PERS reform: 'Catastrophic is probably not too strong a word'
SALEM, Ore. (AP) — Oregon lawmakers who want to lower the costs of pension benefits for government employees face a difficult dance to craft changes that produce meaningful savings without reneging on iron-clad promises made to workers in years past.
A number of ideas have been suggested, but any significant legislation that makes it through the Legislature and earns the governor's signature is likely to land quickly in a courtroom, where previous attempts to cut pension costs have been overturned.
The push to cut pension benefits is driven by a steep rise in the burden on taxpayers to make up for investment losses in 2008, when the Great Recession eroded 27 percent of the pension fund's value. It left an unfunded liability that was last measured at $16 billion at the end of 2011.
Government agencies will spend $3 billion on pensions in the next two-year budget, up 45 percent from what they're paying now.
The added costs will directly contribute to larger class sizes and less money available for a host of other public services, government officials have said. The Oregon School Boards Association has promised to push for changes so districts can spend less money on retirement benefits for their employees.
"Catastrophic is probably not too strong a word," said Republican Rep. Mark Johnson of Hood River. "There is no fat left in any of those budgets. It's strictly coming out of classrooms, it's coming out of personnel."
Johnson, who is also a school board member, said he'll introduce a bill to curb pension costs next year. Democratic Gov. John Kitzhaber also has said he'd like to see changes.
On average, government employers will pay 21 percent of their payroll toward pensions, up from 12 percent before the recession.
Public employee unions say legislators need to be careful not to renege on decades of promises to workers.
Specific proposed legislation hasn't yet been made public, but discussion has centered on a few proposals:
- Capping the annual cost-of-living increases, allowing them to apply only to the first $24,000 of annual income. The average retirement benefit is just under $26,000 annually, so many workers would be unaffected. In a 2010 analysis, Public Employees Retirement System officials estimated the change could save $576 million for each two-year budget cycle. However, the state Supreme Court overturned a past attempt to temporarily freeze the cost-of-living adjustment.
- Ending or curtailing a common practice known as the 6-percent pickup, where government agencies pick up their workers' required 6-percent retirement contribution. PERS estimates full elimination of the pickup would save $750 million per biennium, but actual savings would be less because many employees would bargain for a corresponding salary increase.
- Eliminating for retirees living outside Oregon a supplemental pension payment intended to cover Oregon income taxes. Since non-Oregon residents don't pay Oregon income taxes, critics say it's unfair to give the supplemental payments to those retirees. PERS estimates the move would save $72 million per budget period.
Despite the loud demands for a pension-system overhaul, the political and legal path is precarious. It will require support in a Legislature that will be dominated by Democrats, many of whom were elected with significant financial support from public-employee unions that have aggressively fought cuts in pension benefits and the politicians who support them.
Proponents face a challenging conundrum. The only way to generate substantial and immediate savings is to cut benefits for existing workers and retirees, but the Oregon Supreme Court has thrown out several attempts to do that. The court in 2005 did, however, uphold some benefit cuts that the justices did not view as a contract between the state and public employees, and the proponents are hopeful they'll find more savings that pass court muster.
Becca Uherbelau, a spokeswoman for the Oregon Education Association, said any pension overhaul should meet three criteria: It should save money now, be constitutional and be fair. Legislators should boost school funding and overhaul the state tax system, Uherbelau said "but we recognize PERS has to be part of that discussion."
The teachers union is the state's largest public-employee group.
Presumptive House Speaker Tina Kotek, a Democrat, laid out the same criteria for PERS legislation, saying the savings must be immediate, constitutional and fair.
"Our system has been well-run and well-funded," Kotek said. "But like other parts of the country, because of the collapse of wall street four years ago, we're dealing with the increased liability issue."
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Follow AP writer Jonathan J. Cooper at http://twitter.com/jjcooper .
Copyright 2012 The Associated Press
The article all but admits that the Democrats and the public employee unions have their hands in each other's pockets. I would be a much larger opponent of PERS reform because people who were made promises deserve them, but, my wife works 60+ hours a week as a human resource manager for the state and since she's salaried, she gets no overtime or other perks. The talk radio people AND the unions make it sound like SHE'S the problem.
