Rep. Richardson's Newsletter
March 18, 2010
Oregon's Emergency & Solution
Part I, Oregon PERS & the 2011-13 Budget
The Looming Crisis
Oregon faces an impending and unavoidable financial crisis of the highest magnitude. This newsletter is a voice of warning. Oregon's main source of revenue comes from income taxes, yet another 18,000 workers lost their jobs in January and more than 220,000 Oregonians are now unemployed. As we look forward to Oregon's 2011-13 Budget, the Legislature spent nearly $1.5 Billion
in one-time money to balance the current 2009-11 budget; (Click here) the cost of the Oregon Public Employees Retirement System (PERS) will increase by 60% ($495 Million); (Click here.) and, Oregon's debt payment burden will increase by more than $123 Million. (Click here.)
In short, Oregon's 2011-13 Budget must compensate for the loss of more than $2.1 Billion of one-time money ($1.5 billion), increasing PERS ($495 million), and increasing debt expenses ($120+ million), and it must fill this financial canyon with a reduced stream of state revenues resulting from on-going, high unemployment. (For an analysis on Oregon's spending, tax and debt issues, Click here.)
Since entering the legislature in 2003, I have warned that the unrestrained expansion of Oregon's government and expenditures is unsustainable. I believe we are now approaching the tipping point. Instead of cutting expenses and conserving reserves (especially during this severe economic recession), the Legislature has expanded programs, hired more employees, raised job-chilling taxes & fees, increased debt and increased spending by 37%, all in
the past two Budgets. (Click here.)
As a result of such short-sighted economic policy, Oregon's financial reserves are dangerously depleted, one-time money and savings are gone, our credit limit is "maxed-out" and PERS is sending a bill to the 2011 Legislature for an additional $495 million dollars. That is $495 million on top of the $825 million the State is paying to PERS in the current bienniumonce again, a 60% increase in PERS costs. (Click here.)
It is time for us to take a closer look at the Oregon Public Employees Retirement System (PERS).
I apologize in advance for the length of this newsletter. I hope the importance of the topic justifies reading it. I served on the PERS Reform Committee in the 2003 Legislative Session, and PERS continues to be the most complicated, complex and confusing topic I have tackled over the past seven years. Since PERS is such a broad topic, I will deal with it in two newsletterstoday's Part 1 will analyze the composition, costs and consequences of PERS, and
Part 2 will focus on options for dealing with the looming PERS crisis.
You may have your own ideas on what can be done to ameliorate the PERS situation after reading this newsletter and links or based on your own knowledge and experience. I am providing a link to a Newsletter Blog created for your comments or suggestions. To avoid overloading this newsletter with information, I have included much of the analysis and supporting documentation, as links. I encourage you to
"Click" onto any link that interests you. As a final preliminary thought, I want to thank those brave souls who have invested so much time on the PERS issue. The many insights of those who have researched and issued their own warnings of the coming PERS debacle have been most helpful. (See Footnote 1 at the end of this newsletter for a short list with links to a few key authors and resources on this important topic.) If you do not have time to read this full report, please scroll
down to the Conclusion.
Here we go.
Background on PERS. PERS is Oregon's generous and expensive system of retirement annuities, disability benefits, life insurance and retiree health benefits. PERS has three primary retirement plans: Tier 1, Tier 2 and OPSRP (Tier 3). (Click here.)
Like most public sector retirement plans, the vast majority of PERS resources are used to pay "defined benefits." This means the benefits are determined by contract between the employer and the employee, regardless of what they might end up costing. (In contrast, most private companies with retirement plans provide "defined contribution" plans where the employer contracts to pay a certain percentage of an employee's
wagesgenerally 3-5 percentor agrees to match the employee's own contributions dollar-for-dollar until the maximum percentage allowable is reached. I.R.S. approved "401 (k) plans" are an example of a defined contribution retirement plans. When the employer pays the promised contribution, the employer's risk under a defined contribution plan is ended. The benefits and risks of market fluctuations are based on the outcomes of investment decisions made by the
The risk factors for employers under defined benefit (DB) retirement plans are much higher than are those for employers who sponsor defined contribution plans. DB plans have placed a heavy financial burden on government units across the nation, including Oregon and Oregon's counties, cities, school districts and other local government employers. (Click here.)
