Administration May 2, 2004

Oregon Pension Cuts Could Spark Protests, Suits

February 17, 2003 (PLANSPONSOR.com) -The Oregon State Legislature's efforts to turn the state pension fund into less of an economic burden have so far gone smoothly, but officials could face protests and lawsuits if they try to cut existing workers' benefits.

Reported by

Fred Schneyer

Legislators and the unions have quickly agreed on two reforms that are expected to be signed into law: to put an 8% annual cap on the returns to pensioners’ accounts and to cut the size of the Public Employees Retirement System (PERS) board from 12 to five members. But, according to an Associated Press report, fights are expected on other PERS reform proposals, especially those reducing employee pensions.

“If they do anything drastic, we’ll turn up the heat,” Mary Botkin, of the American Federation of State, County and Municipal Employees union, told the AP. “There will be a time when we tell our people to storm the Capitol.”

The pension system is facing a $15-billion shortfall during the next 25 years. Gov.Ted Kulongoski has said reforming it is a priority as he tries to steer the state out of its economic crisis and that he won’t adjourn the Legislature until it is done.

The Tables of Life

But two proposed reforms of PERS may have to be settled in court, regardless of what lawmakers ultimately decide. The first has to do with updating the actuarial tables used to calculate retirees’ benefits. 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 and that has added to the shortfall.

The PERS board wants to update the tables as of January 1, 2004, giving current employees the chance to retire before any changes are implemented (See Oregon PERS OKs Expectancy Table Changes ). But lawmakers are considering legislation to update the tables retroactively, beginning in January of this year.Greg Hartman, a lawyer for the unions, said any attempt to update the tables retroactively would breach contract rights. “If we do see anything so drastic, you may see some major rallies (at the Capitol) and lawsuits,” Hartman told the AP.

Last month, Marion County Circuit Judge Paul Lipscomb ordered that new actuarial tables be implemented “immediately and fully.” The ruling stemmed from a suit brought by the cities of Portland and Eugene, Multnomah County and four smaller public employers. (See Judge Blasts Oregon Pension Panel ).

The state’s matching contibution

The second contentious reform proposal that may have to be settled in court relates to mandatory pension contributions. As it stands, many employees have about 6% of their salaries put into their pension accounts. Depending on the employer, the “pickup” is paid directly out of a worker’s salary or paid for by the company. When workers retire, they can take the option of the “money match,” meaning that their total account is doubled.

Employers are proposing legislation to eliminate the contribution, thus slowing the growth of accounts. They say employees would then be more likely to retire under the traditional system based on years of service and final salary instead of the money-match program, which is more costly for employers.

Unions and pensioners say eliminating employers’ contributions would be a breach of contract and renege on a promise to compensate for comparatively low salaries with a good retirement.Eliminating the employers’ contribution to PERS and updating the actuarial tables retroactively to January 1 could reduce the system’s long-term shortfall by $5 billion, said Mark Johnson, the PERS actuary.

In the meantime, many workers are making a mad rush for retirement because they are uncertain of the changes to come for PERS.In 2002, 6,809 people in the system retired. As of February 10 of this year, 2,255 already have retired, said David Crosley, a PERS spokesman.