Oregon Governor Proposes Sweeping PERS Reforms

April 18, 2003 (PLANSPONSOR.com) - Oregon Governor Ted Kulongoski has proposed sweeping reforms for the state's ailing Public Employees Retirement System (PERS) including throwing out the current 8% yearly return guarantee for some members.

The plan, advanced after discussions with a bipartisan group of legislators, is scheduled for consideration next week by the state House PERS Committee, which is also slated to ponder other PERS reform suggestions, according to a report in the Portland Oregonian.

The committee this week approved a proposal to put public employees hired after July 1 in a new 401(k)-type plan instead of the traditional pension program. The bill, which now moves on to the full House, is designed to save money by reducing employers’ pension expenses.

For its part, Kulongoski’s PERS reform proposal is expected to save billions of dollars by slowing benefit growth for PERS members. PERS is an estimated $17.1 billion short of meeting its obligations during the next quarter-century, and Kulongoski’s proposal would chop more than $6 billion off that sum, according to the Oregonian.

The Kulongoski package includes:

  • Deleting the 8%-annual growth guarantee for all members hired before 1996 (Tier 1) and replacing it with an average 8% increase over the worker’s career. The PERS board credited Tier 1 members with at least 12% growth of their guaranteed accounts in seven years during the 1990s as the stock market boomed. But, with market returns now far below the 8% mark, PERS employers have had to make up the difference, which drove up their costs. The Legislature made the 8% guarantee a maximum as well as a minimum in a bill Kulongoski already signed into law.
  • Ending the practice of government employers annually putting 6% of employees’ pay in their PERS accounts. Instead, the governor would put the 6% in a separate 401(k)-type account that would rise and fall with investment returns.
  • Suspending retirees’ 2% annual cost-of-living increases between 2000 and 2004. The intent is to recapture money credited to Tier 1 members for 1999. A judge ruled in January that the PERS board credited too much of that year’s high stock market earnings to members’ accounts, but unions are appealing.

Actuary Mark Johnson told the PERS committee that several pending PERS reform bills – including one expected to get Kulongoski’s signature that would update the life expectancy tables used to calculate retirement checks – would cut the average PERS bills for employers about in half.

Public employee unions immediately blasted the governor’s plan, saying it was unacceptable to put the entire PERS money crisis on the shoulders of workers and retirees. “They can’t do this,” said Mary Botkin of the American Federation of State, County and Municipal Employees. “We’ll see ’em in court.”