It’s time to make PERS sustainable

by Senator Doug Whitsett

Failure to make changes in PERS could result in the collapse of the retirement system and the loss of retirement benefits to all those who have earned them

More than 95% of Oregon’s current and former public employees participate in the Public Employees Retirement System.

PERS has more than 330,000 members that have earned retirement benefits. About 170,000 members are currently working for the state or one of its political subdivisions. Nearly 120,000 members are already drawing retirement benefits. Another 40,000 members, who are no longer working for the governments, have earned benefits payable when they reach retirement age.

The money required to pay these current and future benefits comes primarily from two sources.

The PERS Trust Fund is the System’s reserve account that has been built up over more than sixty years to help pay benefits to those who have retired. About seventy percent of annual PERS revenue is derived from the return on investment on that reserve fund account. The other thirty percent of annual revenue comes from employer and employee contributions to the fund.

As late as 2007, the PERS obligation to pay retirement benefits was considered fully funded with more than $60 billion in reserves. Unfortunately, much of that reserve fund was invested in volatile stocks, real estate investment trusts and even in derivatives.

I was one of a few Legislators that expressed deep concern regarding the potential volatility of those investments during the height of the investment bubble in 2006 and 2007. We were worried that the markets were unsustainable. We counseled those responsible for investing the retirement funds to reinvest much more of the trust reserves into safer, more stable and more conservative investments. Our advice was uniformly disregarded.

The PERS Trust Fund subsequently lost about $18 billion during the 2008 market crash. It currently remains underfunded by as much as $16 billion as the direct result of those losses.

Originally, PERS was structured so that both the employing government agency, and their employees, each paid an amount equal to six percent of the employees’ income into the PERS Trust Fund.

Over the years, most government employers have made collective bargaining concessions that have resulted in the government employers paying both their six percent and the employees’ six percent of the PERS contribution.

This has been called the six percent pick-up.

Today, more than seventy percent of all Oregon public employees, including all state employees, have their entire pension contribution picked-up and paid for by their employers. The employer is also responsible for paying all other costs of maintaining the retirement system.

This means that the entire cost of retirement benefits is ultimately paid by Oregon taxpayers for seventy percent of PERS covered employees. The remaining thirty percent pay only six percent of their salary toward their retirement program.

In order to keep PERS solvent, the taxpayer contribution to the fund was increased by about one billion dollars during the current two-year budget cycle. For the same reason, it will be increased by about $900 million more during the next two-year budget cycle, in order to meet its actuarial liabilities.

That amount will be equal to between 26 and 27 percent of Oregon government payroll. Government employers are also obligated to contribute 6.25 percent of their employees’ wages to social security. Therefore, fully one third of Oregon government payroll will be dedicated to employee retirement contributions. This one third of payroll contribution will be required to be made each year into the foreseeable future just to keep PERS solvent.

I estimate the total Oregon taxpayer contribution to PERS during the next two year budget cycle will be well more than three billion dollars.

This bleak prediction assumes that the PERS Trust fund continues to achieve an eight percent annual return on investment. The cost of PERS taxpayer contributions may go even higher in the likely event that the investment returns are less than eight percent. That taxpayer contribution would necessarily have to increase by more than two percent for each percentage point reduction in return on trust fund investment.

This situation is clearly unsustainable.

The current estimated cost of PERS statewide contributions would fully compensate more than twenty five thousand average state employees. That is more than twenty five thousand employees, such as teachers, policeman and fireman, who will not be working, and who will not be providing critical services to the people of Oregon, into the foreseeable future.

We are certainly obligated to keep our promises to our public employees. We must, and should, pay the retirement benefits promised and earned to those employees that have already retired. We are also obligated, both morally and legally, to pay current public employees all of the benefits that they have earned to date.

But we can, and must, prospectively change the system to make it affordable and functional into the future.

At best, the status quo will ensure continuing unsustainably high costs and inadequate public services. At worst, it may result in the collapse of the retirement system and the loss of retirement benefits to all those who have earned them.

I have at least a dozen legislative concepts currently being drafted that are designed to make certain that PERS remains solvent and affordable. Several of our Republican colleagues are also having plans drafted for PERS reform.

Several of us have recognized this approaching financial wreck. We have attempted to avoid this untenable situation by introducing a number of similar measures during past legislative sessions. None of these bills have even been afforded the courtesy of a public hearing by the Democrat leaders who hold majority control of the Legislature.

It is past time to take responsibility for this failed retirement structure. We hope to work in good faith with that majority during the upcoming session to achieve changes adequate to stabilize PERS into the future.

