The bill mandates that those members’ accounts grow by at least 8%, but no more than 8% annually while the system has a funding deficit, according to various news reports. Up until now, there hasn’t been a cap. Decisions by the PERS board to award members with robust investment returns, including 20% in 1999, are credited with worsening the system’s shortfall.
“This bill addresses one of the most pressing issues facing the state,” Kulongoski said, flanked by legislative leaders in his ceremonial office.
The legislation reduces the public pension system’s long-term debt by about $900 million. As of December 31, 2002, that unfunded liability was projected to be $14.8 billion over the next 30 years. The unfunded liability is a result of poor investment returns, bad oversight, and generous benefits that the system doesn’t have the assets to support, according to PERS watchers.
Governor Backs Life-Expectancy Tables Compromise
In another significant development, Kulongoski announced while signing the bill regulating PERS rates of return that he also supported a newly worked out compromise plan on when PERS should adopt new life-expectancy tables and get rid of its current 1978 versions.
The PERS board wants to update the tables beginning January 1, 2004 so PERS can give current employees the chance to retire before any changes are implemented. Until Tuesday, Kulongoski had said the tables should be updated retroactively, beginning January 1, 2003. But that would reduce pensions of 3,000 people who announced retirements this year.
The House PERS Committee approved an amendment Tuesday that sets a compromise start date of July 1, 2003. . Lawmakers argued that implementing the tables as of 2004 wouldn’t produce a big enough savings. They also worried it would produce a brain drain of workers eager to retire before their pensions took a whack.
The problem is that because retirees are living an average of five years longer than the 1978 tables project, PERS has had to dip into reserves to continue paying, adding to the shortfall (See OPERS Board OKs Scrapping of Old Life Tables) . The bill would save Oregon taxpayers about $134 million per year, or $1.46 billion in the long run.
The issue of updating the life-expectancy tables has generated enormous controversy including threats of union-generated lawsuits and strikes because of any change that could cut benefits for current workers (See Oregon Pension Cuts Could Spark Protests, Suits ). Unions representing many of the 294,000 Oregonians in the system said any retroactive implementation would represent a breach of contract.
A Generous House Bill
Under the compromise bill, workers are guaranteed their pension accounts won’t fall below the amount accrued when the new tables are adopted July 1. That makes the plan by House PERS Committee chairman Tim Knopp m ore generous to workers than one sought by employers and Marion Circuit Judge Paul Lipscomb, who wanted no such guarantee (See Judge Blasts Oregon Pension Panel ) .
To help cover the current and future pension obligations to some 300,000 public workers and retirees, the state is scheduled to begin collecting millions of additional dollars from schools and other government employers this summer. That means those government employers will likely have to slash services to cover those additional payments if they are not overturned through a legal challenge (See OPERS Passes Pension Funding Hat to State, Local Governments ).