Odd that PERS has not made up the losses since the market has largely recovered and is back to pre-crash levels.
@Alan Peterman One of the principles of investing is the need to substantially out perform the market whenever losses occur to return the capital value to its original level. The problem with PERS, or any other investment for that matter, is that when a portfolio takes a big hit that portfolio is substantially diminished. Consequently, even when markets recover the rate of gain is reflected in a smaller investment portfolio. The end result, all things being equal, is still a loss because the return is on a smaller investment. Assuming a static investment, $1 in a PERS account at the end of 2008 is just now getting back to be worth a dollar. That effectively means there has been zero growth for four years. Meanwhile PERS continues to use an 8% ROI for actuarial purposes, which is ludicrous. Four to five percent ROI would be a much more realistic figure.Â
What wonderful leadership this state has had since..ohhh..pretty much since Tom McCall left office. Really, can you think of one great governor since Tom McCall? This state is becoming a joke. When you have over 50 students in a class (ISB Beaverton) and former state employees threatening legal fights if they don't continue to get theirs, then ____ them. Greedy ____s. How can they expect 8% return, and to have their losses subsidized when the market nosedives? What a great program that is. The stockmarket..just like Las Vegas..is a risk. There is no guarantee. It doesn't work like Joe Pesci and the Banker in Casino. I can't believe the leaders of this state signed off on that crap. Wait..yes I can. And now the kids of this state are suffering, while the state retirees are basking on the beaches in Miami, Mexico, and Hawaii. Lovely..
 @KillsGermsOnContact Deals made with someone elses money, made in the best of times to secure a unions backing, the system is a complete conflict of interest.
The party isnt over yet, but its not far off.
I hope all you Civil 'Servants' who failed to ever make any reasonable compromise are prepared for what you have sown.
 @Jack_Bauer Jack are you ready for a failing infrastructure system? No roads... no water... no sewer... no schools, and in some cases no garbage pickup? No police... no firemen? All "Civil Servants". You make it sound like we "Servants" are your slaves.
 This "Servant" has to give up 7 so called furlough days every year. Hasn't  had even a cost of living raise in 4 years, and takes home far less money at the end of the month than the same person in a comparable private sector job. I am forced to pay $43.00 a month to a union that so far has done nothing but get a socialist elected to the white house... all on my dime.
 These "Benefits" were factored into our wage... if those are taken away then expect to pay us higher wages. We won't work as slaves.
 @Jack_Bauer Oh I am sure they are, after all where did they stick all that money? in a Switzerland account I bet.
So our government lets those on wall street that concocted bad cdo's, profited huge amounts AND got bailed out by the tax payer and we blame who ????
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I guess we can't blame the bain capitols or goldmann sachs right ??
 @sargerator They're the ones who wrecked the economy but their executives are probably worth the entire state school budget in bonuses alone.
@sargerator Actually the blame lies with irresponsible investors who placed money in investment instruments they did not understand in terms of risk or function; with borrowers (mortgage) who borrowed money to live far beyond their means and could not repay; with Fannie-Mae and Freddie-Mac who blindly bought subprime mortgages which were bound to fail in great percentage; with a government who failed to see an investment sector run amok that was doomed to fail with the first hiccup; with poorly managed businesses (AIG, GM, Chrysler, etc.) who  willingly played high risk, high stakes gambling games without adequate consideration of consequences or reserves; and with a lack of regulatory oversight despite warnings from respected individuals in the industry.Â
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Everybody wants to point fingers at Wall Street but much of the problem was created outside of Wall Street and WS was only responding to the articially created demand, albeit with a never ending repackaging and resuffling of less than investment grade securities.
@sargerator ......blame George Bush. That's the popular scapegoat these days. My roses have mildew........damn that George Bush !
Retired after 25 years with the City of Portland and now I am considered "poverty level" not such good "perks" if you ask me!
 @s2dyo Our medical coverage is basically the Oregon Health Plan. My wife and I both work two jobs.... you have to if one of those jobs is with the state.