Senator Doug Whitsett is the Republican state senator representing Senate District 28 – Klamath Falls

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Posted by at 05:00 | Posted in PERS, Public Employees Retirement System | 40 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Bob Clark

    PERS investment strategy sets up a rather dis-favorable hit to taxpayers. In good economic times, PERS approaches full funding;but in bad economic times, PERS must be funded with additional tax adders. When good times return, PERS again approaches full funding, the tax adders don’t probably go away creating a temporary set of slush funds for government to waste in inefficient ways. This is one illustration of why Ron Paul’s limited government movement has a certain following; and I would be a follower too if it weren’t for the naivety of his national security position.

  • dg

    Actually the best solution may simply be to phase out PERS: don’t allow any new employees in. Start a new system for new employees. PERS has a roller coaster history in funding. When the stock market is high, it looks well-funded. When it tanks, so does PERS funding ability. The stock market has relatively recovered from its tanking of a few years ago. This would be the most advantageous time to liquidate stock assets and minimize the future funding problem. To stop the roller coaster ride, end PERS by putting all new employees into a new program – self funded as private retirement plans are.

    • David from Mill City

      They have done this twice already. All current employees are participating in Tier III a 401k like program. But those that were hired while Tier I and II were in effect are still entitled to the benefits they earned.

  • David from Mill City

    Regarding the 6% pick-up. In those cases where the public agency agreed to pay the employee’s 6% instead of a 6% pay increase, the public agency saves money. That is because wages are subject to Social Security and Medicare taxes which the employer has to pay while contributions to retirement programs. While that 6.5% of 6% of a single employee’s wages is not a lot of money, when multiplied by all public employees it is significant. And as many of the contracts that contained a clause that should the public agency stop paying the employee’s 6% PERS share the employees get a 6% raise.

    • St. Rep. Dennis Richardson

      It is true that in 1979 the 6% pick-up was agreed to by the State in lieu of a pay raise for 1979-81, in the State Budget for the following biennium (1981-83) the public unions negotiated hard on the fact that the state employees had not received a pay raise in for more than two years. The result was a pay increase totaling 15.3%. Unfortunately, even though a higher than usual 15.3% pay raise was given to make up for the lack of one in 1979-81, the 6% pick up was not revoked and has continued for the past 30+ years.

      • 3H

        Except gross pay wasn’t raised, but take home pay was. All subsequent pay raises have been based off of that lower base pay than it otherwise would have been had an actual increase in base pay had been given, yes?

        And when you turn the clock back, how are you going to compensate employees how will then be earning less than they otherwise might have been?

        What are the chances, if you are successful, of getting the public employee unions to go along with a new plan, or an innovative idea, if it will come back to bite those employees later?

        • HBguy

          Reset public employee pay to what other comparable employees make in other comparable states, then get rid of 6% employer pickup. In my field, public employees make substantialy more than private sector. They wouldn’t want to be compared to private sector.

        • conservatively speaking

          @3H – did you ever listen to Bob Tiernan back in the 90’s or do you even give a rat’s sass about common sense and sensibility? en. Bob_Tiernan

      • oregongrown

        St Rep Richardson:

        Re: “15.3% pay raise was given to make up for the lack of one in 1979-81, the 6% pick up was not revoked and has continued for the past 30+ years.”

        Yeah, those pesky details that everyone in government that was supposed to be looking out for the people forgot.

  • oregongrown

    Fact is, while I appreciate Whitsett’s attention to this very serious matter, what he’s proposing is not near enough.

    PERS costs have doubled in this budget; they are going up another whopping 45% in the next budget. How can anyone think these numbers don’t decimate our budget.

    And how did we get here? Perversion after perversion of PERS, making it sweeter and sweeter for recipients than was ever intended.

    But Whitsett and all of the PERS Tier 1 beneficiaries insist they should not not be touched. Why not? There is such a long list of crap loaded on top of crap, loaded on top of more crap, that it all adds up to one big swindle on Oregonians. We have been fleeced. We have been embezzled up the wazoo.

    Here’s the list of how well the “civil servants” have taken care OF THEMSELVES.

    PERS has been corrupted over time with a systematic, methodical fleecing of taxpayers, all done by governors and legislatures elected by unions, the past three decades and beneficiaries of PERS making decision after decision to enrich themselves.

    I mean really, whoever thought these exorbitant money grabs could be sustained?

    PERS Tier 1:

    1) 8% guarantee, no matter what. Has anyone looked at their rate of return in the market? On CD’s? Who came up with this?

    2) Double Your Money Match- Sounds like a casino game and
    that’s just the jackpot return these people get. Who came up with this?

    3) Basing pension payouts on only the last three years of salary- the three highest paid years instead of over the total number of years worked.

    4) Able to bank all the sick time they want and make it into a residual that just keeps paying as long as they live. Hard to tell how much this adds to the payout but based on one retiree, he is getting 13% more, just for banked sick time, for decades. Who came up with this?

