by Dan Lucas
Oregon PERS Crisis 101 – Part 2: What’s causing the PERS crisis?
The retirement paid to PERS retirees
Financial studies recommend that you have a retirement income that’s 75-80% of what you made when you were working, and about 30% of that is expected to come from Social Security. The 45-50% of retirement income that’s not Social Security would then be made up of 401(k) or IRA income, company retirement plan income, etc. Several decades ago it was much more common to be working for an employer who had an actual retirement plan, but nowadays most employers just provide some sort of 401(k) contribution matching.
In their February 2011 report, PERS stated that PERS members who retired after 30 years of service had an average PERS retirement income of 77% of what they made when they were working. Combined with the 30% from Social Security, that provides PERS retirees with an average retirement income that’s 107% of what they made when they were working.
For a non-PERS retiree, if the value of their IRA or 401(k) goes down, then the amount available for their retirement goes down. Not so for PERS retirees. Losses in the market that would affect the money available to pay a PERS pension must be made up for by government employers in Oregon, who in turn get their money from taxpayers. That’s what the $16 billion unfunded liability discussed in Part 1 is. More than 90% of that $16 billion is due to PERS members who have already retired or were hired before 1996.
A 2011 report on PERS by the City Club of Portland summarized “PERS today is heavily burdened by the past. Before earlier legislative reforms, members received a generous guaranteed annual return on their burgeoning retirement accounts. Members dominated the PERS governing board, frequently crediting accounts with more than double the generous guaranteed rate, sometimes as high as 20% in a single year. Many public employees retired with PERS pension payments equaling or even exceeding their salaries at retirement, with Social Security benefits as icing on the cake”.
Another significant factor in how much PERS ends up costing employers like the Hillsboro School District is how long retirees collect their PERS pensions. PERS members hired before 1996 can retire at age 58 or even earlier with 30 years of service. PERS members hired before 2003 can retire at age 60 or even earlier with 30 years of service.
Almost everyone who can fix PERS, is on PERS
Changing PERS is not easy. With a few notable exceptions, too many governors and too many sessions of the legislature have kicked the can down the road, letting the problems grow and pushing the difficult job of finding solutions onto “someone else”. Besides the political pressures that PERS members bring to bear through their public employee unions, there’s a bigger problem: most of the people who can fix PERS, are on PERS.
In an article last December, Larry Huss laid out very well how all three branches of Oregon’s government have been co-opted by PERS.
- “The terms and conditions of [PERS] are determined by the Oregon Legislature. All of the members of the legislature are eligible to be members of PERS and most are.”
- “The administration of the PERS system falls to the executive branch (governor). The governor and all the members of his administration, including those who directly administer PERS, are beneficiaries of PERS.”
- “The judiciary, all of whom are eligible to be members of PERS – and most of whom are – determine the constitutionality of attempts to reform PERS. Twice reforms have been adopted… Twice the Oregon Supreme Court invalidated those reforms.”
Part 1 of this three-part Oregon PERS Crisis 101 series looked at “What is the PERS crisis?”, and Part 3 will look at “How do we solve the PERS crisis?” – Click here for a PDF that contains the entire 3-part series: Oregon PERS Crisis 101.