Oregon Government Proposes Pension Changes

December 7, 2010 (PLANSPONSOR.com) – Oregon Governor Ted Kulongoski's Reset Cabinet recommended cuts to Oregon state workers' pension plans that reportedly could result in more than $511 million in savings to the state during 2011-13.

The Statesman Journal reports that the recommendations would lower state workers’ annual wages or total compensation, reduce annual benefits of the 15% of state retirees who have relocated out-of-state, and cut annual cost-of-living adjustments for about 42% of all state retirees.  

Specifically, the Reset Cabinet recommendations for the pension system include: 

  • Elimination of the 6% pickup and the Individual Account Program – State employees are required to contribute 6% of their pay to the Public Employees Retirement System (PERS). Agencies have been making this contribution on their workers’ behalf since 1979, when this arrangement was agreed to in lieu of a pay raise. The nature of the pickup changed in 2003 when the Legislature passed PERS reform measures. Agencies still pay the 6% pickup, but the money now is routed not into the PERS pension fund but into an Individual Account Program more akin to a private-sector 401(k), the news report explained. The Reset Cabinet recommends eliminating both the 6% pickup and the Individual Account Program, arguing that the state “can no longer afford to maintain two retirement programs,” according to its report. 
  • Halting income tax offset payments to PERS retirees who live out-of-state – Oregon began taxing PERS pension benefits in the early 1990s, but after a series of lawsuits, the Legislature passed statutes that boost state workers’ pay to cover the amount due in taxes. The Reset Cabinet suggested eliminating the tax remedy payments for any PERS employees who have established residence in another state. The move would save $5.9 million for state general-fund agencies and $17.9 million in the state’s support for schools and community colleges in 2011-13, according to the Reset report. 
  • Requiring a minimum 10 years of service to be eligible for annual cost-of-living adjustments to pension benefits – Retirees currently need to have served at least five years with the state and become vested in the PERS pension plan to be eligible for annual COLAs for their retirement benefits. The Reset Cabinet suggested the minimum service required for COLA eligibility to 10 years, arguing that such a move would save the state about $7.4 million in 2011-13 for state general-fund agencies and $22.4 million in the state’s support for schools and community colleges. About 7% of PERS members who retired in 2009 had less than 10 years of service, the agency’s report said. 
  • Limiting cost-of-living adjustments to the first $24,000 of a retiree’s annual benefits – The Reset Cabinet also recommended that any COLAs be applied only to the first $2,000 per month that any retiree receives. That way, they figured, low-income state retirees would be protected while retirees with more generous benefits would receive some increases for inflation. This change would produce big savings in 2011-13: $47.3 million for state general-fund agencies and $143.5 million in the state’s support for schools and community colleges. PERS estimates in its report that 58% of its members receive annual benefits of $24,000 or less. The other 42% of retirees would receive lower COLAs, allowing their purchasing power to falter in the face of inflation. 


According to the Statesman Journal, the two major state workers’ unions already have come out against the Reset Cabinet’s recommendations, arguing that the experts have mistakenly offered draconian solutions for a budget deficit created by a economic down cycle. Officials from the unions have said they do not expect incoming Governor John Kitzhaber to follow the Reset Cabinet’s lead.