PERS costs are increasing dramatically, and to pay them Oregon's 872 PERS employers, will be forced to divert substantial funding from educating Oregon's children, paying for public safety and providing care for Oregon's most needy children and senior citizens. If you ever wonder why the cost of K-12 education continues to rise, yet classrooms seem over-crowded and schools underfunded, the cost of PERS is a major factor.
Advocates for expensive government-sponsored DB retirement (and health) plans will argue that public sector employees deserve them to compensate for public employees being paid less in salaries than they would receive in the private sector. In fact, the opposite is true. In addition to such expensive benefit packages, public sector employees are now paid higher wages than private sector workers. (Click here.)
PERS is one of the 50 largest retirement systems in the country. PERS actuaries calculate the amount of money and investments needed to "fully fund" PERS. To be fully funded, PERS must have enough money to pay the monthly benefits to its current retired members, plus have enough assets to ensure all current "vested" PERS member-employees will have their future retirement, disability and death benefits funded as well.
When the balance held "in trust" for current, inactive and retired PERS members drops below the 100% funding level, the deficit is known as an "Unfunded Actuarial Liability" (UAL). When Oregon PERS has a UAL, the PERS Board requires that additional funds must be allocated to bring the "trust fund" back up to 100%, fully funded status by amortizing the UAL over a 20 year period.
During the PERS crisis of 2003, Oregon's UAL was $17 billion and climbing. To deal with that crisis, changes were made in PERS laws during the 2003 Legislative Session that enabled the UAL to be recalculated and decreased by nearly $9 billion. Along with the reductions in the UAL from PERS reforms, in the years that followed, extremely favorable investment returns essentially eliminated the UAL. Unfortunately, PERS balances were sharply
decreased by the market crash of 2007 and 2008. The same market conditions that slammed individual retirement accounts and private industry's 401(k)'s, reduced Oregon's PERS Fund (OPERF) from its high of $62 Billion to a low of $41.5 Billion in March 2009. In 2008 alone, OPERF lost 26% of its value from investment losses, costs and benefit pay-outs.
Although the market crash substantially reduced the size of the PERS investment pool, in 2009 OPERF gained more than 19%, which puts OPERF's balance at about $51 Billion today. This means that without including the pension obligation bonds (Side Accounts) that are discussed below, PERS currently has a $12.9 billion UAL, and if PERS investments fail to generate 8% annually, the UAL will increase accordingly. (Click here.) The State will be liable for its pro-rata share of the PERS multi-billion dollar UAL.
It is not uncommon for state public retirement systems in America to have an Unfunded Actuarial Liability, and Oregon's UAL is not nearly as high as many other states. Nevertheless, Oregon's UAL must be addressed and any shortfall must be restored by amortizing the deficit over a twenty year period.
The plot thickens. Oregon's current UAL of $12.9 billion, does not include pension obligation bonds (POB's) which PERS refers to as "Side Accounts." Such POB's are bonds that were sold by PERS employers, including the state, when interest rates were low. The bond proceeds were then invested in the OPERF by the bonding PERS employer. The Side Accounts placed in OPERF became part of the PERS investment
There are approximately $5.5 billion of POB Side Accounts invested in OPERF. Having $5.5 billion in Side Account investments in OPERF is great for PERS. Officially, PERS' UAL appears to be lowered to $7.4 billion. In reality, the majority of the $5.5 billion of Side Accounts is PERS-related debt, and must be paid by the employers just as PERS payments must be paid.