    5) Able to load up overtime, even when it’s not needed, and
    taxpayers not only pay bloody more than they should for the actual time, but then get blasted with another huge residual that will be owed for decades. Who came up with this?

    6) Able to add thousands more per annual payouts doing the
    same thing done with sick pay and overtime, with vacation time, boosting pensions by huge percentages.

    7) Allowing PERS members to bail out in a high stock market
    year and leave the downside for taxpayers to make up. Who came up with this?

    8) PERS members retire 10 years before the private sector. And why is that? Except for police and firefighters, which require physical activity, why are government employees across the board able to do this, when life spans have increased?

    9) How many PERS retirees pay no Oregon income tax?

    10) PERS COLA- 2% every single year

    11) Add in Double Dipping (keeping their lucrative govt job while at the same time getting paid their pension!) by thousands, and we see the most abused, corrupt retirement system that could ever be perpetrated on citizens.

    Right now, 86% of the 117,005 retirees are PERS Tier 1. There is still an additional 74,000 Tier 1 members that have yet to retire. And they will. Very Soon. The horizon for record breaking retirements is now.

    If we add them in 101,000 + 74,000 = 175,000; so if there
    are 117,005 retirees now then, very soon there will be 191,005, and 91% will be Tier 1. So, not only will the pool of retirees grow by a gargantuan 63%, of that new total, 91% will be Tier 1, rather than the 86% currently. This means IT WILL GET WORSE BEFORE IT GETS BETTER.

    I wish the current governor would read the Decade of Deficits Report. It doesn’t appear that he has.

    What Whitsett is proposing is not near enough. He and the Gov should look to Rhode Island. RI has a Democratic State Treasurer and still pushed through transformation that saved more cities from going bankrupt (Central Falls, RI already did); it included a reduction in benefits to CURRENT RETIREES.

    Re: “We are certainly obligated to keep our promises to our public employees”

    Wrong. I didn’t make these BS promises based on vapor. This is a very well orchestrated swindle and it needs to be acknowledged as such.

    I don’t care if PERS goes bankrupt. We don’t owe these PERS Tier 1 swindlers this money. We owe them a FAIR retirement, not 150%, 200%, 300% of what their final salary. We don;t owe them huge residuals for banking sick time, when it was given as a wonderful benefit so those that when they were sick could stay home and get well, and get paid. They take that benefit and stick it to us. They’ve done nothing but stick it to us.

    Again let PERS go bankrupt.

    • David from Mill City

      You are correct Tier I PERS is/was a really bad deal. Unfortunately, an offer and an acceptance equals a contract. And as the terms of a contract can only be changed by the mutual agreement of all parties, we are stuck with this very bad bargain.

      So like it or not we owe all current and future Tier I retirees the pension they were promised when they agreed to work for the state.

      Regarding what Rhode Island did, first let me point out that we are in Oregon not Rhode Island and that the Oregon Courts have already ruled on PERS. Second, Rhode Island’s actions had a secondary effect, it established that RI can not be trusted to keep its word. I sincerely hope Oregon will not go down that road.

      I have been following the PERS issue for some time and I have not seen a case made that PERS Tier I was the result of a actual swindle. So if you have evidence that it was the result of a swindle please make your case.

      • Jennifer Jay

        1)Who represented the tax payers when the Tier I plan was written? You can’t claim that anyone who was going to receive the benefits would fairly represent the private tax paying sector.

        2)The Oregon Judges who ruled on PERS were/are in line to receive their PERS when they retire. How could they not be bias? The ruling should have been examined by another state’s court.

        3)When a private entity makes a financial blunder it goes bankrupt and the doors close. Government entities don’t, they shuffle the costs around and claim they are desperate and reach for more tax money. The average Oregonian doesn’t have a clue about the actualized liability the agencies pay and then there is the Pension Obligation Bond agencies also pay into. The Oregon Tax payer is being fleeced and it will all crash just like every other Ponzi scheme eventually does.

        Was the initial intent to swindle the public? I doubt it, but has greed and selfishness kept the government workers from agreeing to a reasonable adjustment – yes.

  • conservatively speaking

    Insofar as PERS has contended – the proceedings have not ended – butt-ugly exacerbated.

    WOL…Doug MacArthur could have his sway and sent the rats morasses, vis a vis, OEA, SEIU, AFSCME and their governmentium co-snortz in das Katzhabering executive blanch, Judical pal-Joeying judicial raunch, and LegisHooter titty-titty thank you gents and mesdames, abong the ILWU – all, chucked overboard into “Toke Yours I Gotz mineTomaine Bay” – and sent out to see on an outgoing wave of diss-full tidings. Amen!

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