Sounds like we need to make a new promise to the state employees. A promise that if the economy gets worse, then all PERS is cancelled. This time lets make a promise that we can keep. And any state employees who don't accept what is best for the state will be fired. Let them earn a living like all the rest of the Oregonians who don't have taxpayer funded retirement programs. Get a job!
 @The Voice of Reason Ah, yes. And the literacy, scholastic aptitude and the future of Oregon school kids will be doomed.
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I remember being at OSU and the Vietnamese TA for my chemistry class, who called me "soldier boy" because he couldn't pronounce my name, marveled that American students hadn't already learned all the Chemistry 201 stuff by the end of high school, like the do in Vietnam. Which just got its first escalator about 15 years ago.
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If you don't think teachers with 50+ kids under their legal responsibility don't "have a job" you're far, far beyond the point of "reason." Wait until one of those kids assault another, chokes on a peanut, gets hurt playing football or has to take a college entrance exam. Easy.
 @The Voice of Reason Fix your own damn street... catch your own crook... put out your own fire... pick up your own garbage... teach your own curtain climbers.Â
"Our system has been well-run and well-funded," Kotek said. "But like other parts of the country, because of the collapse of wall street four years ago, we're dealing with the increased liability issue."
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Kotek doesn't have a clue. She blames Wall Street when the blame lies with those who gambled PERS money in risky investments (State employees making hundreds of thousands in wages and benefits regardless of performance). Secondly, PERS has been poorly managed for years. For decades PERS employees have continually proposed new and better retirement benefits when times were good and stock market returns exceptional and got them passed by the legislature (who is covered by PERS). Never did PERS use the legislature created reserve fund as a repository for excess gains to offset bad years in the stock market. Consequently, PERS' high risk investments came home to roost in the form of significant losses with no ability of offset those losses with previous gains. Third, PERS is banking on an annual 8% return on investment. That level of return is ludicrous. PERS should be looking at rates in the 4-5% range as long term investment returns. Fourth, all PERS employees, most legislators, and all judges are PERS members. These are blatant conflicts of interest and need to be eliminated, as should any existing with State employees who manage PERS funds.  Fifth, many problems have been rectified through PERS reforms but the legacy costs will burden the system for decades. PERS should offer buy-outs to Tier 1 retirees and employees that are incentivized to move people out of the legacy Tier 1 group, which is responsible for 75% of the long-term liability problems. Lastly, politics always interferes with efficient and effective program administration and management. It is time to remove as many political hurdles as possible to enable transition to an affordable and sustainable program. That starts with removing the conflicts of interest and consideration of privatizing the program.Â
The solutions here is as plain as the nose on the gov't face. As remarked below, the 8% growth guarantee is ridiculous and unsustainable. Reduce it to 3.5% - 4% which is more inline with laymen annual pay raises. Next, for the next 5 yrs, split the 6% between gov't and employees. That way, the employee isn't cash strapped all of a sudden and will be less likely to reduce the labor force. Then increase the employee rate each year thereafter. Finally, DO eliminate non-Oregon resident pension supplements. Oh, and noone gets more than $70,000/yr. There are too many getting 6 figures. This must stop immediately. I don't care who you are or what you did, you don't get more than $70,000. You are maxed out. No more increases. Period. This can be reexamined 10 years from now, and perhaps raised to $75K, but not before. Follow these aforementioned guidelines and the PERS will be just fine for a long time to come.
@None The average is LESS than $26,000.
@None ..........works for me. Great solutions. That's why Salem and the Governor will never do it.
If all the agencies that use PERS would make 1 simple change, millions of $ could be saved. If they would match the CONTRIBUTION $ as they are pulled from paychecks, there would be less $ to match. Currently matches are maed on the contribution & INTEREST EARNED as the $ is paid out. Not the smartest way to fund a pension.
@babeduk68 These are not factual statements for PERS. 6% goes into a 401k type account that can crash at anytime. PERS tier 1 is only (less and less all the time) earning 8%.....market may be earning way more than 8%. That would make a surplus.