The State of Oregon has more than $2 billion in its POB Side Account. Permission for the State to incur such a high amount of indebtedness was requested from the voters in Measure 29. (Click here.) In September, 2003, Oregon voters passed Measure 29 and the State went to the bond market and borrowed $2.1 billion for its Side Account investment in OPERF. The
debt service costs for 2009-11 on the State's Side Account is $363 million--about 6% of all state wages and salaries is consumed on State POB debt payments. (Click here.) Note, when PERS provides its published rates, they do not reflect the Side Account debt payments that must also be made by those employers with POB Side Accounts. Such debt payments are listed in a different column of the employer's budget, and is
generally listed as part of O.P.E. (Other Payroll Expenses).
Side Accounts are not necessarily bad, but they are risky. When the investment markets were booming, the Side Accounts generated returns much higher than the costs of the bonds. Part of the investment returns were applied to reduce the PERS employer's PERS payments. (It was a good strategy during boom times. After all, "financial genius is a rising market.") Unfortunately, during recessionary times when investments
do poorly (such as 2008), the decreasing value of the POB Side Accounts debt becomes a substantial additional expense that PERS employers must pay in addition to making their increasing PERS payments.
In short, the PERS employer invests the Side Accounts in OPERF, with the hope that OPERF investment yields will exceed the cost of the bonds. In a "bull market" the strategy works and the net gain on the Side Account investments is used to off-set part of the employer's PERS rate. (The employer then gets to divert for other purposes, the funds it would otherwise have paid to PERS.)
To me, POB Side Accounts are like borrowing and using a credit card to speculate in the stock market. I would have the right do use such an investment strategy with my own money, but it would be foolish. Such a strategy using retirement trust funds is another matter. In my opinion, for a fiduciary to speculate with employees' retirement trust funds, with the hope of gaining high current returns so the fiduciary can reduce
retirement costs and use the savings for its own benefit violates the "prudent investment" standard universally expected from fiduciaries who control such trust funds. The decision to use the Side Account strategy with PERS retirement account "trust funds," in my opinion is a "moral hazard," since public sector officials are not held to the same standards for "prudence" that apply to private sector fiduciaries, and are generally not held
responsible when inappropriate and costly decisions have negative consequences. For additional information on Side Accounts, Click here.
Don't shoot the messenger. It is worth noting that the PERS Administrators manage the day-to-day activities on Oregon's 320,000 member retirement system. They do not make investment decisions for the Oregon PERS investment fund (OPERF). The PERS Director, Paul Cleary, and his staff receive direction from the PERS Board and the Legislature. Director Cleary, Deputy Director Steven Rodeman and the PERS staff
have a difficult job to administer one of the most complicated retirement plans in the country. I appreciate their hard work. Over the past seven years, my many inquiries and questions have always been answered in a timely and professional manner.
The actual investment decisions for OPERF are made by an investment board that includes the State Treasurer and the members of the Oregon Investment Council. Notwithstanding its substantial losses in 2007, 2008 and early 2009, when compared to other states, Oregon's PERS Fund is highly rated. (Click here.) In fact, Oregon has been nominated to receive the
2009 Public Pension Standards Award for Funding and Administration. (Click here.) Nevertheless, saying Oregon PERS is not as troubled as most states, does not lessen the implications of the extremely high PERS costs and its $12.9 billion UAL.
The total PERS expenditures for the fiscal year ending June 30, 2009 was $2.9 Billion (Almost $3 Billion), drawn from PERS reserves and current employer payments based on a total statewide PERS payroll in 2008 of $8.1 Billion. (Click here.)
The largest and most expensive of the PERS retirement plans is "Tier 1." It has lavish and expensive benefits and covers more public employees and retirees than any other PERS retirement plan. (Click here )
Tier 1 is the 800 pound gorilla in Oregon's "big tent." It is the primary reason PERS is flooding with billions of dollars of red-ink. Here's why:
--Tier 1 enables long-term state workers to retire at more than 100% of salary income when Social Security benefits are added to PERS benefits. Tier 1 applies to State workers hired before January 1, 1996, and for more than a decade has provided an average 30 year career worker with a retirement annuity that pays more than 80% of the member's highest salary. When Social Security benefits are added to the
PERS annuity, a retirement income of approximately 116% of the worker's salary before retirement can result. (To see the math, Click here.) Most Tier 1 workers retire in their fifties. Due to a Tier 1 retirement option called "Money Match," at retirement the state doubles the balance in the member's account. After the account balance has been doubled under the Money Match option, a 30 year PERS Tier 1 member
often has $500,000 in the member's account at retirement. The retirement account balances for Tier 1 members are depicted on the linked graph, (Click here.)
