Administration February 5, 2004

PERS Board Implements Legislative Reform Changes

May 14, 2003 (PLANSPONSOR.com) - The board of the Oregon Public Employees Retirement System (PERS) has put into place sweeping changes to the ailing pension system from a trio of new laws designed to slash worker retirement benefits and roll back employer costs

Reported by

Fred Schneyer

Based on three major PERS bill passed by the Oregon legislature and signed by Governor Ted Kulongoski (See Oregon Lawmakers Rush to Finish PERS Reform Measure ), government employers will pay an average of 7.9% of workers’ salaries for benefits as of July 1, according to a news report in the Salem (Oregon) Statesman Journal. That’s less than half the 16.5% rate projected in January, before sharply rising costs prompted lawmakers to reduce pension benefits.

State and local governments will also continue to pay another 6% of salary for those that cover the “employee contribution” instead of past salary increases.

If the legislative reforms are upheld by the Oregon Supreme Court – opponents are planning such an appeal – the package will reduce PERS’ $16-billion shortfall by $9 billion. Most of the savings will come from cutting pension benefits of current public employees while recent retirees will forfeit cost-of-living-adjustments for two or more years.

A coalition of public employee unions have already announced a challenge to House Bill 2003 and 2004 in the state’s high courtt. Many attorneys, including those advising the PERS Board and the Legislature, warn that the reform package strips workers’ constitutionally protected contract rights. If the court agrees, state and local governments would owe back payments to PERS.

The PERS package included:

House Bill 2001, which caps investment earnings at 8% on regular accounts for workers hired before 1996 until PERS erases its deficit and builds up reserves.
House Bill 2003, which shifts the 6% employee contribution to 401(k)-style accounts, waters down the 8% annual earnings guarantee for regular accounts of workers hired before 1996 and suspends cost of living adjustments (COLAs) for those retiring between April 1, 2000, and April 1, 2004.
House Bill 2004, which forces the PERS Board to adopt updated life-expectancy tables when setting pension benefits.

A Possible “Double Whammy”

PERS actuary Mark Johnson said pension charges for the state and individual local governments will vary, though the average rate will fall 8.6% from earlier projections. But some PERS Board members warned governments that projected savings may not occur, if the reform package is altered in court. And there’s a likelihood of an increase in PERS rates in July 2005. “Employers need to be aware they could be facing a double or triple whammy next time around,” board member Mark Gardiner said, according to the newspaper.

In addition, PERS won’t even account for much of its 2000 and 2001 investment losses until 2005, under a policy known as “smoothing.” In addition, PERS hasn’t billed governments for any of its investment losses in 2002.

Also this week, state officials reported that 6,302 public employees have filed to retire so far in 2003 541 shy of the 6,808 in 2002, the state’s record for an entire year. Pension system staff are swamped and haven’t been able to tell workers how they might be affected by the changes, said Dawn Morgan, PERS Board president and a state employee.