, 2003. Instead of the current "defined benefit" plan, where workers are guaranteed a certain retirement, the new plan would be similar to the 401k style accounts used in the private sector.
The bill passed 32-26 after heated debate about whether such a plan would be a disincentive for talented employees thinking about working for the state. It goes to the Senate.
Sen. Tony Corcoran, a Cottage Grove Democrat who is chair of the Senate committee working on pension reform, said he'll amend the successor plan so that it's a mix between the current system and a 401k.
"I'm going to cut and stuff it with a hybrid plan," Corcoran said.
The Senate also passed a pension reform bill Friday to update the life-expectancy tables used to calculate retiree benefits. The tables used now date back to 1978, but on average employees are living 4 to 5 years longer, meaning the pension fund has to make up the difference.
Built into the bill is a "look back" provision, meaning that retirees won't get a smaller monthly benefit than they would have retiring before July 1, 2003.
The bill now goes back to the House, where it already passed, for minor amendments.