A comparable lifetime annuity that pays 80% of a 60 year old worker's average final average salary ($53,000), if purchased from a private annuity provider, would cost nearly $900,000. (Click here.) Such private annuities generally do not include the expensive 2% annual "cost of living allowance" (COLA) provided in the PERS annuity. A 2%
annual COLA would increase the private annuity's cost by 20%, thus boosting the cost for a private annuity comparable to the PERS annuity to more than a million dollars, if purchased in the private annuity market.
By drastically discounting the costs for PERS retirement annuities, unless OPERF earns 8% compounded annually, the money allocated for the annuity will be consumed years before the retiree dies. For a detailed description on how such discounted annuity costs will burden PERS employers (taxpayers), Click here.
In sum, for the past decade under PERS Tier 1, the average public employee retiring after 30 years has been receiving retirement benefits that only a millionaire could buy on the private annuity market. The PERS retirement annuities come without state workers investing any of their own money into their retirement accounts. (Note: In 2003 I was given a PERS document that indicated in 2000, a 30 year PERS retiree
received a pay-out worth 106% of the employee's highest salary (and that was in addition to Social Security benefitsa sweet deal.) ( Click here.)
--Tier 1 members are guaranteed an annual 8% yield; Warren Buffet says 8% is unsustainable. (Click here.) In recent decades, PERS investment returns have been very high, averaging about 10.5%. During most of those high-performing years the Tier I members were granted huge increases to their accountssometimes more than 21% in a single
year--yet during bad investment years when OPERF lost money, PERS still credited Tier 1 members' accounts with a minimum of 8%. Thus, when comparing the Tier 1 PERS members' potential for gain and the PERS employers' potential for loss, it is a classic game of "Heads, I win, and Tails, you lose."
--Tier 1 & 2 pays a monthly health insurance subsidy for its retirees before age 65 and a monthly stipend towards a Medicare Supplement for those 65 and older. Note: Until now, I have been under the misimpression that PERS retirees would have the entire cost of post-retirement health benefits subsidized. This was incorrect. Only a portion of the pre-Medicare retiree's health benefit costs
are subsidized. (Click here.)
--Tier 1 encourages workers to retire at young ages by providing generous retirement benefits and early retirement opportunitiespolice officers and fire fighters can retire as early as age 50 and other workers as early as 55. In my opinion, retirement benefits were intended to help senior citizens during their "golden years," when they are elderly and no longer able to provide
for themselves with salaries and wages. Many PERS retirees officially retire, and then, because of PERS legislative loop-holes, continue to work and collect their full salaries on top of their retirement benefits. Such "double dipping" is common, and although it does not affect the PERS actuarial calculations, it precludes younger workers from having the opportunity to move up and advance their careers. If double dipping PERS retirees would really retire, it would open thousands of
government jobs for qualified, unemployed Oregonians. In my opinion, the Legislature should close the PERS "double dipping" loop-holes.
At this point I want to make clear, I do not fault Oregon public employees for taking advantage of generous PERS benefits. Public employees are not the villains. It is only natural to look out for one's own best interests. I have many friends who are employed by the State or have retired with PERS benefits. I appreciate and respect all state workers who are dedicated to doing the best job
they can in their departments and agencies. They would be foolish not to take full advantage of such a generous retirement plan.
So, who do I blame, and what has caused this PERS financial debacle? A combination of compounding factors over the past four decades has placed on Oregon a crushing PERS cost and debt burden. There is plenty of blame to be shared.
I fault S.E.I.U. and the other public employee unions that relentlessly work for legislative "tweaks" that expand PERS benefits and coverage for their members, without considering the escalating cost burdens they place on future State workers, employers and budgets.