Do away with PERS...We dont have the money and the promises years ago were wrong.
 @sortbait That's like saying we should do away with the VA. We didn't need one after the Civil War or World War I. Maybe all those WWII and Korea veterans were just wimps and slackers, using up the system instead of getting a job.
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We don't have the money, and, after all, they WERE government employees. Lazy and overpaid you know. It's not like most of them ever saw real combat, right?
@sortbait it is gone. There have been no new accounts for years all ready. The market bears interest on the money in the accounts.....where should the surplus go on the employees savings account they worked for?
The thing that all these comments says to me most clearly is; Oregonians cannot be trusted to keep a promise.
 @Nobody Except Oregonians didn't make any promises. Instead government officials, at no cost or risk to themselves, promised other people's money. This a is a situation known as a moral hazard.
I am a retired educator on PERS. I enjoy the benefits I have. But even I have to acknowledge that the system cannot go on the way it is. I think employees should have to pick up their 6% that is currently paid by the state. If I was still working, I would say the same thing. And they need to eliminate or reduce the automatic 8% guaranteed growth. If I were still an educator or public employee, I think modifying my PERS would be far better than being laid off and out of a job. The unions better get on board with some kind of changes or the who system will fall apart. If you don't like the system, get another job. But again, be thankful that you do.
 @peckishpete Easy for you to say, as you got your pie already.... screw all those other people.
 @peckishpeteÂ
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We at my agency had to forgo 3 years of no salary or step increases. We did so with the promise that we would get "our" 6% paid by the agency.
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Now cost of living would have been 4.5% over that time and step increases would have been 10%.
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So the agency got 8.5% more money over that time. They still get more since we collectively make less money. It will be years before the agency "breaks even" assuming the economy never recovers. If it does, they agency will be ahead indefinitely.
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Now I am not a union employee, but many here are and that was part of a contract singed. If the agency pulls that funding (at least before renegiato9ina), they will be in violation legally. Not only that, it would just be mean.
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No one here can retire on their PERS alone. Even people who contributed to it for decades. Could YOU live on $24,000-$26,000 a year? The most recent retirees often live with their children.
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So PERS is by no means "a sweetheart" deal. Not like the 90's where people retired to more money then they made working. Those people are gone from the system now (many pulled their money out).
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@Repoman I don't disagree entirely with your thinking nor am insensitive to the needs of public employees and educators. Like I said, I was one for 30 years and I got (still do) fed up with those who called overpaid, underworked, swine who feed at the public trough. But I am also realistic. In an ideal world we would have enough tax revenue to adequately fund state workers and teachers and value them for what they contribute to society. All I'm saying, if push comes to shove, people will just get laid off and those left working will be doing so in untenable working situations (e.g., 40+ kids in a classroom). All I'm saying is that having a job with benefits is a good thing to have and a lot better than being unemployed. And again, people do have choices in life. People can try to get better paying jobs with benefits. They are not forced to work for the state.Â
@peckishpete The 8% is only for tier 1. Anyone after 1996 is Tier 2. Tier 2 has no guarantee and drops with stock market. Then Tier 2 went away shortly there after. Now there is no PERS accounts for New Employees. A lot of Tier 1 people are gone or have very little in it. If market is bearing well above 8% where should the surplus go? Pensions in any job are the employees. There is less attraction for people of this country to work for government. The quality (educated) types might as well go gamble in any job for a retirement. I just think it is ammusing how many mis informed people are out there Pete.
 @peckishpete Yep my mom also has a sweat heart deal after only working 10 years as a teacher getting way more from her PERS then her SS. Great deal for those who got it but totally unrealistic and all the current teachers are now paying the price of a stupid government and unions from 30 years ago.
@FreedomRocks It would be nice to see the numbers you claim. PERS payments are based on the amount in account. There also is many penalties for less than 30 years service and age. Social Security is much the same. If you did not put much in you dont get much. Those people who fly under radar and avoid over the table pay checks dont have much in their accounts to help payments when they get older and need it.
 @Taxedstwrker Don't have exact numbers just that she put in about 5000 of her own money 35 years ago after working just 10 years. That somehow turned in a $1700/month paycheck from 62 until???
