Oregon Public Employers May Have to Kick in More Pension Dollars

December 11, 2002 (PLANSPONSOR.com) - Some Oregon public employers may be hit with gargantuan contribution rate increases of 70% to properly fund the Oregon Public Employees Retirement System (PERS).

Actuary Mark Johnson recommended to the OPERS board that rates for state agencies be boosted from 10% of payroll to 17.6% of payroll effective July 1, 2003, according to a report by Washington-based legal publisher BNA.

He recommended that school districts increase their pension contributions by 42%, from 13% of payroll to 18.6% of payroll. And he recommended that the judiciary system increase its pension contributions by 70% from 11.5% of payroll to 19.7 % of payroll.

The PERS board is scheduled to take action on the recommended employer rates January 14.

Bear Market Damage

The culprit as is the case with numerous other pension programs: PERS has been rocked by the often-anemic returns of a bear market.

The regular PERS account sustained its largest loss ever, 6.7%, in 2001. The year before it barely broke even.

Under current Oregon law, PERS members are guaranteed an 8% return regardless of the market conditions. Over the past few years the PERS reserve account for dealing with market swings has been depleted, so it has been up to employers to make up the difference.

The rate increases were expected, and public employers across the state are concerned about the financial impact of the added cost.

The pension rate increases will impact school districts and state agencies that have already had their budgets reduced by lagging tax revenues. The new higher rates will cost school districts an extra $120 million annually, said Jim Green, senior legislative advocate with the Oregon School Boards Association, according to the BNA report.

PERS Controversy

The increase is also expected to fuel a growing demand for PERS reform this coming legislative session, BNA said. The system has been criticized for being overly generous to public employees and too costly for taxpayers.

PERS has generated its share of controversy in recent months:

  • In a lawsuit filed by several local governments over PERS employer rates, an Oregon state judge blasted the fund for its “improper management.”   Circuit Judge Paul Lipscomb ordered PERS to recalculate how stock market profits from 1999 were divided up so more goes into contingency reserves instead of into pension accounts. (See  Judge Blasts Oregon Pension Panel ).
  • In August, the PERS board agreed to scrap its 25-year-old life expectancy tables. Use of the out-of-date tables cost the fund $135 million and tacked another $1.5 billion to the PERS shortfall, officials said. (See Have Oregon PERS Tables “Out-Lived” Their Usefulness? ).

PERS represents nearly all nonfederal public employees in Oregon. It has $36 billion in assets and provides retirement benefits to 81,000 members or beneficiaries.