I fault the pre-2003 PERS Board (half of whom were PERS Tier 1 members with huge conflicts of interest), for allocating too much to members' accounts while failing to charge adequate employer rates to ensure full funding of the trust--the PERS Board knew the risks OPERF was taking by investing the retirement fund like a common mutual fund. In 2003 the PERS Board members defended their
actions by saying they were following the advice of DOJ attorneys and others, who also were PERS Tier 1 members and had huge conflicts of interest.
I fault the legislature for enabling such a lopsided system to develop, by failing in its oversight duties, by acquiescing to public union demands and by accepting direction solely from advisors who also were PERS Tier 1 members and had huge conflicts of interest. And,
I fault the 1995 Oregon Supreme Court, if, as I have been advised by the senior attorney on PERS issues in Legislative Counsel, its holdings preclude the Legislature from ever changing an Oregon public sector retirement benefit. In the private sector under ERISA a large corporation can fully fund a current retirement plan for its vested members, then freeze those benefits and change the plan
at some set date in the future. If things become unbearable for a corporation, such as was the case for General Motors, it can enter into bankruptcy proceedings, restructure its retirement plan and immerge with a model that is financially sustainable. The State of Oregon does not have such options. I am not suggesting that Oregon should renege on its contracts even if bankruptcy proceedings were available to it. What I am suggesting it the current cost and benefit pay-out situation in PERS is
the result of a mutual mistake. At the date of hiring, there never was an expectation by either party that when the Tier 1 employee had been on-the-job for 30 years he or she would receive a million dollar annuity, paid for entirely by Oregon taxpayers. On the date the employment contract was made, there was no agreement that the worker would be paid (in combined PERS and Social Security benefits), more in retirement than the worker was earning while employed. These rulings were made by judges
that also are PERS members and ruled under the cloud of their huge conflict of interest.
All of the above factors, when considered with the Money Match provisions of Tier 1 and the high investment returns of the 1990's investment bubble, created a unique period of high retirement benefits that will drain substantial amounts of revenue from other State services and plague Oregon taxpayers for the next 20 to 30 years.
Why is PERS such a crisis for the State and most of the other PERS employers? PERS benefits apply to more than 320,000 PERS members and beneficiaries (active, dormant and retired). (Click here.) As stated earlier, PERS has a $12.9 billion unfunded actuarial liability (UAL). As stated earlier, the PERS calculations
and estimates are based on the "assumption" that OPERF will generate an average of 8% on its investments every year. If PERS investments fail to generate 8% annually, the UAL will increase accordingly.
One way or another, the $12.9 billion UAL must be paid and the State must pay a substantial part of it. The question is from where will the money come to restore PERS to its fully funded status?
There are three sources of money to pay the ever-increasing costs of PERS: (1.) Investment contributions from the Oregon PERS Fund, "OPERF" (which, again, is a $50+ billion pool of investments overseen by the State Treasurer and the Oregon Investment Council); (2.) PERS employers' contributionsincluding their Side Accounts; and (3.) PERS member-employees
contributionsthe 6% employee portion, which most employers pay for the employee as part of union collective bargaining agreements.
1. Investment Contributions to PERS. Historically, as previously mentioned, OPERF investments have performed remarkable well generating yields averaging 10.5% and providing nearly 70% of all PERS revenues. The challenge for the Oregon Investment Council will be to duplicate such high yields in the future, without violating fiduciary retirement account investing standards
requiring only "prudent" investments.
For the past decade, PERS has averaged between 3.50 to 5%--far below the 8% annual, compounded "assumed" rate upon which the PERS actuarial computations are based. (Click here.) To put the 8% annual yield into perspective, in early 2000 the Dow was dropping through 10,600. Using Warren Buffet's
logic (Click here.), if the present Dow Jones Industrial Average were compounded at 8% for 100 years, in 2110 the Dow would be 23,244,877. Today, ten years and many highs and lows later, the Dow is still at 10,600. Thus, one-tenth of the 100 year time-frame has passed and the Dow has not even started its "assumed," spectacular climb to $23 million. Do you believe the DOW will climb in the next 90 years to
If OPERF achieves the assumed 8% annual investment yield that Warren Buffet deems an impossibility, PERS will still only be 80% funded by 2019. See the blue lines in the following graph for an assumed annual yield of 8%, and the green lines for an even more optimistic assumption of 10.5% every year:
(Click here to see larger version.)
