PERS Reform Not Likely In A Corrupted System

This past weekend the Oregonian carried an article about reforming Oregon’s gold-plated Public Employees Retirement System (PERS). The article was a succinct summary of the cataclysmic financial problem facing Oregon taxpayers as the unfunded future liability for PERS exceeds Oregon’s biennial general fund budget. And the article continued with reasonable estimation of the savings available through a variety of legislative and administrative changes to the current PERS system.

Unfortunately, the Oregonian article failed to identify one of the chief causes and principle hurdles to effectively dealing with the mounting financial calamity – the Oregon Supreme Court – all of whom are beneficiaries of the very system for which they have carved out a unique legal exception.

The federal Employees Retirement Income Security Act (ERISA) applies to nearly every private sector employee. As with most regulations imposed by the federal government on private employers, the federal government exempted itself from compliance and extended that exemption to state government employees.

Under ERISA, private employers cannot reduce or eliminate benefits earned by employees up to the date of a retirement plan change. On a going forward basis for future benefits, any such retirement plans can be, and regularly are, changed.

Not so with the Oregon PERS plan. The Oregon Supreme Court has ruled that state and local governments cannot reduce or eliminate benefits on a going forward basis. Of course, the court’s ruling allows state and local governments to increase or improve future benefits, which they have done regularly through collective bargaining agreements – agreements negotiated between the public employee unions and the politicians whose elections they funded.

The court claims that the Oregon constitution guarantees this right but you will strain your eyes trying to find it anywhere in the constitution – particularly if you assume – as does the court – that this “constitutional guarantee” applies only to public employees. The court’s decision, like most political decisions, is “found” in the pseudo-science of divining the “intent” of the founders of Oregon’s constitution. (You know, much like the court divining that the founders of the Oregon constitution were referring to nude dancing and live sex acts when they debated the “free speech” and “freedom of expression” clauses of the state constitution.)

The fact of the matter, as described in a well-researched and documented article by Bend attorney Daniel Re and found on, the court could have and should have recused (removed) itself from consideration of previous attempts to alter PERS and reduce the massive debt it has imposed on taxpayers. (Provisions exist in Oregon law to replace judges who have a demonstrable conflict of interest in cases pending before them.) Future reforms to the PERS system are likely to meet the same fate as previous reforms so long as the beneficiaries of PERS are allowed to pass judgement on the reforms.

The Oregonian article set forth a number of alternatives for reducing the PERS burden on Oregon taxpayers. Most of them require the cooperation of the public employee unions – never happen – or a favorable ruling from the Oregon Supreme Court – not likely given their track record.

What then can be done in light of an entrenched and protective process?

First, as in all instances, there should be an immediate cessation of the growth of the problem by eliminating the “defined benefits” pension plans and putting in place a “defined contributions” plan for future employees. Granted it does little for the current problem but it certainly reduces the burden for future generations of Oregonians who will bear the burden of the current political excesses. Because the new plan would apply only to new hires, it is beyond the “constitutional guarantees” divined by the court for current employees.

The change from “defined benefits” to “defined contributions” has a simple rationale. You cannot, with certainty, control the amount that will be paid out under a plan, but you can control, with certainty, the amount that will be paid in. Under a defined benefit plan, employees are guaranteed a payment based upon the last three, or best three years, or their salaries. Based on the United State Department of Labor, Bureau of Labor Statistics, Consumer Price Index, over the last thirty years, wages have increased by approximately two hundred eighty percent. Assuming that salaries have increased at a steady rate over the past thirty years, a simple mathematical computation would indicate that the assumed contribution rate would cover only one-half of the amount to be paid out. And if you add to that the increase of life expectancy, the amount is even less. A defined benefits plan is a license for disaster, which is why virtually every business has switched to defined contributions plans. It is also why virtually every government entity, whose decision makers also benefit from these plans, and whom are spending Other People’s Money (OPM), have declined to act with similar prudence.

The second thing that can be done is to remove future reforms from scrutiny of the Oregon Supreme Court. This can be done by utilizing the federal bankruptcy procedures. While Oregon’s politicians may be bound by the Oregon Supreme Court’s decisions, the federal bankruptcy courts are not. As with other debts, the federal courts have sufficient authority to alter and cancel burdensome labor agreements. (The bankruptcy courts don’t have the actual authority to alter an agreement; they can just withhold approval until the agreements are acceptable.)

As the Oregonian article points out, the dependency of Oregon’s Democrats on the financial resources of the public employee unions make any substantial change unlikely. Oregon’s public employee unions are in firm control of Oregon state government through a Democrat party that is bought and paid for through the largesse of nearly $80 million dollars that Oregon’s public employees unions have available every election cycle – an amount that is collected for them by state and local governments at taxpayer expense.

Oregon state government has been corrupted by the public employee unions and it will remain corrupted until something is done about the extraordinary amount of money that the public employees unions can and do pour into Oregon’s political system at all levels.