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You can't tell me that the math on that one is not really screwing the public tax payers big time.
Gee like we could not see this one coming 20 years ago and now its coming to the Federal level yet we still keep electing the liberal idiots who either don't understand math or don't care that the costs are not sustainable as long as they get theirs...
Why shouldn't Oregon PERS retirees pay Oregon income tax? Federal social security retirees pay federal income tax.
@hankhandsome We do if we live in the state and have done so for many years. It only applies to those retirees who move out of the state.
PERS employees DO pay oregon and fed taxes on their retirement income...the key word ...INCOME...you know, like "income taxes" please tell us you're joking...right ? Jeeeze !
sargegetator, you don't get me, or the reality of the law. If the PERS employees get an extra bonus from the State to cover the State income taxes they have to pay on their retirement income frome Oregon then they aren't paying the income tax. It's a wash. See?
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No hank ! Both in "in staters" and "out of staters" get the same pay. It is the "out of state retirees" that do not pay the 9% on their pension check.
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What is in controversy is that once someone has retired , they move "out of state" , therefore they don't pay oregon tax. That is what is being discused now, to tax ALL "oregon" pers pension checks at the oregon tax % whether they live "in state" or "out of state" but that gets into the issues of "taxation without representation"
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pers is not, I repeat, is NOT giving an extra 9% to oregon "in state" retirees to compensate for those drawing off of pers while living out of state !
@hankhandsome .......3 words: public employee unions.
"Our system has been well-run and well-funded," Kotek said. "But like other parts of the country, because of the collapse of wall street four years ago, we're dealing with the increased liability issue."
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Here's the root of the problem despite all the name calling! Â
In the private sector, when things went to the boneyard, people LOST their pensions. Â In the PERS sector, that retirement is backed by tax dollars, so we the tax payers are yet again on the hook for the losses suffered in the PERS investment portfolio.
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The private sector folk who lost their pensions are just SOL, but no one seems to really care about that. Â On the other hand, if we can force the tax payers to cough up for PERS well that's news worthy! Â Each sector deserved their pensions, they were earned and are due. Â However, to perch the weight of a retirement system on the already strapped tax payer is threatening to crush said tax payer. Â
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So the only thing we can reasonably hope for is this: Â In the future, the taxpayer should never again be the guarantor of market-based investments on behalf or government employees.
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It's sad, but that's the best we can hope for.
@Umhal Have you researched and seen peoples actual PERS accounts? They crashed too. Huge losses. Just because some people retired before all the problems does not mean that PERS accounts are huge. PERS is connected to stock market too. There is no PERS for new employees (for years all ready). The amount in accounts dictates retirement. If the stock market crashes our accounts drop regardless of what quite a few people assume. Tier 1 is guaranteed 8% on what is in their existing account that is not getting anything but interest. Most Tier 1 folks retired are are planning to as soon as possible. The changes in the contracts scared many out of PERS a longtime ago........which in turn caused most of the current problem.
 @Taxedstwrker  @UmhalÂ
PERS crashed and now the taxpayer will have to make up the difference unlike the private sector that just lost the money.
 @Playanekes  @RalphCramden  @Taxedstwrker  @UmhalÂ
And that is the beauty of 401k/403b/457/IRA and other self retirement plans. They belong to YOU and cannot be taken away, easily (I put in easily because the government can just come and take it all if they want to).
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Government, companies and unions will screw you every chance they get. The only entity I trust is me and my wife.
 @RalphCramden  @Taxedstwrker  @Umhal Yep. My dad was "furloughed" after 23 years so United wouldn't have to pay him his full retirement, and then after he was gone the employee union decided to gut the pensions (it's an "employee-owned company" but nobody asked him.) So, he lost most of the pension he'd been working on for 23 years but the fact is, nobody gives half a f--k about that.
@Umhal  You have a pretty clear understanding of the problem and a knack for explaining it so the masses will get it.
 @scared_citizen Thanks!  I'm here all week, and remember to tip your waitress!
@Umhal .......well said !