If OPERF has another decade like the past one, it will be funded in 2019 at 55% and dropping like a rock. Even at 4.5% annual yield, the PERS model simply cannot work.
(Click here to see larger version.)
This brings us to the challenge for State and local budgets. PERS funding requirements must be paid, and when investment yields are inadequate, employers must make up the difference.
2. PERS Employer Contributions. Even with an 8% annual yield on investments and Side Accounts, employer rates will rise to 18% of payroll (plus the 6% employee contribution (IAP) and another 6% to pay POB-Side Account debt costs, for some PERS employers). (The State's Side Account costs are 6% of payroll; other PERS employers Side Account cost will vary.) The blue
lines on the following graph depict the future PERS rates assuming PERS can earn its assumed rate of 8%. Notice that with the assumed 8% annual investment yield, the employers' rates, with Side Accounts, climb to 18% (those paying the 6% IAP will be 24%), and stay there. In other words, 18% or 24% will become the new PERS "base rate" only if OPERF investments earn 8% (which Buffet convincingly argues is not going to happen). To bring down employer rates to past levels will
require OPERF investment yields to be 10.5%, like they were in the 1980's and 90'.
(Click here to see larger version.)
If the investment yields continue in the 3.5% - 5% annual range, as they have averaged for the past decade, the graph below indicates the State's PERS rates will climb to 44% - 47% in 2020 (including the 6% IAP and 6% POB debt).
(Click here to see larger version.)
Stop for a moment and consider what such PERS employer rate increases really mean. As shown above, the State's payroll for 2009-11 is roughly $5.9 billion (Click here.) and payroll growth is assumed to increase by 3.75% every year. (Click
here.) One percent (1%) of current State payroll is $59 million, so for every percentage point the State's PERS rate increases, it will cost another $59 million and that amount is assumed to increase 3.75% annually.
Although it is simple arithmetic, the consequences are staggering. Every 2% rate increase is a $120 million dollar increase in State PERS payments, which is $120 million taken from appropriations for education, public safety, health care, foster care, and other state agency budgets. The ramifications will be life-changing for many Oregonians.
In fact, as stated at the beginning of this newsletter, in the 2011-13, the State's Payments to PERS will cost $1.3 billion. Twenty-two percent (22%) for every dollar of payroll will go to PERS retirement costs. (Click here.) And as we have seen from the tables and graphs above (with the 6%
IAP and the 6% POB debt payments included), a 22% employer rate for PERS is just the beginning.
3. PERS member-employee contributions. As previously stated, the PERS employee is expected to pay 6% toward the costs of PERS. Yet, the State and the majority of other PERS employers by union collective bargaining agreements have agreed to pay both the employer's and the employee's portion of PERS expenses. In November, 1994 Oregon voters passed
Measure 8, which would have required PERS employees to pay their own 6% retirement contribution. Measure 8 also would have eliminated the use of unused sick leave to increase retirement annuity benefits, eliminated the guaranteed rate of return on PERS investments, and prohibited PERS employers from increasing employee pay to compensate for the 6% that employees were then going to have to pay for themselves. Notwithstanding the passing of Measure 8, in 1995 the Oregon Supreme Court overturned
Measure 8 by ruling it was a violation of the constitutionally protected right to contract. Thus, under current court precedent, a PERS employer cannot stop paying the 6% employee portion (which is now placed in a separate individual account (IAP)). The cost to the State for the 6% IAP is 6% of $5.9 billion, or $350 million. Since the State and most PERS employers are now legally bound to pay the IAP, funding PERS rests squarely on the two sources, OPERF Investment earnings and PERS employer
Conclusion. For the 872 public employers, including the State, counties, cities, and hundreds of school and municipal districts, PERS is Oregon's retirement system. Once in PERS, the employer cannot drop out. The Oregon Supreme Court has made two points very clear, (1.) PERS benefits cannot be terminated or reduced for vested employees and
retirees, and (2.) PERS must be funded, regardless of the costs and the consequences such funding may place on other government programs and services.
