Two New Posts on Oregon PERS!
By Dan Re – Inrethepeople’s Blog – September 29, 2012
On September 28, 2012, the Oregonian reported that the PERS Board voted unanimously to increase PERS employer contributions by $900 million for the July 1, 2013 – June 30, 2015 biennium. During that during that two-year period school districts will be paying an average of 26.7% of their salary in PERS employer contributions.
That means that Oregon’s 900+ PERS participating employers will have no choice but to makes additional reductions in services starting July 1, 2013. For schools, class sizes will increase and teaching days will decrease resulting in a lower quality education for Oregon’s children, who are the state’s future.
Why is this happening? There is only one reason. In 1971, 25 years after PERS first came into existence, the Oregon Attorney General ruled that legislators could join PERS. From 1945 through 1970, legislators could not join PERS. Non-PERS Oregonians had independent representation in the legislature when PERS laws were made. During this period PERS benefits remained constant, 50% of final average salary after a full career.
After legislators were allowed to join PERS, the non-PERS citizens of Oregon had no meaningful representation in thePERS law making process. From 1971 to 1981, the PERS legislators more than doubled PERS benefits. Then the PERS legislators forced Oregon’s judges to become PERS members, starting January 1, 1984. Thereafter, PERS members in the legislature had 100% control over the making of all PERS laws and they used that control to make PERS funding Oregon’s highest financial priority.
Under that priority, PERS always gets paid first. When there is not enough money to fully fund PERS and maintain services to the people of Oregon, PERS gets fully funded and services get cut. That is why PERS employer rates are increasing by $900 million for the 2013-15 biennium and that is why government services will be cut back during that same period to pay for the $900 million increase in PERS funding.
If you are concerned about this PERS priority, ask the people who are running to represent you in the legislature if they are PERS members and, if elected, will they join PERS as legislators. And then ask them what they are going to do about it.
Oregon PERS hikes: Schools, governments, taxpayers will feel the pain of 45 percent rate increase
The Oregonian (as posted on OregonLive.com on September 29, 2012)
BY TED SICKINGER AND NICK BUDNICK
Redmond School Board Chair Cathy Miller choked up as she contemplated the employer rate hikes approved Friday by the board of the Oregon Public Employees Retirement System. Up to 28 fewer teachers for her 7,000-student school district would be cut — on top of 115 already trimmed in the last four years.
“We are clearly at risk,” she told the PERS board and briefly sobbed. “And if nothing changes — sorry, I’m very passionate — we’ll be forced to go substandard in either instructional time or in the delivery of instructional service to our students, and neither option, neither option is acceptable.”
The rates will amount to another net contribution increase of 45 percent next July. Collectively, the increases will cost agencies and taxpayers across the state an extra $900 million during the 2013-’15 biennium as PERS looks to dig out of its $16 billion actuarial hole. The extra contributions are expected to result in reduced services and layoffs as cash-strapped agencies cut other services to absorb the required pension payments.
One by one, public officials recited a litany of impacts of the rates set to kick in next July: lost jobs, shrinking library hours, closed schools, and fewer school days and cops on the street. They urged the PERS board to actively support a committee to tackle the issue and make significant reforms — a call echoed by outgoing PERS board chair James Dalton.
Dalton, speaking as a private individual, issued a laundry list of reforms, such as employers taking steps to prevent the padding of pension payments with overtime shortly before retirement.
He also criticized some benefits as too generous, especially for participants in the PERS money match system. “If you get inflation plus a COLA (cost of living adjustment) you’re getting paid twice for the same benefit,” he said. “That doesn’t make sense to me.” He said that while many in the audience may not agree with his specific suggestions, “I also suspect in your hearts many of you know this system is not sustainable.”
The escalating cost of the pension system has become a budget buster for many of the 900 government agencies, school districts and municipal entities whose employees are members. Net employer contributions to the system doubled in July 2011, pinching public budgets that were already under heavy pressure from the recession.
The Oregon Legislature largely ignored the funding issues in 2011. Dozens of reform bills were introduced to lower costs and long term liabilities, and almost all died in the House Business and Labor Committee without a hearing. Meanwhile, slow economic growth and poor financial markets have dashed hopes PERS would be bailed out by strong investment returns.
The rate increase comes as no surprise. Milliman, the system’s actuarial firm, has been forecasting large, successive rate increases since the 2008 market downturn lopped 27 percent off PER’s investment portfolio. It provided advisory reports last year to help employers forecast their 2013 rates. And last month it confirmed earlier estimates that systemwide, employer contribution rates will increase by 5 percentage points, from about 16.3 percent of payroll to about 21.4 percent of payroll.
School districts will be paying more — on average about 26.7 percent of their payroll starting in 2013.
Individual employer contribution rates vary widely based on the size of their individual liability, the size of their payroll and the balance of side accounts that some 140 employers established with the proceeds of pension obligation bonds they issued to prepay their pension contributions.
Government employers have collectively borrowed more than $6.5 billion, betting that they could earn more money by investing the proceeds with PERS than they paid in interest rate on the bonds. The timing worked for some employers, and not for others. But in general, the coming rate increases are larger for employers with side accounts, as the returns on accounts suffered along with the pension funds, so the corresponding offset to rates will shrink.
The rates announced Friday range between 37.4 percent of payroll for tiny, single employee agencies such as Tangent Rural Fire Protection District and 15.4 percent for the state of Oregon, which has 48,000 active PERS members. Portland Public Schools, which had borrowed money to reduce its contribution rates, will see increased costs of more than $14 million, said David Wynde, deputy chief financial officers. That’s roughly equivalent to nine days cut from the school year.
The rate increases are likely to kindle efforts in the legislature to reduce costs, either through reforms to the system or changes in the actuarial assumptions to provide some payment relief.
Pat West, a retired firefighter representing public employees on the board, said the real culprit behind the rates going up is the 2008 market crash that led the system to rely more on employer contributions, rather than stock market profits. He said there is no easy answer that wouldn’t jeopardize the system.
“I understand the push to come up with something that would have instant change in the rates for employers, but I don’t see that — with the exception of putting the system in a suspect position.”
The board also appointed 12 administrators, lobbyists and state employees to a Legislative advisory committee that will provide input to lawmakers in the upcoming session. The members split evenly between employees and employers.