The state House of Representatives’ PERS Committee gave a thumbs up to HB 2003, which ends lucrative pension benefits delivered to public workers while amassing a whopping $16-billion shortfall, according to a Salem (Oregon) Statesman Journal news report. The committee approved the bill by a seven to one margin.The bill heads to the full House, where it is widely expected to pass.
House Bill 2003 would cut the PERS shortfall by $6.6 billion, saving state and local governments $338 million a year in benefit costs. “We’re trying to put the genie back in the bottle,” Representative Tim Knopp, House Majority Leader and PERS Committee Chairman, told the newspaper. Not changing the state retirement system could well propel Oregon local governments into bankruptcy in the next few years as their PERS costs skyrocket, he said.
The legislation combines proposals made by local governments and Governor Ted Kulongoski (See Oregon Governor Proposes Sweeping PERS Reforms ) that would:
- phase out the Money Match option, in which worker accounts are matched by employers at retirement. Most mid-career workers would retire instead under the traditional formula.
- water down the “8% guarantee.” That provision guaranteed that worker accounts would grow at least 8% a year from market earnings, even when the stock market was down, for workers who joined PERS before 1996. As suggested by Kulongoski, workers instead would be assured that their accounts don’t fall in value.
- end “employee contributions,” which put 6% of worker salaries into pension accounts. That money, mostly paid by employers, would instead go into a 401(k)-style plan for the next two years.
- halt new contributions into variable accounts. Those allow workers to invest some of their accounts in a riskier, all-United States stock portfolio.
- freeze pensions for those retiring since February 2000 to make up for what a judge deemed was excessive contributions from the 1999 stock market earnings into worker accounts. Retirees wouldn’t get their cost-of-living-adjustments for a few years.
The impact of HB 2003 would vary widely and dramatically. Workers nearing retirement, with hefty pension accounts, likely wouldn’t see huge losses. But many younger workers could lose $100,000 or more during their lifetime.Those with up to 10 or 15 years in PERS likely would retire under the traditional formula rather than the Money Match plan.
The formula is designed to produce pensions of 50% of workers’ final salaries after 30 years in the system. By contrast, the 1990s stock market boom caused many worker accounts to balloon, enabling the Money Match to produce pensions that topped workers final salaries after 30 years on the job (See Generous PERS Pensions Could Fuel Reform Plans ).