Although cities, counties and districts legally can (and some may) go bankrupt, there is no provision in the law for a state to go bankruptthus, Oregon State (and other states) will be required to pay for their overly-generous and exorbitantly expensive retirement plans one way or another, which will include diverting resources needed for agencies and
programs, raising taxes, fines, penalties, fees, etc., selling off state assets--whatever it takes.
As a matter of Oregon law, 6% of PERS members' salaries are to be paid by PERS member-employees. In reality, most PERS employers (including the State) pay or "pick-up" the employee's 6% as an additional employer PERS expense. With a 10.5% average investment return during the booming bull markets of the past, the largest source of PERS
funding has been from OPERF investment yields. Thus, the cost of funding PERS has for decades been referred to as a 70/30 split between OPERF and PERS employers.
Whether it was 106% or 100% or today's 80% of final average salary (plus Social Security Benefits), taxpayer-funded retirement plans were never intended to pay the public employee more as a retiree than he or she earned while working. Even though most retiring PERS employees have not worked for a PERS employer for 30 years, the "30 +
year" class of PERS employees is representative of the inequitable allocations of investment returns and employer rates that have brought PERS to the brink of financial crisis. The TIER 1 benefits are a tremendous burden on the State's revenues, and that burden is increasing dramatically--an additional $495 million for the State in the next two years alone. For smaller PERS employers the burdens of PERS may be even higher than the 60% increase in PERS costs the State is facing in
the 2011-13 biennium.
What can a PERS employer do to cope with such extraordinary increases in retirement costs? Agencies, counties, cities and districts faced with drastic increases in PERS expenses will have to cut expenses in other areas of their budgets. An inevitable consequence for the public employee unions who fought so hard to obtain extraordinarily high
retirement benefits for their members will be the loss of jobs for a significant number of union workers, long before they can afford to retire. Lack of vision often results in unintended suffering.
What can be done? Some might suggest lowering the 8% assumed rate of investment returns. On the surface that sounds reasonable, but, even if the 8% assumed OPERF rate of return is lowered, the responsibility to pay the UAL remains the same. Therefore, with less assumed to be coming from OPERF, an additional amount must be added to the other source of
PERS UAL payments, the PERS employers. The result would be an even greater share of the cost to pay the UAL would be transferred to PERS employers, which would increase the employers' PERS rate even highertruly a no-win situation.
It is presently assumed that the Oregon Supreme Court has ruled that once a PERS employee has a retirement benefit, that benefit cannot be lessened for the duration of employment. Nevertheless, there are several actions the Legislature and Oregon PERS employers can take to reduce the drastic consequences of doubling or tripling their PERS rates. None
of them are easy and all of them have political and/or financial consequences.
In Part 2 of this newsletter, I will review options for dealing with the looming PERS crisis. If you have ideas on what can be done to "fix PERS," or even to lessen its impact on the budgets of its 872 employers, please share your ideas, comments or suggestions on my NEWSLETTER BLOG
Please-- CLICK HERE.
Thank you for taking the time to consider PERS and its part in Oregon's looming financial crisis.
For more detailed PERS information, see, "PERS: By The NumbersDec. 2009." (Click here.) To further supplement today's newsletter, in-depth PERS information can be accessed from ECONorthwest's John Tapogna and Carl
Batten's seminal 2007 PERS system analysis (Click here), and their 2009 update. (Click here.) In addition, after extensive research, a 50 page November 2009 "white paper" by former Oregon Secretary of State, Phil Keisling, provides an excellent review of the components of the PERS crisis. (Click
here.) These informative documents contain in great detail many of the ideas and concepts referred to in this newsletter.
Contacting Your Elected Officials
To contact your elected officials, click here.
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